Seven Days to Reply Cannot Amount to Same-Day Confiscation

A Reply Deadline Must Provide a Real Opportunity to Defend

A show-cause notice must give the taxpayer a genuine opportunity to respond to the allegations before a decision is made. If the notice allows seven days to reply, passing the final order on the day the notice is served defeats that opportunity. The Department cannot grant time on paper and then treat the absence of an immediate reply as a reason to confirm confiscation. A reply period must be available in practice, not merely appear in the notice.

This principle was examined in M/s Shree Wires (Prop. Mitul Kiritbhai Gadhia) Versus The Deputy Commissioner of State Tax (Appeal), Division-10, Rajkot, The State Tax Officer-1, Mobile Squad, Division-9, Bhavnagar- 2026 (10) TMI 928 - GSTAT RAJKOT. The GST Appellate Tribunal, Rajkot, comprising Shri Pramod Kumar Rai, Member (Judicial), and Shri Kishori Lal, Member (Technical), decided Appeal No. APL/13/RJK/2026. The dispute concerned confiscation proceedings arising from the interception of goods transported without the appellant's invoice and e-way bill.

The Tribunal set aside the confiscation order, the consequential summary order, and the First Appellate Authority's order because the taxpayer had not received an effective opportunity to defend itself. The Tribunal remanded the matter for fresh adjudication. The distinction is important: the taxpayer succeeded against an unfair decision-making process; the Tribunal did not finally decide that the transport of goods was lawful or that no liability could arise.

Missing Transport Documents Did Not Remove the Right to Reply

Shree Wires was a registered wire manufacturer. The transaction concerned 30.28 metric tonnes of MS Round in Coil, valued at Rs. 14,01,964, supplied to M/S Motabhai Steel at Amreli. The goods were originally stated to have been supplied by M/s Meenakshi Iron & Steel Traders, Chhattisgarh, to the appellant at Rajkot under an invoice and e-way bill dated 17.04.2025.

The vehicle was intercepted near the buyer's premises at Amreli on 20.04.2025 at approximately 8:35 a.m. The driver produced the original supplier's documents for movement from Chhattisgarh to Rajkot. However, no invoice or e-way bill was produced for the onward supply from Shree Wires to Motabhai Steel. The judgment also records that Amreli was not on the Chhattisgarh-Rajkot route. The appellant generated its invoice and e-way bill at 9:42 a.m., about 67 minutes after the interception.

These circumstances required examination. The original supplier's documents and the appellant's onward-supply documents pertained to different stages of the transaction. Nevertheless, an apparent documentation failure did not dispense with the statutory hearing requirement. The Department's reason for investigating and its obligation to hear the taxpayer were separate matters. Even a serious allegation had to be decided through lawful proceedings.

The Authority Could Not Decide Before Its Own Deadline Expired

Physical verification took place on 22.04.2025. The verification report recorded the quantity and noted that the goods were being transported to a destination different from that mentioned in the invoice. The authority detained the goods and the vehicle under Form GST MOV-06, invoking Section 129(1) of the CGST Act, 2017. On 25.04.2025, the authority issued Form GST MOV-10, proposing confiscation under Section 130 of the CGST Act, 2017, and the corresponding Gujarat provisions.

The notice expressly allowed seven days from receipt to show cause. Yet it also directed personal appearance at 12:30 p.m. on 25.04.2025, the date of its issuance. The confiscation order in Form GST MOV-11 was passed that very day. Since the order recorded service of the notice on 25.04.2025, the Tribunal treated the allowed reply period as running until 02.05.2025. The Department therefore took the final decision before the taxpayer's time to respond expired.

The order confirmed a penalty of Rs.2,52,354, a fine in lieu of confiscation of goods of Rs.14,01,964, and a fine in lieu of confiscation of the vehicle of Rs.2,52,354, aggregating to Rs.19,06,672. No tax was demanded in that order. The consequential Form GST DRC-07 followed on 05.05.2025. Its later issuance did not cure the defect in the confiscation order already passed before expiry of the reply period.

A Hearing Must Be Meaningful, Not Merely Mentioned

Section 130(4) of the CGST Act, 2017 prohibits confiscation or penalty orders without an opportunity of being heard. Section 126(3) of the CGST Act, 2017 similarly provides for a hearing before imposing a penalty. The Tribunal read these provisions together and emphasised that the opportunity must be real and reasonable. A mere mention of a hearing in the notice was insufficient when the procedure followed rendered an effective defence unavailable.

The notice itself contemplated an ex parte decision if the taxpayer failed to reply within the stipulated period or failed to appear. However, the authority could not rely on the absence of objections while the reply period was still running. A taxpayer may need time to obtain transport records, explain the transaction, consult its adviser, and prepare supporting documents. Failing to file a reply immediately after receiving a notice differs from failing to reply within the time allowed.

The First Appellate Authority nevertheless concluded that the appellant had appeared and made submissions, and that participation and payment demonstrated compliance with the hearing requirement. The Tribunal found this inconsistent with the confiscation order itself: that order recorded that no objections had been filed and referred to no submission by the appellant. An appellate conclusion could not replace the missing hearing with an assumption unsupported by the adjudication record.

Payment to Release Goods Was Not Acceptance of the Allegations

The appellant paid Rs. 19,06,672 in full through Form GST DRC-03 on 25.04.2025 to secure release of the goods and vehicle. The payment was subsequently reflected in Form GST DRC-03A on 09.05.2025. The appellant stated that it had paid under protest. The Department argued that the payment amounted to an admission of the allegations in their entirety.

The Tribunal rejected that argument. A business may pay to recover its goods and vehicle while continuing to dispute the demand. Detention can interrupt deliveries, increase transport costs and affect commercial commitments. A decision to obtain immediate release does not necessarily indicate agreement with the Department's legal or factual conclusions. Payment and acceptance of liability are not interchangeable merely because they occur in the same proceedings.

The payment therefore could not be treated as acquiescence, admission of the allegations or waiver of the right to reply and be heard. The taxpayer could deposit the amount and still challenge the demand and seek a refund. This conclusion did not automatically establish entitlement to a refund; it preserved the taxpayer's right to contest the order despite having paid for release.

The Amount Alone Did Not Determine the Bench Composition

The Tribunal separately considered whether the appeal should be heard by a Division Bench, noting that the aggregate penalty and fines of Rs.19,06,672 were below Rs.50 lakh. It examined Section 109(8) of the CGST Act, 2017, read with Rule 110A of the CGST Rules, 2017, which govern matters that may be heard by a single Member.

The monetary threshold was not the sole consideration. The appeal raised questions concerning the relationship between detention and confiscation, the requirement to record reasons, the adequacy of the hearing, and the inference of intent to evade tax. The Tribunal considered these to involve mixed questions of fact and law. It therefore proceeded as a Division Bench despite the amount being below Rs.50 lakh.

This part of the decision concerns the appropriate composition of the Bench, not the dismissal of a low-value appeal. The Tribunal did not reject the case because the amount was small. A dispute below the monetary threshold may still require consideration by a Division Bench where questions of law arise. Bench allocation must therefore account for the nature of the issues as well as the amount involved.

The Procedural Victory Did Not Settle the Confiscation Grounds

The appellant raised several additional objections. It argued that, after detention under Section 129(1) of the CGST Act, 2017, the officer should have followed the notice and determination procedure under Section 129(3) of the CGST Act, 2017, rather than proceeding directly to confiscation. It also questioned the absence of recorded reasons and tangible material showing an intention to evade tax. The authorities cited in support included Synergy Fertichem Pvt. Ltd Versus State of Gujarat - 2020 (2) TMI 1159 - GUJARAT HIGH COURT, and M/s. Panchhi Traders Through Its Authorized Signatory Narendra Danabhai Daki & Raj Enterprises Versus State Of Gujarat Through Deputy Commissioner (Enforcement) & Anr. - 2025 (12) TMI 941 - GUJARAT HIGH COURT.

The appellant further relied on the original supplier's documents, the absence of a quantity discrepancy, the subsequent generation of its invoice and e-way bill, banking-channel payment from the buyer, and the claimed reporting and discharge of tax for April 2025. It maintained that the lapse was procedural and that the buyer's eligibility for ITC made the transaction revenue-neutral. These were submissions requiring examination, not conclusions finally accepted by the Tribunal.

The appeal was decided on the hearing defect alone. Consequently, the decision should not be cited as finally establishing that direct confiscation was impermissible in these circumstances, that the generation of documents after interception cured the earlier omission, or that subsequent tax payment conclusively disproved evasion. The Tribunal expressly left the other contentions and the merits open. The cited High Court decisions were part of the appellant's case; their application was not finally determined in this order.

Fresh Adjudication Must Hear the Defence Before Deciding the Outcome

The Tribunal set aside the Form GST MOV-11 order dated 25.04.2025, the consequential Form GST DRC-07 order dated 05.05.2025, and the Order-in-Appeal dated 06.11.2025. The matter was returned to the original adjudicating authority for a fresh decision, after providing sufficient opportunity to submit a written reply with supporting documents and to attend a personal hearing.

The appeal was thus allowed by way of remand, not by finally cancelling every possible liability. Although the appellant had sought repayment with interest, the operative order did not direct an immediate refund, prescribe an interest rate, or fix a refund deadline. The future outcome depended on lawful reconsideration of the allegations and defence. Neither confirmation of the earlier amounts nor complete exoneration was predetermined.

The practical lesson is clear. Taxpayers should preserve the notice, service details, hearing communications, transaction records, and payment evidence. Authorities must respect the reply period they grant and accurately record the defence considered. A notice invites an answer; it cannot become the first step in a decision already completed. Effective enforcement requires both examination of the alleged contravention and a genuine opportunity to contest it.

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