2018 (1) TMI 1116 - HC - GST

Surgical Gloves Detention Overturned: Section 129 Violation Invalidates Seizure of Goods During Quality Appraisal Transport

HC ruled that detention of surgical gloves under Section 129 of SGST Act was illegal. The court found no valid grounds for seizure, as goods were ... Detention under Section 129 permissible only in respect of goods liable to confiscation under Section 130 - Transport on delivery challan does not amount to taxable supply while authenticity of challan is not doubted - Non-compliance with procedural rule for declaration is not by itself a ground for detention of goods - Reasons for detention must be those stated in the notice and cannot be supplemented later - Supply of goods for job-work/quality appraisal to an unregistered person is not prohibited or a ground for detention - Detention order subject to judicial review and illegal detention requires release of goods - Administrative proceedings for penalty for regulatory non-compliance may be initiated notwithstanding release of goodsDetention under Section 129 permissible only in respect of goods liable to confiscation under Section 130 - Transport on delivery challan does not amount to taxable supply while authenticity of challan is not doubted - Detention could not be sustained merely because goods were being transported on delivery challans and the declaration under the State SGST Rules was not uploaded. - HELD THAT: - Relying on the Court's prior decision in W.P.(C) No.196 of 2018, the power of detention under Section 129 can be exercised only where the goods are liable to confiscation under Section 130. Where goods are transported on delivery challans and the authenticity of such challans is not doubted, there is no taxable supply; therefore mere non-compliance with the declaration requirement in Rule 138(2) (or the analogous State rule) does not justify detention of the goods. The first reason stated in the detention notice is thus unsustainable. [Paras 4]The detention cannot be sustained on the ground of non-uploading of the declaration for goods transported on delivery challans.Supply of goods for job-work/quality appraisal to an unregistered person is not prohibited or a ground for detention - Detention could not be sustained on the basis that the consignment was intended to be supplied to an unregistered firm when the goods were sent for quality appraisal on job-work basis. - HELD THAT: - The petitioner demonstrated that the consignment was sent to three parties for quality appraisal on job-work basis, transactions which are not prohibited by the CGST/SGST scheme and are to be transported on delivery challans. Whether the recipient has registration is irrelevant to the statutory scheme in question; accordingly the second reason stated in the notice does not justify detention. [Paras 5]The detention cannot be sustained on the ground that the goods were intended to be supplied to an unregistered firm where they were sent for job-work/quality appraisal.Reasons for detention must be those stated in the notice and cannot be supplemented later - The respondent could not uphold the detention by relying on a ground not mentioned in the detention notice. - HELD THAT: - Ext.P2 (the detention notice) set out only two reasons for detention. The respondent sought to justify detention at hearing on a different defect concerning the delivery challan; however, a reason not reflected in the detention notice cannot be relied upon to sustain detention. If that alleged defect had been a cause for detention it ought to have been recorded in Ext.P2; the Court is not required to examine afresh whether the challan complied with the State rules when the defect was not pleaded as a reason for detention. [Paras 5]Detention cannot be sustained by advancing a reason not stated in the detention notice.Detention order subject to judicial review and illegal detention requires release of goods - Administrative proceedings for penalty for regulatory non-compliance may be initiated notwithstanding release of goods - The impugned detention was illegal and the consignment was ordered to be released forthwith, without precluding initiation of penalty proceedings for regulatory non-compliance. - HELD THAT: - Having found both stated grounds for detention unsustainable and that no other valid reason was contained in the detention notice, the Court held the detention illegal. The Court directed immediate release of the consignment. The Court also clarified that this judgment does not prevent the respondent from initiating proceedings for imposition of penalties under the SGST Act for any statutory non-compliance, if legally available. [Paras 6]Writ petition allowed; detention held illegal and consignment to be released forthwith; respondent free to initiate penalty proceedings if provided by law.Final Conclusion: The Court held the detention illegal as the grounds stated in the detention notice did not justify seizure: goods transported on authentic delivery challans for job-work/quality appraisal cannot be detained for non-uploading of a declaration or because the recipient is unregistered; the consignment must be released immediately, while preserving the authority's right to pursue statutory penalty proceedings for any regulatory non-compliance. Issues involved:Detention of goods under Section 129 of the SGST Act based on reasons related to transportation of goods on delivery chalans and suspicion of tax evasion.Analysis:Issue 1: Detention based on lack of declaration under Rule 138(2) of the State SGST RulesThe petitioner's consignment of surgical gloves was detained by the respondent under Section 129 of the SGST Act for not uploading a declaration in accordance with Rule 138(2) of the State SGST Rules. However, the court held that the power of detention can only be exercised for goods liable to be confiscated under Section 130 of the SGST Act. It was emphasized that there is no taxable supply when goods are transported on delivery chalans, as long as the authenticity of the chalan is not in question. Therefore, the detention based on the lack of declaration was deemed unsustainable.Issue 2: Detention based on intended supply to an unregistered firmThe second reason for detention was that the goods were intended to be supplied to an unregistered firm, raising suspicion of tax evasion. The petitioner clarified that the consignment was meant for quality appraisal on a job work basis for three parties, which is a permissible transaction. The court highlighted that under the CGST and SGST Act, goods for such purposes are to be transported on delivery chalans, and the registration status of the recipient is irrelevant. The court noted that the respondent cannot detain goods based on reasons not mentioned in the notice (Ext.P2). As the notice contained only two reasons, the court did not entertain arguments related to the preparation of the delivery chalan under the State SGST Rules. Consequently, the detention on the grounds of intended supply to an unregistered firm was deemed illegal.Conclusion:The writ petition was allowed, and the impugned detention of the consignment was declared illegal. The respondent was directed to release the goods to the petitioner promptly. However, the judgment clarified that the respondent could still initiate penalty proceedings under the SGST Act for non-compliance with the State SGST Rules if provided by law.