Goods cannot be detained under Section 129 for procedural violations like missing Form KER-1 declaration

The Kerala HC ruled that goods cannot be detained under Section 129 of CGST/SGST Acts merely for procedural violations like absence of Form KER-1 declaration. The court held that detention is only justified when goods are suspected of being liable to confiscation, which occurs when taxable supply is made with intent to evade tax. Since the petitioner's transaction did not constitute taxable supply and the required declaration was promptly uploaded upon notice, continued detention was without jurisdiction. Mere infraction of procedural rules may attract penalty but cannot justify detention of goods.

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Issues Involved:
1. Legality of the detention of goods for non-compliance with procedural rules.
2. Applicability of Section 129 of the CGST and SGST Acts.
3. Interpretation of "taxable supply" under the GST regime.
4. Jurisdiction for detention of goods in non-taxable supply transactions.

Issue-wise Detailed Analysis:

1. Legality of the detention of goods for non-compliance with procedural rules:
The petitioner, a public limited company registered under the CGST and SGST Acts, transported batteries to various tower locations without the required Form KER-1 declaration. The goods were detained by the first respondent, citing non-compliance with Rules 55 and 138 of the State GST Rules. The petitioner argued that the omission was inadvertent and that the Form KER-1 declaration was uploaded immediately after receiving the detention notice. Despite this, the first respondent insisted on payment of tax and penalty for the release of goods, leading to the challenge of the detention notice and subsequent communication.

2. Applicability of Section 129 of the CGST and SGST Acts:
Section 129 deals with the detention, seizure, and release of goods and conveyances in transit. It allows for the detention of goods transported in contravention of the Act or rules, requiring payment of applicable tax and penalty for release. The learned Government Pleader argued that detention was justified under Section 129 due to the admitted non-compliance with procedural requirements. However, the court noted that Section 129 should be read in conjunction with Section 130, which deals with confiscation and indicates that detention is intended for transactions suspected of tax evasion.

3. Interpretation of "taxable supply" under the GST regime:
The court examined the definition of "taxable supply" under Section 2(108) and the scope of "supply" under Section 7 of the CGST and SGST Acts. It concluded that only supplies made for consideration or specified activities without consideration fall within the scope of taxable supply. The transaction in question involved the transportation of goods for the petitioner's own use, without any consideration, and thus did not constitute a taxable supply. The court emphasized that the genuineness of the delivery chalan was not disputed by the first respondent, reinforcing that the transaction was not a taxable supply.

4. Jurisdiction for detention of goods in non-taxable supply transactions:
The court highlighted that detention under Section 129 is intended for cases where goods are liable to confiscation, typically involving taxable supplies made with intent to evade tax. The Central Board of Excise and Customs' FAQs clarified that mere procedural infractions do not warrant detention unless there is an intent to evade tax. The court concluded that detention for procedural non-compliance in non-taxable supply transactions is beyond the jurisdiction of the authorities, as such transactions do not fall within the scope of taxable supply under the statutes.

Conclusion:
The court allowed the writ petition, quashed the impugned communications, and directed the first respondent to release the detained goods. It held that the detention was unjustified as the transaction did not involve a taxable supply and the procedural non-compliance did not warrant detention under the CGST and SGST Acts.

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