2018 (4) TMI 807 - HC - GST

Seizure of goods and vehicle during inter-state supply without T.D.F. Form-1 ruled illegal under Rule 138

The Allahabad HC ruled in favor of the petitioner regarding seizure of goods and vehicle during inter-state supply without T.D.F. Form-1. The court held ... Inspection, search and seizure under IGST/CGST framework - requirement of documents for inter-State movement of goods - Rule 138 (E-way rule) of the C.G.S.T. Rules - interim E-way bill regime and Central notification requirement - cross-empowerment of State authorities to enforce CGST/IGST - applicability of State notification to inter-State tradeRequirement of documents for inter-State movement of goods - Rule 138 (E-way rule) of the C.G.S.T. Rules - interim E-way bill regime and Central notification requirement - Seizure and penalty could not be sustained because on 17.12.2017 no Central notification under Rule 138 of the C.G.S.T. Rules prescribed documents (such as T.D.F. Form 1) for inter State movement. - HELD THAT: - The court held that Rule 138 of the C.G.S.T. Rules contemplates an interim prescription by the Central Government pending development of an E way bill system, and the term 'Government' therein means the Central Government. On the date of interception (17.12.2017) no notification by the Central Government under Rule 138 prescribing documents for inter State movement was in force; the E way bill system had not been made applicable then. Consequently, there was no legal requirement to carry T.D.F. Form 1 for an inter State consignment on that date, and actions taken solely for non production of such a document were without lawful basis.Impugned seizure and penalty were illegal insofar as they rested on an absence of a Central notification under Rule 138 prescribing T.D.F. Form 1 for inter State movement.Applicability of State notification to inter-State trade - cross-empowerment of State authorities to enforce CGST/IGST - A State notification under Rule 138 of the U.P. G.S.T. Rules could not be invoked to require carriage of T.D.F. Form 1 for inter State trade where only the Central Government is empowered to prescribe such documents under the IGST/CGST scheme. - HELD THAT: - The court explained that cross empowerment (authorization of State officers to enforce CGST/IGST) does not permit the State Government to substitute or extend its own rulemaking power to prescribe documents for inter State movement. Section 20(xv) of the IGST scheme and section 68 of the CGST Act (as implemented by Rule 138 of the CGST Rules) vest the prescription power in the Central Government; hence the State notification relied upon was inapplicable to the inter State consignment in question.State notification under Rule 138 of U.P. G.S.T. Rules could not form a valid basis for seizure or penalty in respect of inter State movement governed by the IGST/CGST framework.Inspection, search and seizure under IGST/CGST framework - requirement of documents for inter-State movement of goods - On the material before the court the consignment was an inter State supply with IGST charged and there was no evidence of intent to evade tax; therefore the seizure must be quashed and the goods released. - HELD THAT: - The invoice accompanying the consignment indicated movement from Uttarakhand to West Bengal and IGST at the specified rate had been paid; these facts were not disputed by respondents. Given the absence of a Central notification mandating T.D.F. Form 1 and the lack of proof of tax evasion, the court concluded that the seizure and penalty could not be sustained. The authorities remain free to investigate any allegation of fabrication of documents by appropriate process, but that allegation did not justify continued detention of the goods under the impugned orders.Seized goods to be released forthwith; seizure and penalty quashed for lack of lawful basis and absence of intent to evade tax.Final Conclusion: Writ petition allowed: impugned seizure and penalty quashed and seized goods ordered released because on 17.12.2017 no Central notification under Rule 138 prescribed carriage of T.D.F. Form 1 for inter State movement and a State notification could not validly supply that requirement under the IGST/CGST scheme; preliminary objection on availability of statutory appeal rejected. Issues Involved:1. Availability of statutory remedy of appeal.2. Applicability of Rule 138 of U.P.G.S.T. Rules 2017 and the notification issued thereunder.3. Requirement of carrying T.D.F. Form for inter-state supply of goods.4. Jurisdiction and authority of State officials under U.P.G.S.T. Act 2017 in matters of inter-state trade.5. Legality of seizure and imposition of tax and penalty under section 129 of U.P.G.S.T. Act 2017.Issue-wise Detailed Analysis:1. Availability of statutory remedy of appeal:A preliminary objection was raised by the respondent's counsel regarding the availability of a statutory remedy of appeal before the Addl. Commissioner, Grade II (Appeal) under section 107 of the U.P.G.S.T. Act 2017. However, the petitioner's counsel argued that the very basis for the impugned action was inapplicable, making the preliminary objection untenable.2. Applicability of Rule 138 of U.P.G.S.T. Rules 2017 and the notification issued thereunder:The petitioner contended that the transaction was an inter-state supply of goods covered by the I.G.S.T. Act 2017, and as per section 20(xv) thereof, the provisions of the C.G.S.T. Act 2017 were applicable. The petitioner argued that there was no notification by the Central Government under Rule 138 of the C.G.S.T. Rules 2017 specifying the documents to be carried, making the rule inoperative on the relevant date. The respondent, however, relied on the notification issued under Rule 138 of the U.P.G.S.T. Act 2017, which prescribed the requirement of a T.D.F. Form for inter-state transportation of goods.3. Requirement of carrying T.D.F. Form for inter-state supply of goods:The court noted that on the date of the incident, there was no E-way Bill System in place, nor any notification by the Central Government under Rule 138 of the C.G.S.T. Rules 2017 requiring the carrying of a T.D.F. Form. The court held that the seizure and penalty based on the notification issued under Rule 138 of the U.P.G.S.T. Act 2017 were illegal, as the notification was not applicable to inter-state trade.4. Jurisdiction and authority of State officials under U.P.G.S.T. Act 2017 in matters of inter-state trade:The court clarified that cross-empowerment under section 4 of the I.G.S.T. Act 2017 and section 6 of the C.G.S.T. Act 2017 meant that State Authorities could enforce the provisions of the C.G.S.T. Act 2017 or I.G.S.T. Act 2017, but they could not apply the provisions of the U.P.G.S.T. Act 2017 to inter-state trade. The court emphasized that only the Central Government had the authority to issue notifications regarding documents to be carried in inter-state supply of goods.5. Legality of seizure and imposition of tax and penalty under section 129 of U.P.G.S.T. Act 2017:The court held that section 129 of the U.P.G.S.T. Act 2017 was not applicable to inter-state trade or commerce. The court invalidated the seizure and penalty on the grounds that there was no notification by the Central Government under Rule 138 of the C.G.S.T. Rules 2017, and the notification issued by the State Government under Rule 138 of the U.P.G.S.T. Rules was incorrectly applied. The court also referenced a judgment by the Kerala High Court, which supported the view that the State Government did not have the power to prescribe documents for inter-state trade.In conclusion, the court quashed the impugned actions and directions, rejected the preliminary objection, and ordered the release of the seized goods. The writ petition was allowed in the aforesaid terms.