2018 (5) TMI 527 - HC - GST

Seizure of goods and vehicle for missing E-way bill before GST implementation ruled illegal

M/s Om Disposals, M/s Fenasia Ltd. Versus State of U.P. And 4 Others

The Allahabad HC held that seizure of goods and vehicle for lack of E-way bill on 17.12.2017 was illegal as no such requirement existed pre-GST ... Seizure of goods with vehicle - Post GST implementation - at the time of interception the goods were not accompanied with E-way bill-01 - contention of the petitioner is that the State authority has no jurisdiction to prescribe any documentation in respect of transaction which is covered under IGST Act - Held that: - The issue came up for consideration before Kerala, Madras and Telangana and Andhra Pradesh High Courts which have categorically held that the State Legislature or the State Government has no power to make law/rules to govern interstate movement of goods and cannot even detain a consignment for not carrying documents prescribed by them for transporting goods in the course of interstate trade. E-way bill system has been prescribed only recently by a notification of the Government of India dated 7th March 2018 whereby Rule 138 of the C.G.S.T. Rules 2017 has been amended and other Rules have been incorporated in this regard. These amendments are to come into force from a date to be specified by the Central Government - the fact of the matter is that on the date of incident i.e. 17.12.2017 neither there was any E-way Bill System 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 or any other such document in the course of inter-State supply/movement of goods, as such, the very basis for passing the impugned orders and taking action against the petitioner as impugned herein is apparently erroneous and illegal. On the relevant date i.e. 17.12.2017 there was no requirement of carrying T.D.F. Form-1 in the case of an inter-State supply of goods. In fact on the relevant date there was no prescription of the documents to be carried in this regard under Rule 138 of the C.G.S.T. Act 2017, accordingly, the seizure and penalty imposed upon the petitioners based on the notification dated 21.7.2017 issued under Rule 138 of the U.P.G.S.T. Act 2017, which was not applicable, is clearly illegal. Validity of notifications - We are faced with two judgments given by the Coordinate Benches of this Court with diametrically opposite conclusions:- a) the earlier judgment in U.P. Kar Adhivakta Sangathan [2018 (5) TMI 460 - ALLAHABAD HIGH COURT], has affirmed the notification dated 21.07.2017 issued by the State of U.P.; b) the judgment dated 13.04.2018 in Satyendra Goods Transport Corporation [2018 (4) TMI 807 - ALLAHABAD HIGH COURT], while not invalidating the notification, has effectively held that the seizure and penalty imposed upon the petitioner based on the notification dated 21.07.2017 issued under Rules 138 of the U.P. GST Rules was illegal. While one judgment seems to have not considered relevant statutory provisions, the other judgment seems to have overlooked the earlier judgment which may, otherwise, have constituted binding precedent. In such situation, it may be said that the doctrine of per incuriam applies to both judgments, though in different contexts - it would not be appropriate for us to comment on the correctness of either of the two judgments delivered by co-ordinate Benches of this Court or embark on a third independent course of our own. Judicial propriety requires us to refer the matter to a larger Bench for an affirmative pronouncement on the validity of the notification dated 21.07.2017 and the Circulars issued there-under. The goods and the vehicle are both lying seized since they were first detained by Mobil Squad Officials. In the interest of justice, we provide that the goods and the vehicle shall stand released forthwith upon the petitioner furnishing an indemnity bond for the value of the tax and penalty levied by the authorities as confirmed by the order of the first appellate authority dated 14.12.2017 - Let the papers be placed by the Registry before the Hon'ble the Chief Justice for nomination/constitution of an appropriate larger Bench for reference of the matter as mentioned. Issues Involved:1. Authority of the State of U.P. to issue notification under Rule 138 of the U.P. GST Rules.2. Jurisdiction of the State to prescribe documents for inter-State transactions under the IGST Act.3. Legality of seizure and penalty imposed for not carrying E-way bill-01.4. Validity of the notification dated 21.07.2017.5. Conflict between judgments of different Coordinate Benches.Detailed Analysis:1. Authority of the State of U.P. to Issue Notification under Rule 138 of the U.P. GST Rules:The petitioners challenged the State of U.P.'s authority to issue a notification dated 21.07.2017, which mandated the use of E-way bill-01 for goods valued over Rs. 50,000/- being imported into U.P. from outside the state. The petitioners argued that under Rule 138 of the U.P. GST Rules, the State could only regulate intra-State transactions, not inter-State ones, which fall under the IGST Act and are governed by the Central Government.2. Jurisdiction of the State to Prescribe Documents for Inter-State Transactions under the IGST Act:The petitioners contended that the State of U.P. lacked jurisdiction to prescribe any documentation for inter-State transactions. They argued that the IGST Act and CGST Act authorize only the Central Government to specify the documents required for inter-State movement of goods. This argument was supported by the definitions of 'Government' under Section 2(9) of the IGST Act and Section 2(53) of the CGST Act, which refer to the Central Government.3. Legality of Seizure and Penalty Imposed for Not Carrying E-way Bill-01:The petitioners argued that the seizure and penalty imposed by the Mobile Squad Officials for not carrying E-way bill-01 were illegal. They pointed out that the E-way bill was generated immediately after the interception, and all supporting documents were provided. The penalty was based solely on the absence of the E-way bill at the time of interception, which the petitioners claimed was not a valid ground for such severe action.4. Validity of the Notification Dated 21.07.2017:The court examined conflicting judgments from other High Courts, including Kerala, Madras, and Telangana, which had held that State Governments could not regulate inter-State movement of goods. The court also referred to a Division Bench decision of the Allahabad High Court in Satyendra Goods Transport Corporation, which invalidated the seizure and penalty based on the notification dated 21.07.2017.5. Conflict Between Judgments of Different Coordinate Benches:The court noted a conflict between two Coordinate Bench judgments: one in U.P. Kar Adhivakta Sangathan, which upheld the State's notification, and another in Satyendra Goods Transport Corporation, which invalidated the seizure and penalty based on the same notification. The court recognized the need for a larger Bench to resolve this conflict and provide a definitive ruling on the validity of the notification and the State's authority to prescribe documents for inter-State transactions.Conclusion:The court directed the matter to be placed before a larger Bench to address the following questions:- Whether the judgment in U.P. Kar Adhivakta Sangathan, which upheld the State's notification, is correct and constitutes a binding precedent.- Whether the judgment in Satyendra Goods Transport Corporation, which invalidated the seizure and penalty, correctly nullified the impact of the State's notification.- Whether the State Government is empowered under Rule 138 of the U.P. GST Rules to issue a notification prescribing documents for inter-State movement of goods.The court also ordered the release of the seized goods and vehicle upon the petitioners furnishing appropriate security.