2018 (5) TMI 761 - HC - GST

Seizure of goods during interstate transport ruled illegal due to premature enforcement before E-way bill implementation

The HC ruled in favor of the petitioner challenging the detention of goods and vehicle during interstate transport. Authorities seized goods for lack of ... Requirement of documents for inspection of goods in movement under Section 68 of the CGST Act - Rule 138 interim E-way bill prescription and its locus - applicability of State notification to inter-State supplies governed by IGST Act - limitation of cross-empowerment under sections 4 and 6 vis-a -vis Rule 138 - legality of seizure and proceedings under Section 129 where prescribed document was not mandated by Central notification - validity of administrative circulars purporting to revive or enforce rescinded notificationsRequirement of documents for inspection of goods in movement under Section 68 of the CGST Act - Rule 138 interim E-way bill prescription and its locus - No requirement to carry Transit Declaration Form I for the inter State consignment on 24.03.2018 as no Central notification under Rule 138 of the CGST Rules prescribing such document was in force on that date. - HELD THAT: - Section 68 of the CGST Act empowers the Government to require prescribed documents for consignments in movement, and Rule 138 provides for an interim prescription by notification of such documents until the E way Bill system is developed. On the relevant date (24.03.2018) the E way Bill system had not been brought into force by the Central Government and no notification under Rule 138 by the Central Government prescribing TDF I or any other document for inter State movement was on record. The Central Government's later notifications fixed the E way Bill system with effect from 01.04.2018. In these circumstances Rule 138 was practically inoperative for inter State movements on 24.03.2018 and therefore there was no legal requirement to carry a Transit Declaration Form I for the consignment in question. [Paras 18, 19, 21, 27, 35]Transit Declaration Form I was not required for the inter State supply on 24.03.2018; absence of TDF I did not furnish lawful basis for seizure.Applicability of State notification to inter-State supplies governed by IGST Act - limitation of cross-empowerment under sections 4 and 6 vis-a -vis Rule 138 - The notification issued by the State under its UPGST Rules prescribing TDF I was inapplicable to inter State trade governed by the IGST Act and could not be validly invoked to seize goods transported in inter State supply. - HELD THAT: - Although officers under State Acts may be cross empowered to exercise certain powers under the IGST/CGST framework, the power to prescribe documents for inter State movement under Section 68/Rule 138 lies with the Central Government (the term 'Government' in Rule 138 is the Central Government). A State notification under its UPGST Rules purporting to prescribe TDF I for inter State consignments therefore exceeded the competence of the State in matters of inter State trade governed by the IGST Act. Cross empowerment of officers does not authorize application of State rules that conflict with or attempt to regulate an area reserved for Central prescription under the IGST/CGST scheme. [Paras 20, 21, 22, 23, 34]State notification under UPGST Rules could not be applied to compel carrying of TDF I for inter State movement; such application was ultra vires and inapplicable.Legality of seizure and proceedings under Section 129 where prescribed document was not mandated by Central notification - validity of administrative circulars purporting to revive or enforce rescinded notifications - Seizure of the goods and vehicle and the show cause proceedings issued on 28.03.2018 were illegal and are set aside; the impugned circular/notification could not lawfully revive or validate the seizure requirement. - HELD THAT: - The seizure order and consequential notice were founded on non production/non possession of TDF I as prescribed by a State notification which was not applicable to inter State supplies on the relevant date and, in any event, had been rendered ineffective by subsequent rule making chronology. The Commissioner's circular relied upon by State authorities could not revive or validate an inapplicable or rescinded statutory prescription. The driver was carrying the invoice showing inter State consignment and IGST had been charged; there was no indication of intent to evade tax. In absence of a valid Central notification under Rule 138, the seizure and penalty proceedings lacked legal basis. [Paras 31, 32, 34, 36, 37]Impugned seizure order dated 28.03.2018 and notice dated 28.03.2018 set aside; goods and vehicle to be released and any amount paid to be returned.Final Conclusion: Writ petition allowed: seizure and show cause notice quashed; goods and vehicle ordered released forthwith and any amounts paid in consequence of seizure proceedings to be refunded, the Court holding that on the relevant date no Central notification under Rule 138 prescribed the Transit Declaration Form I and that the State notification/circular could not be applied to inter State supplies governed by the IGST/CGST scheme. Issues Involved:1. Legality of the seizure order and consequential notice.2. Requirement of carrying Transit Declaration Form (TDF) for inter-State transactions.3. Validity of the notification and circular issued by the State Government.4. Jurisdiction and authority of State officials in enforcing inter-State trade regulations.Issue-wise Detailed Analysis:1. Legality of the Seizure Order and Consequential Notice:The petitioner challenged the seizure order dated 28.03.2018 and the consequential notice issued under Section 129(3) of the UPGST Act. The court found that the seizure was based on the absence of the Transit Declaration Form (TDF), which was not required under the law for inter-State transactions. The court held that the seizure and penalty imposed were 'erroneous and illegal' as there was no intent to evade tax. The court directed the release of the goods and vehicle and ordered the return of any amount paid by the petitioner.2. Requirement of Carrying Transit Declaration Form (TDF) for Inter-State Transactions:The petitioner argued that there was no legal requirement to carry TDF for goods crossing through Uttar Pradesh. The court agreed, noting that the relevant date of the incident (24.03.2018) fell before the implementation of the E-way Bill System by the Central Government on 01.04.2018. The court emphasized that the notification by the State Government under Rule 138 of the UPGST Rules was inapplicable for inter-State transactions, making the seizure based on the absence of TDF 'clearly illegal.'3. Validity of the Notification and Circular Issued by the State Government:The petitioner contended that the circular dated 06.02.2018 issued by the State Commissioner was ultra vires to the UPGST Act and Rules. The court found that the notification No. 1014 dated 21.07.2017, which required TDF, had been amended and was no longer applicable after 01.02.2018. The court held that the circular could not revive the amended notification and thus, the requirement to download TDF-I was not legally enforceable after the cut-off date.4. Jurisdiction and Authority of State Officials in Enforcing Inter-State Trade Regulations:The court noted that while State Authorities are empowered to enforce provisions of the CGST and IGST Acts, they cannot apply UPGST Act provisions to inter-State trade. The court clarified that only the Central Government has the authority to issue notifications regarding inter-State trade under Section 20(xv) of the IGST Act read with Section 68 of the CGST Act and Rule 138 of the CGST Rules. The court invalidated the State's action, stating that the State Government's notification under Rule 138 of the UPGST Rules was not applicable to inter-State transactions.Conclusion:The court allowed the writ petition, setting aside the seizure order and consequential notice. It directed the release of the goods and vehicle and the return of any amount paid by the petitioner. The court emphasized that there was no legal requirement to carry TDF for inter-State transactions on the relevant date, and the State Government's notification was inapplicable. The court also clarified the jurisdictional limits of State officials in enforcing inter-State trade regulations.