2019 (12) TMI 1050 - HC - GST

Court quashes tax demand for procedural breaches, emphasizes fair hearings

The court quashed the tax and penalty demand due to procedural breaches, directing authorities to provide a hearing opportunity to the petitioner. The ... Detention and seizure of goods in transit - pre-determination notice and opportunity of hearing before levy of tax and penalty - release of seized goods subject to payment or security - inspection of goods in movement - application of Section 129 - detention, seizure and release of goods in transit - application of Section 68 - inspection of goods in movement - provisional demand not substituting for adjudicationPre-determination notice and opportunity of hearing before levy of tax and penalty - application of Section 129 - detention, seizure and release of goods in transit - provisional demand not substituting for adjudication - Validity of the order of demand of tax and penalty passed without issuing notice and affording opportunity of hearing - HELD THAT: - The Court held that while the State authorities have power to detain or seize goods in transit and to release them on payment of tax and penalty or on furnishing security, sub-sections (3) and (4) of Section 129 require the proper officer to issue a notice specifying the tax and penalty payable and to grant an opportunity of being heard before determining tax, interest or penalty. An order demanding full tax and maximum penalty as a pre-condition for release, passed without notice and hearing, breaches these requirements. The impugned order titled 'Order of Demand of Tax and Penalty' was thus quashed because it was made without complying with the mandatory notice and hearing obligations under Section 129 and could not be treated as a substitute for adjudication determining tax and penalty after hearing. [Paras 7, 11, 12, 13]The order of demand dated 25.10.2018 was quashed for failure to issue notice and afford the petitioner an opportunity of hearing before determining tax and penalty.Detention and seizure of goods in transit - inspection of goods in movement - application of Section 68 - inspection of goods in movement - Lawful scope of powers to intercept, inspect and detain goods in movement under the GST scheme - HELD THAT: - The Court observed that Section 68 permits the Government to require documents and their validation during movement of goods and authorises proper officers to inspect conveyances and documents. Section 129 empowers detention or seizure where goods are transported in contravention of the Act or rules, and specifies modes of release (payment of tax and penalty or furnishing security). These statutory powers permit detention and conditional release to protect revenue, but do not permit pre-adjudicatory fixation of tax and penalty without the procedural safeguards of notice and hearing. [Paras 8, 9, 11]Authorities may inspect and detain goods under Sections 68 and 129, but must follow the procedural safeguards in Section 129 before determining tax and penalty.Provisional demand not substituting for adjudication - release of seized goods subject to payment or security - Remedial directions for further proceedings where the petitioner has already deposited demanded amount and goods have been released - HELD THAT: - Although the petitioner had deposited the amount and obtained release of goods, the Court moulded relief to secure the statutory right to be heard. The respondents were directed to issue a notice giving four weeks to the petitioner to respond; the petitioner to file written opposition within that period; and the competent authority to pass a speaking order within four months. The deposited amount was to be adjusted against any final tax/penalty, and any partial or full withdrawal of the demand would attract refund with statutory interest. These directions effectuate fresh consideration and adjudication in compliance with Section 129's procedural mandates. [Paras 13, 14]Proceedings remitted for issuance of notice, opportunity of hearing and fresh speaking adjudication within stipulated timelines; deposited amount to be adjusted or refunded with interest as appropriate.Provisional demand not substituting for adjudication - Maintainability of writ petition despite availability of appellate remedy where mandatory statutory procedure was not followed - HELD THAT: - The Court found that because the impugned order violated the mandatory procedural requirements of Section 129(3)-(4), the writ petition was maintainable notwithstanding the existence of an appellate remedy. The fundamental breach of procedure entitled the petitioner to be heard in this Court and precluded dismissal on the ground of an alternative remedy alone. [Paras 13]Writ petition entertained and adjudicated despite availability of appellate remedy because of non-compliance with statutory procedural safeguards.Final Conclusion: The High Court quashed the order of demand of tax and penalty made without notice and hearing, directed respondents to issue notice and afford four weeks for response, required a speaking order within four months, and ordered adjustment of the amount already deposited with refund (with interest) if the demand is reduced or dropped. Issues:Challenge to detention and seizure of goods by tax authorities without proper hearing and demand of tax with penalty without opportunity of being heard.Detailed Analysis:1. Challenge to Detention and Seizure of Goods:The petitioner challenged the action of the tax authorities for detaining the goods, specifically TMT Bars, being transported within the State. The petitioner alleged that the goods were detained illegally without proper authority and were released only after paying an illegal tax demand with penalty raised by the respondents.2. Legal Background and Facts:The petitioner, a registered dealer under the GST Act, had purchased TMT Bars and was transporting them with all necessary documents. The authorities intercepted the transport vehicle, seized the goods, and raised a tax demand with penalty, compelling the petitioner to pay to release the goods.3. Unlawful Action by State Authorities:The petitioner contended that the actions of the state authorities were illegal and unlawful as the goods were properly documented and taxed. The authorities demanded tax with penalty without providing an opportunity for the petitioner to be heard.4. Judicial Analysis of Legal Provisions:The court analyzed Sections 68 and 129 of the Tripura State Goods and Services Tax Act, 2017. Section 68 deals with the inspection of goods in movement, while Section 129 pertains to detention, seizure, and release of goods in transit. The court highlighted the conditions and procedures outlined in these sections for detaining and releasing goods.5. Lack of Opportunity of Being Heard:The court emphasized that before confirming a tax demand and imposing a penalty, the petitioner must be given an opportunity to be heard. The authorities acted unlawfully by demanding full tax with penalty without granting the petitioner a hearing, which is a violation of the statutory provisions.6. Court's Decision and Relief Granted:The court quashed the order of demand of tax and penalty dated 25.10.2018 due to the breach of procedural requirements under Section 129. The court directed the authorities to provide a notice of hearing to the petitioner, allowing them to respond within a specified period. The competent authority was instructed to pass a speaking order within four months, and any amount deposited by the petitioner would be adjusted accordingly.7. Conclusion:The petition was disposed of with the court providing relief to the petitioner by ensuring proper procedural compliance and granting an opportunity to contest the tax demand with penalty. The judgment highlighted the importance of following due process and providing a fair hearing before imposing tax liabilities and penalties.