2020 (4) TMI 493 - HC - GST

Court Upheld Tax & Penalty Order Under GST Act

The Court upheld the Ext.P3 order imposing tax and penalty under Section 129(3) of the Central Goods and Services Tax Act, 2017. It ruled that the goods ... Deemed stay against recovery on filing statutory appeal under Section 107(7) - confiscation of detained goods pending statutory appeal - release of detained goods on furnishing security under Section 129(2) read with Section 67(6) - procedure for security and release under Rule 140 of the Central Goods and Services Tax Rules, 2017Deemed stay against recovery on filing statutory appeal under Section 107(7) - confiscation of detained goods pending statutory appeal - Whether filing a statutory appeal after depositing the prescribed percentage under Section 107(6)(b) creates a deemed stay of recovery under Section 107(7) that precludes initiation of confiscation proceedings under Section 130. - HELD THAT: - The court held that payment of the stipulated amount under sub-section (6) of Section 107 (10% in the present case) and the institution of the statutory appeal attract the deeming provision in sub-section (7) of Section 107, which stays recovery proceedings for the balance amount. While that stay operates, the contingency in sub section (6) of Section 129 that would permit confiscation does not arise. Consequently, proceedings for confiscation under Section 130 cannot be proceeded with until disposal of the statutory appeal where the requisite deposit and appeal are in place. The court clarified this point to the extent of overriding the Single Judge's view that non-furnishing of security alone would permit confiscation. [Paras 7, 8]Deemed stay under Section 107(7) prevents confiscation proceedings under Section 130 until disposal of the statutory appeal where the appellant has complied with the pre requisite deposit.Release of detained goods on furnishing security under Section 129(2) read with Section 67(6) - procedure for security and release under Rule 140 of the Central Goods and Services Tax Rules, 2017 - Whether the detained goods must be released pending disposal of the appeal by reason of the deemed stay of recovery. - HELD THAT: - The court rejected the appellant's contention that the stay of recovery alone mandates release of goods. Section 129, as read with Section 129(2) and the applicability of Section 67(6), conditions release on compliance with those provisions; the specified procedure for furnishing security is provided by Rule 140 of the CGST Rules, 2017. Therefore, absent payment of the full tax and penalty or furnishing the prescribed security as mandated by the statutory scheme and rules, the detained goods cannot be ordered released merely because a deemed stay on recovery exists. [Paras 9]Goods are not liable to be released pending appeal solely by reason of the deemed stay; release requires compliance with the security/payment conditions prescribed under Section 129(2) read with Section 67(6) and Rule 140.Final Conclusion: The writ appeal is disposed of by clarifying that (a) a statutory appeal accompanied by the prescribed deposit creates a deemed stay of recovery and precludes confiscation proceedings until the appeal is decided, but (b) release of detained goods pending the appeal is not automatic and is permissible only upon compliance with the statutory/security conditions and rules; liberty is reserved to seek release by the methods indicated. Issues:Challenge against Ext.P3 order imposing tax and penalty under Section 129(3) of the Central Goods and Services Tax Act, 2017.Interpretation of provisions under Section 107 and Section 129 of the Act.Release of goods detained under Section 129(1) pending disposal of appeal.Analysis:The petitioner challenged the Ext.P3 order imposing tax and penalty under Section 129(3) of the Central Goods and Services Tax Act, 2017. The contention was that the goods detained were 'promotional materials' not intended for sale, thus not attracting tax liability under Section 7 of the GST Act. The petitioner had filed a statutory appeal under Section 107 of the Act, paying 10% of the disputed tax and penalty, satisfying the prerequisite condition under Section 107(6)(b). The petitioner argued that the balance amount should be deemed under stay as per Section 107(7), seeking release of the goods without further confiscation steps.The respondents contended that since the tax and penalty were not paid as per Section 129(3), the goods were liable for confiscation under Section 130. They argued that release pending appeal could only happen if the appellant furnished a Bank Guarantee for the entire tax and penalty determined. The Single Judge found that mere pendency of an appeal did not warrant release without security, directing the appellate authority to dispose of the appeal within three months. The appellant was allowed to seek release by providing a Bank Guarantee for the tax and penalty imposed or wait for confiscation proceedings.The appellant argued that confiscation proceedings could not proceed due to the deemed stay under Section 107(7) after complying with Section 107(6). The Court agreed, stating that as long as the stay existed, confiscation proceedings under Section 130 could not proceed until appeal disposal. The second contention was about releasing the goods pending appeal, which the Court rejected, stating that compliance with Section 129(2) and Section 67(6) was necessary for release. Without furnishing security or paying the tax and penalty, goods could not be released. The writ appeal was disposed of, granting liberty to the appellant to seek methods for release of the goods as mentioned.