2020 (11) TMI 916 - HC - GST

Court Validates Respondent's Authority Under CGST Act, Emphasizes Proper Procedure for Confiscation

The court found that the 1st respondent was legally authorized to pass the impugned proceedings based on a Gazette notification. It clarified that ... Confiscation under Section 130 of the CGST Act - detention, seizure and release under Section 129 of the CGST Act - proper officer authorization for interception under Section 68 - e-way bill and Rule 138/138A compliance - requirement of recording reasons when invoking Section 130 at threshold - principle of natural justice in tax confiscation proceedingsProper officer authorization for interception under Section 68 - Whether the 1st respondent was authorised to pass the impugned proceedings - HELD THAT: - The Court examined the Gazette Notification No.37 (Revenue Department) and the amendment authorising officers not below the cadre of Deputy Assistant Commissioner as 'Proper Officer' for the purposes of Section 68(3). Section 68(3) empowers the Proper Officer to intercept a conveyance in transit and require production of prescribed documents and devices. The confiscation proceedings in the present case were issued by the Deputy Assistant Commissioner (ST)-I, Hindupur, who falls within the officers so notified. On that basis the petitioners' contention that the 1st respondent lacked authority was rejected. [Paras 9, 10]1st respondent was duly authorised to issue the impugned proceedings.Detention, seizure and release under Section 129 of the CGST Act - confiscation under Section 130 of the CGST Act - requirement of recording reasons when invoking Section 130 at threshold - Whether proceedings under Section 129 and Section 130 can be initiated simultaneously and the standards for invoking Section 130 at the threshold - HELD THAT: - The Court considered the decision in Synergy Fertichem and held that Sections 129 and 130 are independent and may be resorted to simultaneously. However, because Section 130 requires contravention 'with an intent to evade the payment of tax', if confiscation is invoked at the threshold the authority must form and record an express opinion with reasons that the assessee deliberately avoided tax. During enquiry under Section 130 the authority must also afford opportunity of hearing and record cogent reasons when rejecting the owner's explanation. [Paras 14, 15]Both sections may be invoked simultaneously, but invocation of Section 130 at the threshold requires recorded reasons showing firm belief of intent to evade tax and adherence to procedural safeguards including hearing.E-way bill and Rule 138/138A compliance - principle of natural justice in tax confiscation proceedings - confiscation under Section 130 of the CGST Act - Whether the confiscation order dated 04.02.2020 was legally sustainable - HELD THAT: - The petitioners produced registration, return extracts, invoices, ledgers, lease deed and other records in explanation to the Form MOV-10 notice. The confiscation order rejected that explanation on three grounds: non-production of documents at the initial check, branding the explanation as an afterthought, and non-availment of the personal hearing. The Court held these reasons inadequate. Mere non-production at the initial interception does not automatically falsify subsequently produced records; documents cannot be rejected as afterthought without analysing and recording why they are spurious; and filing explanation with records negates rejection on the sole ground of non-attendance at hearing. Given the drastic consequence of confiscation, the authority must record cogent reasons when discarding the explanation and assess probative value of documents before denying property rights. Consequently the confiscation order did not withstand scrutiny and was set aside with a direction for fresh enquiry and hearing. [Paras 16, 17, 18, 19, 20]The confiscation order is unsustainable; it is set aside and the matter is remanded for fresh enquiry, affording personal hearing and recording cogent reasons within eight weeks.Final Conclusion: The High Court held that the Deputy Assistant Commissioner was a duly authorised Proper Officer to issue the proceedings; that Sections 129 and 130 may be invoked simultaneously but invocation of confiscation under Section 130 at the threshold requires an express, reasoned belief of intent to evade tax and compliance with hearing requirements; and that the impugned confiscation order lacked cogent reasons and is set aside, with direction for a fresh enquiry and hearing to be completed within eight weeks while detention remains in force. Issues Involved:1. Authorization of the 1st respondent to pass the impugned proceedings.2. Legality of proceeding simultaneously under Section 129 and Section 130 of the CGST Act.3. Legal sustainability of the order dated 04.02.2020 by the 1st respondent.Detailed Analysis:1. Authorization of the 1st respondent to pass the impugned proceedings:The court examined whether the 1st respondent was authorized to issue the impugned proceedings. It was argued by the petitioners that the 1st respondent lacked the legal authority. However, the court found this argument incorrect based on the Gazette notification No.37 of Revenue Department (CT-II) dated 30.06.2017, which authorized the Deputy Assistant Commissioner (ST)-I, Hindupur, as a 'Proper Officer' under Section 68(3) of the CGST Act. Hence, the 1st respondent was legally authorized to pass the impugned proceedings.2. Legality of proceeding simultaneously under Section 129 and Section 130 of the CGST Act:The court addressed whether the 1st respondent was justified in proceeding under both Section 129 and Section 130 of the CGST Act. The petitioners contended that these sections are interrelated and the authorities cannot initiate confiscation proceedings under Section 130 without first exhausting the procedure under Section 129. The court referred to the judgment in Synergy Fertichem Pvt. Ltd. v. State of Gujarat, which clarified that Sections 129 and 130 are independent and mutually exclusive. The court agreed with this interpretation, stating that the authorities can proceed under both sections simultaneously. However, it emphasized that before invoking Section 130, the authority must form a firm opinion that the assessee deliberately avoided tax payment and record reasons for such belief.3. Legal sustainability of the order dated 04.02.2020 by the 1st respondent:The court scrutinized the confiscation order dated 04.02.2020. The petitioners had submitted an explanation along with documents to justify the transport of the silver ornaments. The 1st respondent rejected their explanation on three grounds: non-production of documents at the initial check, the explanation being an afterthought, and the petitioners not availing the opportunity for a personal hearing. The court found these grounds inadequate and not legally tenable. It emphasized that mere non-production of documents at the inception does not automatically falsify the records produced later. The 1st respondent failed to provide cogent reasons for rejecting the petitioners' explanation and documents. The court held that the impugned order lacked legal scrutiny and was liable to be set aside.Conclusion:The court allowed the writ petition, set aside the confiscation order dated 04.02.2020, and directed the 1st respondent to conduct a fresh enquiry, afford a personal hearing to the petitioners, and pass an appropriate order with cogent reasons within eight weeks. The detention of the subject goods and conveyance would hold until the new order is passed.