2021 (1) TMI 552 - HC - GST

Detention Orders Quashed, Sustained with Emphasis on Appellate Remedies

The court quashed detention orders based on misclassification in one case and partially in another, but sustained detention in a third case due to ... Detention under Section 129 of the CGST Act - Detention permissible only where transportation or storage in transit contravenes the Act or Rules - Mere mis classification not a ground for detention unless it amounts to a glaring mis description - Provisional release on bond/bank guarantee and adjudication under Section 129(3) - Form GST MOV 6 is a non final detention order and Form GST MOV 9 is the adjudication/confirmation - Availability of appellate remedy against adjudication under Section 129(3) - No discretion to reduce statutory payment/penalty on detention; strict construction of machinery provisions - Detention for procedural non compliance with CGST Rules (including Rule 55) is permissibleDetention under Section 129 of the CGST Act - Mere mis classification not a ground for detention unless it amounts to a glaring mis description - Whether alleged mis classification or mis description of goods in transport documents can justify detention under Section 129. - HELD THAT: - Section 129 is a machinery provision to check tax evasion and applies where goods are transported or stored in transit in contravention of the Act or Rules. A mere suspicion of mis classification does not amount to such contravention. Detention may be justified only where the mis description is patent and glaring - such that the goods described evidently refer to an entirely different commodity (examples given: 'Apples' as 'Oranges'). Ordinary cases of classification disputes, or bona fide differences about HSN or tax rate, do not warrant detention under Section 129. The detaining authority must be satisfied on the material before it that a contravention of the transportation/storage provisions has occurred before issuing a detention order; absent such material, the goods must be released.A detention based solely on ordinary or arguable mis classification is unlawful; detention can be quashed unless the mis description is glaring.Form GST MOV 6 is a non final detention order and Form GST MOV 9 is the adjudication/confirmation - Provisional release on bond/bank guarantee and adjudication under Section 129(3) - Availability of appellate remedy against adjudication under Section 129(3) - No discretion to reduce statutory payment/penalty on detention; strict construction of machinery provisions - The procedural effect of Form GST MOV 6 and Form GST MOV 9, the scope for provisional release, and protection of bank guarantees pending adjudication and appeal. - HELD THAT: - The procedure prescribed by circulars (Forms GST MOV 1 to MOV 11) implements Section 129. An order in Form GST MOV 6 together with Form GST MOV 7 is a non final step to propose tax and penalty; the person served may either pay and obtain release or contest by filing objections. Provisional release on furnishing bond/bank guarantee is permissible under the statute and Rules. The proper officer must consider objections and pass a reasoned adjudication order in Form GST MOV 9 under Section 129(3). Because the statute prescribes fixed payments/penalties on a finding of contravention, the detaining authority has no power to unilaterally reduce those amounts. To make the appellate remedy effective, the court read a protective requirement that the bank guarantee should not be invoked for a short period to enable appeal; in these cases the court directed that bank guarantees not be invoked for specified periods.Form GST MOV 6 is not a final adjudication; adjudication in Form GST MOV 9 must be speaking; provisional release is available on bond/guarantee; the appellate remedy against MOV 9 must be protected by refraining from invoking bank guarantees for a limited period.Mere mis classification not a ground for detention unless it amounts to a glaring mis description - Detention for procedural non compliance with CGST Rules (including Rule 55) is permissible - Availability of appellate remedy against adjudication under Section 129(3) - Application of the above principles to the three writ petitions and the consequent reliefs. - HELD THAT: - W.P.(C) No.17379 of 2020: Detention and notice premised on alleged mis classification of 'fruit drinks' did not involve a glaring mis description; detention and notice were quashed and bank guarantee ordered to be returned within two weeks. W.P.(C) No.22608 of 2020: Detention could not be sustained on the ground of mis classification but was sustain able to the extent founded on the e way bill being invalid (missing Part B particulars); the adjudication in Form GST MOV 9 is not endorsed on merits and the petitioner is relegated to the statutory appellate remedy; the court directed that the bank guarantee not be invoked for two months to enable appeal. W.P.(C) No.22072 of 2020: Detention for procedural non compliance (defective delivery challans / non compliance with Rule 55) was within Section 129; the adjudication in Form GST MOV 9 is sustained and the petitioner is relegated to appeal; the court continued a stay on invocation of bank guarantee for two months to permit filing of appeal.Quash detention in W.P.(C) No.17379; in W.P.(C) No.22608 quash detention insofar as based on mis classification but sustain it insofar as based on invalid e way bill and remit to appeal; in W.P.(C) No.22072 uphold adjudication for procedural non compliance and relegated petitioners to statutory appeals, with limited protection against invocation of bank guarantees.Final Conclusion: The Court held that Section 129 detentions must be confined to cases where transportation or storage in transit contravenes the Act or Rules; ordinary classification disputes do not justify detention unless the mis description is glaring. Form GST MOV 6 is non final and adjudication must follow in Form GST MOV 9; provisional release on bond/bank guarantee is available and appellate remedies must be effective. Applying these principles, the court quashed the detention in one petition, sustained detention partly in another (on the e way bill ground) and upheld detention for procedural non compliance in the third, while protecting the petitioners from immediate invocation of bank guarantees for limited periods to enable appeals. Issues Involved:1. Legality of detention orders passed under the GST Act.2. Mis-classification of goods as a basis for detention.3. Procedural lapses in transportation documents.Detailed Analysis:Legality of Detention Orders Passed Under the GST Act:The court addressed the common challenge to the legality of detention orders passed by the respondents under the GST Act. It emphasized that writ petitions challenging detention orders should not be ordinarily entertained as the GST Act provides an alternate remedy through provisional clearance and appeal. The Supreme Court in State of Uttar Pradesh v. Kay Pan Fragrance Pvt. Ltd. reiterated that writ petitions for the release of seized goods should not be entertained as the Act provides a complete mechanism for release and disposal of seized goods.Mis-classification of Goods as a Basis for Detention:The court examined whether mis-classification of goods could justify detention under Section 129 of the GST Act. It concluded that a mere suspicion of mis-classification cannot be the basis for detention. The court referred to previous judgments, including NVK Mohammed Sulthan Rawther & Sons v. UOI & Ors and M/s Synergy Fertichem Private Limited v. State of Gujarat, which held that detention cannot be resorted to in cases of bona fide disputes regarding classification. The court stated that only glaring mis-descriptions, such as 'Apples' being described as 'Oranges,' could justify detention.In W.P(C).No.17379 of 2020, the petitioner was transporting fruit drinks described as 'fruit drinks' in the invoices and e-way bills. The goods were detained on the ground that they were actually 'aerated soft drinks with added flavors.' The court found that the alleged mis-classification did not amount to a mis-description justifying detention and quashed the detention orders.In W.P(C).No.22608 of 2020, the petitioner was transporting 'Pappad's' described as exempted goods under HSN code 1905. The goods were detained on the ground that they were 'un-fried fryums' classifiable under HSN code 21069099. The court found that the alleged mis-classification did not justify detention. However, the detention was sustained on the ground that the e-way bill was not valid due to incomplete details. The petitioner was directed to approach the appellate authority for further redressal.Procedural Lapses in Transportation Documents:The court also addressed procedural lapses in transportation documents. In W.P(C).No.22072 of 2020, the petitioner was transporting power cable end termination kits with a single invoice for two consignments. The goods were detained due to the absence of separate delivery chalans for each vehicle as required under Rule 55 (5) of the CGST Rules. The court held that the proper officer does not have the discretion to condone procedural lapses and must interpret the rules strictly. The petitioner was directed to approach the appellate authority for redressal.Conclusion:The court quashed the detention orders based on mis-classification in W.P(C).No.17379 of 2020 and partially in W.P(C).No.22608 of 2020. However, it sustained the detention in W.P(C).No.22072 of 2020 and partially in W.P(C).No.22608 of 2020 due to procedural lapses. The court emphasized the need to approach the appellate authority for challenging adjudication orders under Section 129 (3) of the GST Act. The writ petitions were disposed of with directions to the respondents to return the bank guarantees furnished by the petitioners and to refrain from invoking the bank guarantees for a specified period to allow the petitioners to seek appellate remedies.