2021 (4) TMI 798 - Commissioner - GST

Confiscation upheld, fines imposed for CGST Act violations. Penalties for improper accounting and individual involvement.

The judgment upheld the confiscation of seized goods worth Rs. 96,86,453 under Section 130 of the CGST Act due to discrepancies in stock maintenance. A ... Clandestine Removal - excess stock found during the physical stocks verification against entries made in stock register - seizure of such excess goods - Confiscation - levy of penalty upon the Firm under Section 122(1) (xvi) and (xviii) of CGST Act, 2017 - levy of penalty upon Partner of the Firm under Section 122(3) of CGST Act, 2017. Confiscation - appellant/department has contended that adjudicating authority has erred in holding the seized goods deserved to release as the same is not liable to confiscation - HELD THAT:- The respondent/assessee has no where raised any objection about the search proceedings as well as panchnama proceedings conducted by the investigating team. From which it may be inferred that the said proceedings were conducted in transparent and fair manner - during the proceedings the physical stock was also verified and it was found excess against the entries of stock register. The whole proceedings were done in the presence of two independent witnesses and in presence of the employees of the respondent/assessee. Further, the statements of the Supervisor, Accountant and Authorized Signatory of the Firms were recorded under Section 70 of CGST Act, 2017 before the proper officer. The Supervisor of the Firm has stated in his voluntary statement that they did not maintain stock register and also did not prepare daily production slip and they used to note down the details in Kachhi Parchi. The same facts was admitted by Authorized Signatory of the Firms and brother of Partner of the Firms, in his statement. Thus, it is emerged that during the search proceedings the excess stock were found against the entry of stock register. Therefore, findings of the adjudicating authority that the unaccounted / excess stocks were not deliberately kept unaccounted is not tenable. Further, the respondent/assessee contended that the Supervisor were not aware about the fact position of stock and Authorized Signatory could not understand the question in correct prospective is also not acceptable - it is obvious that the assessee have not followed the procedures with regard to maintenance of proper record as provided in Section 35 of CGST Act and 56 of CGST Rules made thereunder hence he contravened the said Act and Rules made thereunder. This act of omission and commission on the part of assessee is nothing but to keep the unaccounted goods for removal the same clandestinely with intent to evade the proper tax liability. The respondent/assessee has emphasized that the excess stocks were found due to non updations of stock register and after obtaining photocopies of the seized records, the stock register was updated and accordingly it was found that there was no excess stocks rather it was slightly short - the investigating authority has rightly arrived the value of the said excess goods as the sale invoice price can not be relied as it was undervalued upto the 60% of the actual price of the sale. Moreover in view of the above facts, the recording of statement of the Partner Sh.Lalit Goyal would have not served the purpose for arriving the value as it is very much clear that the ‘Kachha Systems’were in place rather the proper recording of accounting systems of purchase, sale, production and stocks of the goods. The adjudicating authority has erred by holding that the seized goods is not liable for confiscation. Contrary to this view, the respondent/ assessee has contravened the provisions of Section 35 of CGST Act read with Rule 56 of CGST Rules,2017. Therefore, the seized goods is liable to confiscation in terms of Section 130 of CGST Act and Rules made thereunder - confiscation upheld. Levy of penalty upon the Firm under Section 122(1) (xvi) and (xviii) of CGST Act, 2017 - HELD THAT:- In view of above discussions and findings it has established that the assessee did not maintained the proper books of account at the time of search proceedings hence he violated the provisions of Section 35 of CGST Act and Rules made thereunder - the penalty under Section 122(1) (xvi) and (xviii) of CGST Act, 2017 upon the assessee is very well attracted in the instant case - penalty upheld. Levy of penalty upon Partner of the Firm under Section 122(3) of CGST Act, 2017 - HELD THAT:- On going through the section 122(3) of CGST Act it may be seen that this particular penalty is imposable on the person who aids or abets any of the offences specified in clause (i) to (xxi) of sub section 1 of Section 122 of CGST Act. From the perusal of records it has been established that the Partner of the firm is the key person who deals all the affairs of the Assessee firm. Therefore, he can not be escaped from any offence of the firm and it can not be imagined that without his involvement such kind of violations of the provisions of the act or rules made thereunder would be happened. Further, the Partner has himself admitted the said offence in his statement recorded under the provisions of law - penalty upheld. Appeal allowed - decided in favor of Revenue. Issues Involved:1. Whether excess stock found during the physical stock verification against entries made in the stock register is liable to confiscation under Section 130 of the CGST Act and Rule 139 of the CGST Rules, 2017.2. Whether penalty is imposable upon the Firm under Section 122(1)(xvi) and (xviii) of the CGST Act, 2017.3. Whether penalty is imposable upon the Partner of the Firm under Section 122(3) of the CGST Act, 2017.Issue-wise Detailed Analysis:1. Excess Stock and Confiscation:The appellant (department) contended that the adjudicating authority erred in holding that the unaccounted/excess goods were not deliberately kept unaccounted to supply the same clandestinely and without payment of tax. The department emphasized that the respondent (assessee) failed to maintain proper accounts of stock, violating Section 35 of the CGST Act and Rule 56 of the CGST Rules, 2017. The respondent argued that the excess stock found was due to the incomplete books of accounts at the time of search, and after updating the books, the stock position broadly matched the physical stock found during the search.The judgment noted that the search proceedings were conducted transparently, and excess stock was indeed found against the entries in the stock register. The statements of the Supervisor, Accountant, and Authorized Signatory of the firm indicated that they did not maintain proper stock registers and used 'Kachhi Parchi' (informal slips). The adjudicating authority’s reliance on the respondent's submission without examining all case records was found to be flawed. The value of the seized goods was justified based on the statements indicating undervaluation practices. The judgment concluded that the respondent contravened Section 35 of the CGST Act and Rule 56 of the CGST Rules, and the seized goods were liable to confiscation under Section 130 of the CGST Act. However, since the goods were already released, a fine of Rs. 10,00,000 was imposed in lieu of confiscation.2. Penalty on the Firm:The respondent argued that no excess stock was found, and hence no penalty was leviable under Section 122(1)(xvi) and (xviii) of the CGST Act, 2017. The judgment, however, established that the respondent did not maintain proper books of accounts at the time of the search, violating Section 35 of the CGST Act and Rule 56 of the CGST Rules. Consequently, the penalty under Section 122(1)(xvi) and (xviii) was applicable. The judgment imposed a penalty of Rs. 17,43,562 on the firm.3. Penalty on the Partner:The respondent contended that the partner, Shri Lalit Goyal, was not involved in any offense specified in Section 122(3) of the CGST Act, 2017. The judgment found that the partner, being the key person managing the firm's affairs, could not be exempt from the firm's violations. The partner had admitted the offense in his statement. Therefore, a penalty of Rs. 10,000 was imposed on the partner under Section 122(3) of the CGST Act, 2017.Conclusion:The judgment set aside the order of the adjudicating authority and passed the following orders:1. Confiscation of the seized goods amounting to Rs. 96,86,453 under Section 130(1)(ii) & (iv) of the CGST Act read with Rule 139 of the CGST Rules, 2017. A fine of Rs. 10,00,000 was imposed in lieu of confiscation.2. A penalty of Rs. 17,43,562 was imposed on the firm under Section 122(1)(xvi) and (xviii) of the CGST Act.3. A penalty of Rs. 10,000 was imposed on the partner under Section 122(3) of the CGST Act.The appeal was disposed of accordingly.