2022 (1) TMI 148 - Commissioner - GST

Tiles manufacturer loses appeal against confiscation and penalty for excess stock and poor record maintenance under Section 35 CGST Act

The Commissioner (Appeals) CGST, Jaipur dismissed the appeal filed by a tiles manufacturer against confiscation of excess goods and penalty imposition. ... Clandestine manufacture and clearance of finished goods - tiles - excess found goods were seized under Section 67(2) of the CGST Act, 2017 read with Rule 139 of the CGST Rules, 2017 - Contravention of provisions of Section 35 of the CGST Act, 2017 and Rule 56 of the CGST Rules, 2017. Whether the appeal filed by the appellant is within the time limit or not? - HELD THAT:- The appellant has filed the appeal on 17-11-2020 against the impugned order dated 4-8-2020 passed by the adjudicating authority, the delay of 13 days from the normal period prescribed under Section 107(1) of the CGST Act, 2017. Further, as per Section 107(4) of the CGST Act, 2017 - The Appellate Authority may, if he is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the aforesaid period of three months or six months, as the case may be, allow it to be presented within a further period of one month - it is directed to decide the case on merits. Whether there was excess of stock of raw material and finished goods at the time of physically stock verification during search or not? - HELD THAT:- Both the key persons have categorically agreed that they do not maintain any stock register of raw materials and finished goods in the factory premises. Further, during physical verification, the departmental officers concluded the excess raw material and finished goods on the basis of purchase and sales invoices in the presence of the independent witnesses and Shri Girish Kumar Singhal, Manager of the appellant, who at the material of time were not able to produce the books of accounts as well as any plausible explanation thereof which is also obvious from the para 3 of the impugned order - the records of goods were not properly maintained/kept by the appellant and goods seized were duly accounted for in their respective books of accounts. The appellant have contravened the provisions of Section 35 of the CGST Act, 2017 and Rule 56 of CGST Rules, 2017. Therefore, adjudicating authority has rightly confiscated the said seized goods and accordingly imposed fine and penalty under the relevant provisions of CGST Act and Rules made thereunder. Whether penalty under Section 122 and under Section 125 of CGST Act is proper or not? - HELD THAT:- The adjudicating authority has amply justified and established that the appellant has failed to produce the related documents, and also failed to keep account of stock in their factory premise thereby violating/contravening the Section 35 of CGST Act and Rule 56 of CGST Rules. Thus, it is found that the excess/difference in stock found during physical stock verification was meant for clandestine removal with intention to evade the CGST/SGST. Therefore, for failure to keep and non-maintaining of records in respect of the excess stocks as well as non-filings of monthly/periodically returns with intent to evade tax, the adjudicating authority has properly imposed penalty under Sections 122(1)(xvi) and (xviii) and 125 of CGST Act, 2017. On going through the Section 125 of CGST Act it may be seen that this particular penalty is imposable on the person who contravenes any of the provisions of this Act or any rules made thereunder. From the above discussion and findings and perusal of records, it has been established that the Partner of the firm is the key person who deals all the affairs of the appellant firm. Therefore, he cannot be escaped from any offence of the firm and it cannot be imagined that without his involvement such kind of violations of the provisions of the act or rules made thereunder would be happened - it is also seen from the provisions of Section 125 of CGST Act that the word “Person” has been mentioned. Further, it is found that nowhere mention in the provision of laws and rules that if the penalty has been imposed upon the firm penalty on partner/proprietor cannot be imposed. Since the firm and partner are the separate entity hence penalty imposition in the said provision is correct and proper. The penalty imposed under Section 122 and Section 125 of CGST Act by the adjudicating authority is proper and fully justified. Whether principle of natural justice and judicial discipline have been followed by the adjudicating authority or not? - HELD THAT:- The show cause notice had served to the appellant and opportunity to being heard to the appellant has also been provided by the adjudicating authority. Further, it is found that the adjudicating authority has discussed all the submissions of the appellant in his order and he also examined all the cited case laws quoted by the appellant and observed that the said cited judgment are not squarely applicable in the present case. In view of above, the contention of the appellant is irrelevant and cannot be accepted. The order passed by the adjudicating authority is upheld - there are no infirmity in the impugned order - appeal dismissed. Issues Involved:1. Timeliness of the appeal.2. Excess stock of raw material and finished goods.3. Imposition of penalty under Sections 122 and 125 of CGST Act.4. Adherence to principles of natural justice and judicial discipline.Issue-wise Detailed Analysis:(a) Timeliness of the Appeal:The appellant filed the appeal on 17-11-2020 against the impugned order dated 4-8-2020, resulting in a delay of 13 days from the normal period prescribed under Section 107(1) of the CGST Act, 2017. The appellate authority accepted the delay, citing Section 107(4) of the CGST Act, 2017, which allows for an extension if sufficient cause is shown.(b) Excess Stock of Raw Material and Finished Goods:During a search on 24-3-2018, excess stock of raw material and finished goods valued at Rs. 24,03,635/- was found at the appellant's factory. The appellant did not maintain any stock register. Statements from the manager and partner admitted the non-accounting of stock. The adjudicating authority confiscated the excess stock under Section 130(1)(ii) & (iv) of the CGST Act and imposed a redemption fine of Rs. 10,00,000/-, along with penalties. The appellant argued that the stock records were with a part-time accountant for reconciliation, but this was dismissed as a flimsy ground. The authority upheld that the appellant violated Section 35 of the CGST Act and Rule 56 of CGST Rules, justifying the confiscation and penalties.(c) Imposition of Penalty under Sections 122 and 125 of CGST Act:The appellant contended that penalties under Sections 122(1), (3), and 125 are imposable only if there is intent or mens rea to evade tax. The adjudicating authority found that the appellant failed to maintain stock records and file returns, indicating intent to evade CGST/SGST. Thus, penalties under Sections 122(1)(xvi) and (xviii) and 125 were deemed appropriate. The appellant's argument that penalties on the firm preclude penalties on the partner was rejected, as both firm and partner are separate entities under the law.(d) Adherence to Principles of Natural Justice and Judicial Discipline:The appellant claimed that the principles of natural justice and judicial discipline were not followed. However, the adjudicating authority provided a show cause notice and an opportunity to be heard. The authority discussed all submissions and examined cited case laws, concluding they were not applicable. Therefore, the appellant's contention was found irrelevant.Conclusion:The appellate authority upheld the order of the adjudicating authority, finding no infirmity in the impugned order. Both appeals filed by the appellant were rejected, and the penalties and confiscation were deemed justified and proper.