2022 (2) TMI 296 - HC - GST

Goods detained under GST Section 129 must be released when proper documentation exists and no intent to evade tax proven

M/s. Shiv Enterprises Versus State of Punjab and others

M/s. Shiv Enterprises Versus State of Punjab and others - 2022 (58) G. S. T. L. 385 (P & H), [2022] 98 G S.T.R. 26 (P&H) Issues Involved:1. Maintainability of the writ petition.2. Legality of the detention and subsequent proceedings under Section 130 of the CGST Act, 2017.Detailed Analysis:Issue 1: Maintainability of the Writ PetitionThe court considered whether the writ petition should be dismissed for not being maintainable. It was determined that judicial review is founded on the premise that a public body is entitled to decide wrongly but not to exceed its jurisdiction. The court cited De Smith's Judicial Review, emphasizing that the touchstone is whether the error alleged is manifest on the face of the record. The court decided that the answer to the first question depended on the decision of the second question.Issue 2: Legality of the Detention and Subsequent Proceedings under Section 130Background and Petitioner’s Argument:The petitioner sold copper scrap, and the goods were detained despite having proper documents (invoice and E-way Bill). The petitioner argued that the detention was unwarranted as all statutory documents were in order. The petitioner also contended that the proceedings under Section 130 of the CGST Act were malicious and initiated only after the writ petition was filed.State’s Argument:The State argued that the petitioner’s actions were detrimental to the revenue and that detailed verifications revealed tax evasion through fraudulent transactions. It was asserted that the petitioner should respond to the show cause notice under Section 130, making the writ petition not maintainable.Court’s Analysis:The court examined the provisions related to input tax credit and goods in transit under the CGST Act, 2017. It noted that the liability to pay tax arises at the time of supply and that input tax credit claims are subject to scrutiny and assessment. The court highlighted that Section 129 deals with detention for contravention of provisions during transit, while Section 130 deals with confiscation and is more stringent, requiring intent to evade tax.The court emphasized that intent to evade tax must have a direct nexus with the trader's actions. Wrongful claim of input tax credit could be a bona fide error and does not necessarily imply intent to evade tax. The court found no evidence that the petitioner contravened any provisions of the Act with intent to evade tax. The investigation report did not establish any direct nexus between the petitioner’s actions and the alleged tax evasion.Conclusion:The court concluded that the investigation report lacked sufficient grounds to initiate proceedings under Section 130 against the petitioner. The goods and conveyance were accompanied by the required documents, and no discrepancies were found. The notice issued to the petitioner was based on the actions of other entities in the supply chain, not the petitioner.The court held that the authorities could check goods in transit and detain them if transported in contravention of the Act. However, if the goods are accompanied by the prescribed documents, authorities should not proceed under Section 129. The provisions prescribing time limits for inspection are mandatory, and goods cannot be detained without appropriate orders.The court quashed the detention order and the notice under Section 130, directing the release of the goods and conveyance. It clarified that this decision does not prevent the authorities from proceeding against the petitioner for any other contraventions under the Act.Judgment:The order dated 30.08.2021 and the notice dated 14.09.2021 were quashed. The respondent was directed to release the conveyance and goods forthwith. The writ petition was held maintainable, and the court emphasized that bonafide issues subject to assessment cannot be grounds for proceedings under Section 130 unless they fall within its specific provisions.