Tax Authorities Lose Case: PVC Pipe Manufacturer Wins Challenge Against Unlawful Search and Penalty Orders Under Section 129(3)

HC quashed tax and penalty orders against PVC pipe manufacturer, finding procedural violations in search and seizure operation. The court determined authorities lacked proper jurisdiction under Section 129(3) of UP GST Act, 2017. HC directed Commercial Tax Commissioner to investigate officer misconduct and ordered refund of deposited amounts with interest.

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Issues:
Challenging order of Additional Commissioner Grade-2 (Appeal)-2 under Section 129(3) of the Uttar Pradesh Goods And Services Tax Act, 2017 for imposing tax and penalty on a single transaction.

Analysis:
1. The petitioner, a manufacturer of PVC pipes, challenged the order dated 26.11.2019 passed by the Additional Commissioner Grade-2 (Appeal)-2. The petitioner contended that the appellate authority dismissed two appeals confirming the tax liability and penalty imposed under Section 129(3) of the Act on a single transaction. The appeals were filed against orders passed by Assistant Commissioners regarding a search and seizure operation at the petitioner's premises.

2. The search conducted by the Special Investigation Branch of the Commercial Tax Department led to allegations of stock shortage. The petitioner disputed the shortage and suggested reconciliation considering stock at another godown not part of the search. Show cause notices were issued by two Assistant Commissioners based on the search, leading to tax and penalty demands. The appellate authority upheld these orders, prompting the petitioner to approach the High Court.

3. The High Court noted that the authorities invoked Section 129(3) without proper jurisdiction. The Court criticized the negligence of the Mobile Squad authorities in conducting the search and seizure operation. The authorities failed to follow due process under Section 67 of the Act, which requires "reasons to believe" before seizing goods. The Court highlighted the deliberate misdescription of the search targets as vehicles instead of immovable property, indicating a lack of jurisdiction.

4. The Court refrained from delving into the officers' intentions but emphasized their accountability for the wrongful acts. The Court directed the Commissioner Commercial Tax UP to investigate the matter, seek explanations, and take appropriate actions against the erring officers to prevent such incidents in the future. The Court found the proceedings against the petitioner under Section 129(3) to be jurisdictionally flawed and quashed the orders dated 26.11.2019 and 22.11.2019, ordering a refund of any deposited amount with interest.

5. Consequently, both petitions were allowed by the High Court, declaring the proceedings against the petitioner as lacking jurisdiction and directing corrective actions against the responsible officers.

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