Revenue cannot confiscate goods based only on seller's case under Section 130 CGST; separate Section 129 needed for petitioners

The HC held that the Revenue cannot confiscate goods of the petitioners solely based on proceedings against the seller under section 130 of the CGST/APGST Act. Detention of goods in transit is permissible, but confiscation requires independent proceedings under section 129 against the petitioners. The petitioners must prove the genuineness of their transactions with the allegedly fake seller. The court allowed the Revenue to initiate section 129 proceedings against the petitioners within two weeks, ensuring they are given an opportunity to be heard before any order is passed. The writ petitions were disposed of accordingly.

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Issues Involved:

1. Legality of detaining goods and vehicles without initiating proceedings against petitioners.
2. Compliance with procedural requirements under CGST/APGST Act, 2017.
3. Validity of proceedings initiated against a non-existent seller.

Summary:

Issue 1: Legality of Detaining Goods and Vehicles Without Initiating Proceedings Against Petitioners

The petitioners challenged the detention of their goods and vehicles by the 1st respondent, asserting the detention was illegal as it was based on the alleged non-existence of the 4th respondent's business premises. The court noted that the 1st petitioner had valid documents for the goods in transit, including invoices and e-way bills. The court emphasized that if the 1st respondent suspected the genuineness of the 1st petitioner's business, proceedings should have been initiated under Section 129 of the CGST/APGST Act against the petitioners, instead of directly proceeding under Section 130 against the 4th respondent. The court held that the 1st respondent cannot confiscate the goods of the petitioners based on proceedings against the 4th respondent without initiating independent proceedings against the petitioners.

Issue 2: Compliance with Procedural Requirements under CGST/APGST Act, 2017

The petitioners contended that the 1st respondent did not follow the prescribed procedure under the CGST/APGST Act, 2017, as no notices were issued in GST MOV-02 to MOV-09 before issuing the confiscation notice in Form GST MOV-10. The court observed that the proper officer is authorized to inspect goods in movement under Section 68 of the CGST/APGST Act, and the documents required for such inspection are specified in Rule 138A of the CGST/APGST Rules. The court found that the 1st respondent did not comply with the procedural requirements, as the notices were issued directly under Section 130 without following the due process under Section 129.

Issue 3: Validity of Proceedings Initiated Against a Non-Existent Seller

The 1st respondent's action was based on the allegation that the 4th respondent, from whom the 1st petitioner purchased the goods, was a non-existent entity with a suspended GST registration. The court held that while the 1st respondent could initiate proceedings against the 4th respondent under Section 130, it could not extend those proceedings to confiscate the goods of the 1st petitioner without initiating independent proceedings under Section 129. The court emphasized that the 1st petitioner has a responsibility to prove the genuineness of the transactions with the 4th respondent, including the mode of payment and receipt of goods, but not the business activities or registration validity of the 4th respondent.

Conclusion:

The court disposed of the writ petitions, directing the 1st respondent to initiate proceedings under Section 129 of the CGST/APGST Act against the petitioners within two weeks and conduct an enquiry, providing an opportunity for the petitioners to establish their case. The court also ordered the release of the detained goods upon the 1st petitioner's deposit of 25% of their value and execution of a personal bond for the balance, and the release of the vehicles upon the 2nd petitioner's execution of personal security bonds for their value.

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