Frozen shrimp detention orders quashed as export goods were tax-exempt under Section 129(1)(a) GST Act penalty cap

The Kerala HC set aside detention orders for frozen shrimp transported without E-way bill. The goods were export-bound and tax-exempt. The court held that under Section 129(1)(a) of GST Act, penalty for exempted goods should be limited to Rs. 25,000 or 2% of goods value, whichever is less, not the higher amount demanded by authorities. The court found the revenue department's penalty calculation erroneous and directed that upon payment of Rs. 25,000, all proceedings against the petitioner would be dropped. The petition was disposed of favorably.

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Issues involved: Detention of goods en route due to lack of E-way bill and letter of undertaking, demand for tax and penalty, confiscation of goods and vehicle, interpretation of exempted goods for export, compliance with GST rules, statutory appellate remedy, jurisdiction of High Court.

The petitioner, an exporter of sea food, faced detention of frozen shrimp consignment en route at Panangadu due to lack of E-way bill and letter of undertaking as per CGST Act and Rules. The respondents demanded tax and penalty totaling Rs. 8,68,736/-, and proposed confiscation of goods and vehicle. The petitioner contended that since the goods were for export and exempted from tax, only Rs. 25,000/- could be demanded. The petitioner argued that confiscation proceedings under Section 130 cannot be initiated without willful non-payment of penalty. The petitioner also raised concerns about lack of opportunity to challenge the initial order before receiving the subsequent notice.

The counter affidavit by the 2nd respondent stated that the vehicle carrying frozen processed shrimps was detained for lack of E-way bill during transportation. The petitioner's explanation citing the triple lockdown due to Covid was deemed unsatisfactory as the E-way bill was not generated at the time of detention. The respondent argued that the commodity in question was taxable at 5% under HSN Code 030617, not exempted as claimed by the petitioner. The respondents justified the issuance of further notices based on non-compliance with the initial order and lack of response from the petitioner.

The Government Pleader referred to notifications specifying tax rates for commodities including crustaceans and Vannamei Shrimp, emphasizing that the specific item transported by the petitioner was taxable at 5%. The petitioner relied on a notification exempting certain goods from central tax, including crustaceans under tariff item 0306. The Government Pleader invoked a Supreme Court judgment aligning GST with HSN codes and Customs Tariff Act for tax liability determination.

The judgment noted that the commodity being frozen shrimp for export was not disputed. The discrepancies in lack of E-way bill and letter of undertaking were acknowledged. The Court held that the penalty demanded by the respondents was excessive, limiting it to Rs. 25,000/- as per Section 129(1)(a) of the GST Act. The orders demanding higher amounts were set aside, and proceedings against the petitioner were dropped upon payment of the reduced penalty. The Court exercised jurisdiction due to the erroneous exercise of authority and potential miscarriage of justice, bypassing the statutory appellate remedy requirement.

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