2024 (2) TMI 187 - HC - GST

Penalty Order Quashed: Tax Authorities Invalidated for Improper Goods Detention Procedure Under GST Act Sections 73 and 74

HC found the penalty order for goods detention due to alleged under valuation invalid. The court ruled that detention without following proper legal ... Detention of goods on ground of under-valuation - procedure under Sections 73 and 74 for detection of under-valuation - imposition of penalty under Section 129 following unlawful detention - requirement of statutory notice before adjudication for under-valuation - limits of squad/officer power to detain goodsDetention of goods on ground of under-valuation - limits of squad/officer power to detain goods - procedure under Sections 73 and 74 for detection of under-valuation - imposition of penalty under Section 129 following unlawful detention - Detention of goods and imposition of penalty on the basis of alleged under-valuation without following the statutory notice and adjudication procedure is invalid. - HELD THAT: - The show cause notice and appellate order rested on the ground that the goods were under-valued. The Court noted the Commissioner, Commercial Tax, Uttar Pradesh circular dated May 9, 2018 advising that goods are not to be detained on the ground of under-valuation. In the present case invoices, e-way bill and relevant documents accompanied the consignment and there was no mismatch in description; the sole basis for detention was a speculative opinion on valuation. The Court held that under-valuation must be addressed by the statutory procedure - issuance of notice and adjudication under the provisions for detection of under-valuation (Sections 73/74) - and that squad officers are not authorised to detain goods and impose penalty under Section 129 simply on suspicion of under-valuation. Reliance on the Kerala High Court precedent was noted to the effect that interception and detention by squad officers is limited to preparation of papers for transmission to judicial assessing officers and does not extend to detention based on valuation disputes. Consequently, penalty under Section 129 imposed on the basis of such detention could not be sustained.Impugned orders imposing penalty and upholding detention were quashed and set aside; consequential reliefs granted and any deposit to be refunded.Final Conclusion: Writ petition allowed; detention and penalty founded on speculative under-valuation without following the statutory notice and adjudication process are unlawful, impugned orders quashed and deposits, if any, to be returned. Issues involved:The legality of penalty order for under valuation of goods under Article 226 of the Constitution of India.Issue 1: Under valuation of goods and imposition of penaltyThe petitioner challenged the penalty order dated December 20, 2020, passed by the Commercial Tax Officer and the subsequent order dated September 17, 2021, by the Additional Commissioner Grade-II (Appeal)-II, State Tax, Agra. The show cause notice indicated that the goods were detained due to under valuation, which was upheld in the appeal. However, a circular by the Commissioner of Commercial Tax, Uttar Pradesh, stated that goods should not be detained solely on the ground of under valuation. The petitioner cited a judgment from the Kerala High Court emphasizing the need for a bonafide dispute regarding goods classification before detention. In this case, all relevant documents were with the goods, and the only reason for detention was the alleged incorrect valuation according to the invoice. The court held that this was not a valid ground for detention as the officer lacked the authority to make such a decision.Issue 2: Legal procedure for detention and penalty under the ActThe court highlighted that under the Uttar Pradesh Goods and Service Tax Act, 2017, specific procedures under Sections 73 or 74 must be followed in case of under valuation. The court emphasized that detention based on speculation of under valuation without following the proper procedure could lead to arbitrary actions by authorities. The Act does not empower officers to detain goods and impose penalties under Section 129 without issuing the necessary notices under Sections 73 or 74. Therefore, the imposition of a penalty under Section 129 based on assumptions of under valuation was deemed impermissible by the court.Decision:The court quashed and set aside the impugned orders dated December 20, 2020, and September 17, 2021. The petitioner was granted consequential reliefs, and any deposits made to the authorities were to be returned within four weeks. The writ petition was allowed in favor of the petitioner.