2025 (6) TMI 339 - HC - GST

Karnataka HC grants conditional release of detained goods and vehicle after deposit and guarantee requirements met

M/s. AAIZ STEEL Versus COMMERCIAL TAX OFFICER (ENFORCEMENT), MADIKERI, JOINT COMMISSIONER OF COMMERCIAL TAXES (ENFORCEMENT), MYSORE, JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEALS), MYSORE, POLICE INSPECTOR RURAL POLICE STATION HUNASURU, UNION OF INDIA

Karnataka HC ordered release of detained goods and conveyance to petitioner upon compliance with conditions. Court directed respondents to release subject ... Seeking release of detained goods - petitioner submits that the subject conveyance and subject goods may be released in favour of the petitioner by imposing terms and conditions and that the petitioner would abide and comply with the same, in accordance with law - HELD THAT:- Though several contentions have been urged by both sides in support of their respective claims, having regard to the specific submission made by the petitioner and in the facts and circumstances of the instant case and the judgment of the Hon’ble Division Bench in M/s. Karthik Agencies [2024 (11) TMI 521 - KARNATAKA HIGH COURT], it is deemed just and appropriate to dispose of this petition by directing the respondents to release the subject conveyance and goods in favour of the petitioner by imposing certain conditions. The concerned respondents are hereby directed to release subject goods as well as subject conveyance bearing No.KA-16-D-2418 in favour of the petitioner immediately upon the petitioner depositing aforesaid 25% of the value of the goods in a sum of Rs.2,56,965/- as well as furnishing Bank Guarantee to an extent of 75% in a sum of Rs. 7,70,895/- as well as executing a personal bond in relation to the remaining demand put forth by the respondents. Petition disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this petition are:Whether the impugned Order of Detention dated 03.12.2024 issued under Section 129(1) of the Central Goods and Services Tax Act, 2017, and related State and Union Territory GST Acts, is legally sustainable or liable to be quashed.Whether the detention, seizure, and confiscation of the petitioner's goods and conveyance bearing No.KA-16-D-2418 were valid and in accordance with law, or arbitrary and unconstitutional.Whether the petitioner is entitled to the immediate release of the detained goods and conveyance, subject to appropriate conditions.The applicability and interpretation of Section 129 of the GST Act concerning detention, seizure, and release of goods and conveyances involved in alleged tax violations.The extent and nature of financial security (deposit, bank guarantee, personal bond) that may be imposed as a condition precedent to release of goods and conveyance.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the Detention Order under Section 129(1) of the GST ActRelevant legal framework and precedents: Section 129(1) of the Central Goods and Services Tax Act, 2017 empowers authorized officers to detain or seize goods and conveyances if they believe that tax has not been paid or if goods are being transported in contravention of the Act. The procedure and safeguards under this provision have been judicially examined in various precedents, including the Division Bench judgment in State of Karnataka Vs. M/s. Karthik Agencies (W.A.No.1464/2024), which elucidated conditions for release of detained goods and conveyances.Court's interpretation and reasoning: The Court noted that the petitioner challenged the detention order on grounds of arbitrariness and unconstitutionality. However, the petitioner also expressed willingness to comply with terms and conditions for release, indicating no outright denial of the legal basis for detention but seeking a conditional release.Key evidence and findings: The petitioner submitted detailed valuations of the goods, including the value as per delivery challan (Rs.10,27,860/- inclusive of CGST and SGST), tax paid under Reverse Charge Mechanism (Rs.1,56,793/-), penalty under Section 129(1)(a) (Rs.1,56,793/-), and third-party valuation reports (Rs.18,27,561/- exclusive of GST). This financial data formed the basis for determining appropriate security for release.Application of law to facts: The Court applied the principles from the Division Bench judgment in M/s. Karthik Agencies, which allowed interim release of goods and conveyance on deposit of a portion of the value and furnishing a bank guarantee and personal bond for the balance. The Court found this approach appropriate for balancing the interests of revenue protection and the petitioner's right to livelihood and business continuity.Treatment of competing arguments: The respondents contended that the detention order was valid and the petition lacked merit. The petitioner countered by seeking conditional release and relied on the precedent judgment. The Court found the petitioner's approach reasonable and consistent with established judicial principles, while also safeguarding the revenue's interest through financial securities.Conclusions: The Court did not quash the detention order outright but directed conditional release of the goods and conveyance upon compliance with specified financial conditions, thereby upholding the detention order's validity but providing relief through interim arrangements.Issue 2: Legality and Constitutionality of Detention, Seizure, and ConfiscationRelevant legal framework and precedents: The GST law and associated rules regulate detention and confiscation to prevent evasion of tax. The constitutional validity of such actions is subject to the principles of reasonableness, due process, and proportionality. The Court considered the petitioner's claim that the actions were arbitrary and unconstitutional.Court's interpretation and reasoning: The Court observed that no specific grounds were established to declare the detention and seizure as arbitrary or unconstitutional. The petitioner's willingness to comply with conditions indicated acceptance of the procedural propriety of the actions taken. The Court relied on the precedent where similar detention and release procedures were upheld.Key evidence and findings: The valuation and tax liability data, along with the procedural compliance by the authorities, supported the legality of the detention. The absence of any procedural irregularity or violation of fundamental rights was noted.Application of law to facts: The Court applied the principles that detention under Section 129 is a preventive and protective measure, not punitive, and must be balanced with rights of the affected party. Since the petitioner was offered release on financial securities, the action was deemed proportionate and lawful.Treatment of competing arguments: The petitioner's challenge on constitutional grounds was not supported by substantive evidence. The respondents' defense of procedural compliance and statutory authority was accepted.Conclusions: The Court rejected the contention that the detention and seizure were arbitrary or unconstitutional, affirming the legal validity of the impugned actions.Issue 3: Conditions for Release of Goods and ConveyanceRelevant legal framework and precedents: The Division Bench judgment in M/s. Karthik Agencies provided a framework for release of detained goods and conveyances subject to partial deposit of value, bank guarantee for the balance, and personal bond, ensuring protection of revenue while allowing business continuity.Court's interpretation and reasoning: The Court adopted the approach in the precedent, directing the petitioner to deposit 25% of the value of goods (Rs.2,56,965/-), furnish a bank guarantee for 75% of the value (Rs.7,70,895/-), and execute a personal bond for the remaining demand. This ensured adequate security for the revenue without unduly crippling the petitioner's business.Key evidence and findings: The petitioner's valuation chart and willingness to comply with conditions were instrumental. The respondents did not oppose conditional release.Application of law to facts: The Court balanced statutory provisions under Section 129 and judicial precedents to fashion an equitable remedy that protected revenue interest and petitioner's rights.Treatment of competing arguments: The respondents' insistence on strict enforcement was moderated by the petitioner's offer to comply with conditions. The Court found the conditional release an appropriate middle ground.Conclusions: The Court ordered immediate release of goods and conveyance upon fulfillment of specified financial conditions, directing prompt compliance by respondents thereafter.3. SIGNIFICANT HOLDINGSThe Court held:'The petition is hereby disposed of. The concerned respondents are hereby directed to release subject goods as well as subject conveyance bearing No.KA-16-D-2418 in favour of the petitioner immediately upon the petitioner depositing aforesaid 25% of the value of the goods in a sum of Rs.2,56,965/- as well as furnishing Bank Guarantee to an extent of 75% in a sum of Rs. 7,70,895/- as well as executing a personal bond in relation to the remaining demand put forth by the respondents.''Immediately upon the petitioner complying with the aforesaid directions, the concerned respondents shall release the subject goods and conveyance in favour of the petitioner forthwith, without any delay.'Core principles established include:Detention and seizure under Section 129 of the GST Act are valid preventive measures, not punitive, and must be balanced with the rights of the affected party.Conditional release of detained goods and conveyances upon partial deposit, bank guarantee, and personal bond is an equitable remedy recognized by the Court to protect both revenue and business interests.Judicial discretion can be exercised to impose financial securities as terms for release, ensuring recovery of tax dues without unduly hampering trade and commerce.Arbitrariness and unconstitutionality of detention must be established on concrete grounds; mere challenge without substantive proof will not suffice.The final determination was to uphold the detention order's validity but grant conditional release of goods and conveyance upon compliance with specified financial securities, thus balancing statutory enforcement and equitable relief.