2025 (9) TMI 1336 - HC - GST

Hydraulic excavator sent for repair is not a taxable supply under GST; seizure and appellate orders quashed

M/s Abhay Prakash Katariar Versus State of UP And 2 Other

HC held that a hydraulic excavator sent for repair does not constitute a taxable supply of goods or services under the GST law per government circulars, ... Nature of activity - supply of goods or services - old hydrolic Exhibator was going for repairing after completion job work - initiation of proceeding u/s 129(3) of the GST Act - HELD THAT:- It is not in dispute that goods in question was a hydrolic Exhibator at the time of interception and at the time of passing of seizure order, only bilty no. 2358 was available. The Central Government issued a Circular wherein it has been declared that where crane is being sent for repair and same shall now be treated as supply or services and therefore, not levelable to tax under GST Act and same was reiterated by Circular Dated 22.11.2017. It has been submitted that once a crane was sent for repairing that cannot be treated as supply or services and therefore, GST Act is not levelable. Once there is no liability for GST, the requirement for carrying the requisite document and seizure order is not required at all. The impugned order dated 16.07.2022 passed by respondent no. 3/the Assistant Commissioner, Mobile Squad-6 State-4 Goods & Service Tax, Gautam Buddha Nagar and the impugned order dated 21.07.2023 passed by respondent no. 2/the Additional Commissioner, Grade - 2 State Tax (Appeal-3), State Goods and Service Tax, Gautam Buddha Nagar, cannot be sustained in the eye of law and are hereby quashed. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether goods (a hydraulic exhibitor/crane) sent for repair constitute 'supply' or 'services' leviable to tax under the GST law such that detention, seizure and penalty under section 129(3) can be validly invoked. 2. Whether issuance of seizure/detention and demand for release money was justified where requisite transport documents were produced only after interception and an e-way bill/delivery challan had been generated for movement to repair location. 3. Whether administrative Circulars issued by the Central Government, treating movement of cranes for repair as not constituting taxable supply, are binding on revenue authorities and preclude action under seizure/penalty provisions. ISSUE-WISE DETAILED ANALYSIS Issue 1: Taxability of movement of hydraulic exhibitor/crane sent for repair Legal framework: The GST statutory scheme taxes 'supply' of goods or services. Provisions enabling detention/seizure and imposition of penalty under the rules arise only where movement implicates evasion or taxable supply. Precedent treatment: The Court applied binding authoritative decisions holding that administrative policy or circulars issued by the Central Government on classification/treatment of transactions are to be given effect by revenue authorities. Interpretation and reasoning: The Court examined the facts (machine sent to repair) against the Circular declaring that movement of a crane for repair is not to be treated as supply/liable to GST. On the undisputed factual foundation that the item was being sent for repair and not sold/transferred as supply, the Court concluded there was no taxable event attracting GST liability. Ratio vs. Obiter: Ratio - where goods moved solely for repair/servicing and not constituting a supply, GST liability does not arise and punitive detention/penalty predicated on such liability cannot be sustained. Obiter - none additional on alternate fact patterns. Conclusion: Movement of the hydraulic exhibitor for repair did not constitute a taxable supply under GST and therefore could not be the basis for detention, seizure or penalty under section 129(3). Issue 2: Validity of seizure/detention and demand when documents were produced post-interception Legal framework: The rules permit interception and seizure where documentary evidence of taxable movement is absent or evasion is suspected; however, if no liability exists, the justificatory basis for seizure collapses. Precedent treatment: The Court relied on the principle that administrative acts must conform to the legal characterisation of transactions and to binding circulars; absence of initial documents does not convert a non-taxable movement into taxable one when subsequent documentary evidence supports the non-taxable nature. Interpretation and reasoning: Although at the point of interception only a bill of lading (bilty) was on hand and other documents were produced later, the decisive question is whether the movement was a taxable supply. Given the Circular's treatment and the nature of the movement (repair), the late production of documents did not justify converting the movement into a taxable transaction nor did it validate seizure and demand predicated on tax liability. Ratio vs. Obiter: Ratio - absence of documents at interception cannot sustain seizure/penalty where the movement, on its true character and in light of binding administrative guidance, is not a taxable supply. Obiter - procedural expectations about document carriage not expanded beyond the facts. Conclusion: The post-interception production of delivery challan and e-way bill does not validate seizure or penalty when the movement is not taxable; the seizure/detention and demand were unjustified. Issue 3: Binding effect of Central Government Circulars treating repair movement as non-taxable Legal framework: Executive Circulars and notifications interpreting the tax law may be binding on administrative authorities when they clarify the applicability of tax to certain transactions, subject to conformity with statute and higher judicial authority. Precedent treatment: The Court expressly held that the Circulars are binding on authorities and invoked earlier authoritative decisions to that effect. Interpretation and reasoning: The Court accepted the Circulars' categorical declaration that movement of cranes for repair is not leviable to GST. On that basis, the Court reasoned that revenue authorities cannot treat such movement as taxable and cannot invoke seizure/penalty provisions predicated on tax liability. The administrative guidance effectively removed the taxable character from that specific class of movement, and enforcement action inconsistent with the Circular was impermissible. Ratio vs. Obiter: Ratio - binding administrative Circulars that categorically exclude a class of transactions from tax liability must be applied by authorities; enforcement action contrary to such Circulars is unsustainable. Obiter - no general rule beyond the specific applicability of the Circulars was laid down. Conclusion: Circulars treating movement for repair as non-taxable are binding on authorities and preclude initiation of seizure/penalty under the GST regime in respect of such movements. Combined Conclusion / Court's Disposition On the combined application of the legal framework, binding administrative Circulars and the undisputed fact that the hydraulic exhibitor was being sent for repair, the seizure order and the appellate order imposing/demanding payment under seizure/penalty provisions were held unsustainable and were quashed. The petition challenging those orders was allowed.