2025 (9) TMI 1384 - HC - GST

Petition allowed: seizure and proceedings quashed where delivery challan produced and no tax evasion found

HC allowed the petition and quashed the seizure and related proceedings. Although an E-way bill accompanied the excavator, the delivery challan was ... Seizure of old excavator with conveyance - machine was seized on the ground that at the time of interception, no delivery challan was available, though the E-way bill was accompanying the conveyances & machinery - HELD THAT:- In the case in hand, though the E-way bill was accompanied with the goods in question, the delivery challan was not accompanied with it, but before passing of the seizure order, the delivery challan was produced and the first appellate authority has also accepted the fact that the delivery challan was issued in accordance with the provisions of GST Act & Rules - The authorities below has not recorded any finding with regard to evasion of tax by the petitioner and once no finding of evasion of tax has been recorded, the entire proceedings initiated against the petitioner are vitiated and are liable to be set aside. Admittedly, the goods in question belonged to the petitioner that was returning back to its business place from the work place of M/s Kaluwala Constructions, which had used the same after paying out the due rent to which the tax had already been paid and deposited by the petitioner. Once, the goods in question belong to the petitioner, which has not been disputed at any stage by the respondents, the relevant delivery challan and E-way bill has rightly been issued by the petitioner. Therefore, the submission made by the learned A.C.S.C. that the case in hand is covered by the judgment of this Court passed in M/s Famus India [2025 (3) TMI 555 - ALLAHABAD HIGH COURT], is of no aid to the State. The impugned order cannot be sustained in the eyes of law and the same is hereby quashed - Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether seizure of an old excavator under Section 129(3) of the UPGST/CGST Act was sustainable where the conveyance carried a valid e-way bill but the delivery challan was not physically available at the moment of interception and was produced before the seizure order was passed. 2. Whether the movement of the excavator, which belonged to the consignor and was returning from a hirer after being used under a rent/works contract, involved any element of 'sale' or gave rise to tax evasion justifying confiscation/seizure proceedings. 3. Whether the appellate authority's acceptance that the delivery challan was issued in accordance with GST Act & Rules obviates the basis for the impugned seizure order, and how conflicting precedents bearing on similar facts should be treated. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Legality of seizure where e-way bill present and delivery challan produced before seizure Legal framework: Section 129(3) of the UPGST/CGST Act permits seizure of goods/vehicle where proper documents are not produced; GST rules prescribe issuance and carriage of e-way bills and delivery challans for movement of goods, with separate roles for each document. Precedent Treatment: The Court considered earlier judgments of the same High Court that address seizure where e-way bills/delivery challans are involved. The State relied on a contrary decision; petitioner relied on two decisions finding releases where delivery challans were subsequently produced and no tax evasion shown. Interpretation and reasoning: The Court treated the presence of a valid e-way bill as material, and held that production of the delivery challan before passing the seizure order removed the primary documentary deficiency asserted at interception. The impugned order was passed despite the delivery challan being produced and later accepted by the appellate authority as compliant with GST provisions; no contemporaneous finding justified continuing with seizure. The Court emphasized that seizure should not be mechanically sustained where the statutory documents are shown in time and comply with the Act and Rules. Ratio vs. Obiter: Ratio - seizure under Section 129(3) cannot be sustained when the required document (delivery challan) is produced before seizure and is later accepted as compliant; presence of e-way bill corroborates legitimate movement. Obiter - observations on administrative practice or on likelihood of technical defects in signatures were not essential to the decision. Conclusions: The seizure was unsustainable because the delivery challan was produced before the seizure order and subsequently accepted as valid; the e-way bill accompanied the goods and supported lawful transit. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Character of movement - goods return/rental (no sale) and absence of tax evasion Legal framework: GST liability and enforcement actions (including seizure) rest on whether taxable supply or evasion exists. Movements of goods under rental/works contracts and returns of goods to owner are treated as 'goods return' not involving a transfer of title/sale, provided taxes have been accounted for as required. Precedent Treatment: The Court relied on earlier High Court decisions holding that return of plant/machinery to the owner after hire, with tax declared and paid, does not constitute sale and cannot be basis for seizure or confiscation for tax evasion. The State's cited authority was distinguished on facts. Interpretation and reasoning: The Court found on record that the excavator belonged to the consignor, had been hired out, and was returning after use. The hirer paid rent and tax was reflected in petitioner's books and returns. No finding of tax evasion was recorded by authority below. Given absence of sale, ownership continuity, tax payment, and documentary proof, the requisites for treating the movement as taxable supply or evasion were absent. Consequently, initiating or sustaining seizure/confiscation proceedings was legally untenable. Ratio vs. Obiter: Ratio - where goods owned by consignor are returning after hire and taxes have been declared/paid, movement is a 'goods return' not a taxable sale; absence of any recorded finding of tax evasion makes seizure proceedings vitiated. Obiter - general comments distinguishing other fact patterns where hire might mask unlawful transfer were not essential. Conclusions: The movement was a goods return following hire with taxes accounted for; no element of sale or evasion existed and therefore seizure proceedings were legally infirm. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Effect of appellate acceptance of delivery challan and role of conflicting precedents Legal framework: Appellate adjudication under the GST regime can rectify defects in earlier orders; acceptance by an appellate authority that statutory documents were issued in accordance with law undermines the factual and legal basis for seizure/confiscation orders premised on missing or defective documentation. Precedent Treatment: The Court applied binding High Court precedents that favored release where documents were produced and accepted; the State's contrary precedent was distinguished on the facts of ownership, tax compliance, and timing of production of documents. Interpretation and reasoning: The appellate authority had recorded that the delivery challan was issued in accordance with GST Act & Rules. The Court held that such acceptance neutralizes the principal ground for seizure. Where lower authorities have not recorded any finding of tax evasion and the appellate authority accepts compliance with documentation requirements, continuing to uphold seizure is unsupportable. The reliance by the State on a case with distinguishable facts was rejected. Ratio vs. Obiter: Ratio - an appellate acceptance that delivery challan complies with GST law negates foundational grounds for seizure where no separate finding of tax evasion exists; such acceptance must be given effect unless faithfully shown to be perverse. Obiter - remarks on when appellate findings may be re-examined were peripheral. Conclusions: The appellate acceptance of the delivery challan's validity, combined with absence of tax-evasion findings, required quashing the impugned seizure and related orders; conflicting precedent was inapplicable on the facts and thus distinguished. FINAL DETERMINATIONS 1. The impugned order of seizure under Section 129(3) was quashed as the delivery challan was produced before the seizure order, the e-way bill accompanied the movement, the delivery challan was later accepted by the appellate authority as compliant, and no finding of tax evasion was recorded. 2. The movement constituted a goods return of owner's machinery after hire and did not involve sale or tax evasion given tax entries and returns on record; accordingly, proceedings initiated were vitiated. 3. The State's reliance on a contrary decision was held inapposite; earlier favorable High Court decisions were followed and applied to quash the impugned orders. The petitioner is entitled to refund of amounts deposited pursuant to the impugned order.