2025 (12) TMI 941 - HC - GST

CGST ruling clarifies when to use Sections 129 vs 130 and insists strict timelines u/rr 138B, 138C

HC held that post-amendment, Sections 129 and 130 CGST remain independent and mutually exclusive; deletion of the non-obstante clause in Section 130 does ... Challenge to action of the respondent–authorities for confiscation of goods which were seized during transit u/s 129 of the CGST Act - amendment to Sections 129 and 130 of the CGST Act, made effective from 01.01.2022 by virtue of the Finance Act, 2021 - case of petitioner is that the respondents have mechanically invoked Section 130 of the CGST Act for confiscation of goods immediately upon interception u/s 129 of the CGST Act, which is impermissible in law. HELD THAT:- Prior to amendment in section 129 and 130, i.e before deletion of non-obstante clause in Section 130 of the Act, this Court has comprehensive delved into the provisions and similar submissions while considering the effect of non-obstante clause in both the sections. However, a fresh attempt is made to convince after the amendment of the provisions of Sections 129 and 130. The division bench has emphatically held that Section 130 of the CGST Act, which provides for confiscation of the goods or conveyance is not, in any manner, dependent or subject to Section 129 of the CGST Act, and they are independent of each other and are mutually exclusive. It is held that even if the goods or the conveyance is released upon payment of the tax and penalty under Section 129 of the CGST Act, later, if the authorities find something incriminating against the owner of the goods in the course of the inquiry, then it would be permissible to them to initiate the confiscation proceedings under Section 130 of the CGST Act. The Coordinate Bench has also dealt with the submissions made with reference to Sections 73 and 74 of the Act, and it is specifically, held that, the reference to Sections 73 and 74 respectively of the Act is not warranted for the purpose of interpreting Sections 129 and 130 of the Act, more particularly, when they all are independent of each other. It is significant to note that while the non-obstante clause opening with “Notwithstanding anything contained in this Act” has been retained in Section 129 of the CGST Act, the same has been deleted from Section 130 of the CGST Act. Section 130 of the CGST Act now commences with the expression “Where any person” in place of the earlier non-obstante clause - It is also observed that in Section 129 of the CGST Act, the words “applicable tax” have been deleted and substituted with “tax payable” in clauses (a) and (b), and the quantum of penalty earlier computed on the basis of applicable tax has undergone significant enhancement. The earlier penalty of 100% has now been increased to 200% under clause (a), and the earlier penalty of 50% under clause (b) has also been replaced with 200% of the tax payable. Thus, while the unamended Section required computation of penalty on the basis of the applicable tax on goods detained in transit, the amended provision requires the penalty to be calculated on the tax payable on such goods. Prior to amendment of Section 129 of the CGST Act, goods seized and detained during transit were released by resorting to Section 67(6), which provided for provisional release of goods on payment of the penalty specified therein. However, this provision has now been omitted by Parliament, and release of goods is now governed exclusively by payment of penalty under Section 129 of the CGST Act. Therefore, once Section 67(6) is deleted and separated from Section 129 of the CGST Act, invocation of Section 67(6) would not arise after such omission - The Circular N0.41/15/2018-GST, dated 13th April, 2018 prescribes the procedure for interception of conveyance for inspection of goods in movement, and detention, release and confiscation of such goods and conveyance. The same is issued under the provisions of section 168 of the CGST Act, which empowers the Competent Authority to issue orders, instruction or directions to the lower authorities to bring in uniformity in the implementation of the CGST Act. The seizure and confiscation of ‘goods’ under Sections 67 and 130 of the CGST Act, is interlinked with the expression “ intention of evasion of tax”. Thus, after such “seizure” of goods, if the goods are not confiscated, they can be provisionally released under the Section 67(6). The confiscation of the goods or conveyance, and their release/disposal is embedded in Section 130 of the Act, and not under Section 129 - The intention of the parliament to delink provisions of section 129 and 130 is apparent from the statement and object of Finance Act. Both the sections provide different approach to be adopted by the authorities and also specify different penalties. Section 130 of the Act, has the grave consequences as the goods or conveyance, after confiscation vests in the government. Both the Sections operate within their contour, unless they are bridged by the element of “intention to evade tax”. It does not mean that the goods or conveyance seized during transit cannot be subjected to confiscation. Effect of deletion of non-obstante clause from section 130 of the Act - HELD THAT:- There is no conflict between the sections as far as the forming an opinion on intention of evasion of tax. The provisions of Section 129 are stand alone provisions as far as no element of intention of evasion of tax is involved. As held by this Court in case of Synergy Fertichem Private Ltd [2019 (12) TMI 1213 - GUJARAT HIGH COURT], there is no bar in invoking the provision of Section 130 of the act for confiscation at threshold, if on the seizure of goods and conveyance it is found that the entire transaction reveals the intention to evade the tax . High Court is not convinced to take a different view as expressed by the coordinate bench, merely because the provisions have been amended, by deleting the non-obstante clause from Section 130 of the Act, while retaining it in Section 129. Rule 138B of the CGST Rules, 2017, stipulates of physical verification of documents and conveyance by the Commissioner or an officer empowered by him after the interception of conveyance in case of evasion of tax. Sub-rule (3) further provides for physical verification of conveyance by the authorised officer or an officer empowered by the Commissioner. The proviso to Rule 138B brings in the element of evasion of tax - the action taken under FORM MV-10 and 11 for confiscation of goods or penalty other than the Officer having jurisdiction as mentioned herein above will be without authority and illegal. Limitations for examining evasion of tax for goods and conveyance seized during transit - HELD THAT:- At the stage of interception of goods during transit as provided under Section 68 of the CGST Act and seizure and detention under Section 129 of the CGST Act, the proper officer, in case he/she finds that there is no ‘intention to evade the payment of tax’, then the authorized officer has no other option, but to strictly follow the entire procedure as prescribed under Section 129 of the Act, and the provisions of Section 130 cannot be resorted to. It will be fallacious to hold that for confiscating the goods and conveyance in transit, the authorities have to fall back to the provisions of Section 67, and only after actual evasion of tax is established after search under and seizure, the goods and conveyance can be confiscated. The proper officer, at the time of seizure and detention of the goods under Section 129 of the Act has to form an opinion regarding “intention” to evade payment of tax, and such intention can be gathered from the attendant circumstances. In order to invoke the severe action of confiscation of goods and conveyance, during transit, the contravention/ infringement has to be of the highest degree, such as absence of documents or fake or forged documents, absence of details of dealer, forged e-way bills, a complete deceptive/ divergence/ mismatch of goods, fake registration, etc. which apparently establishes the ‘intention to evade payment of tax’ - the proper officer cannot venture into the assessment and valuation of goods at the time of interception of vehicle, and resort to seizure and confiscation of goods and conveyance by resorting to the entries in portal, and digging out the evasion of tax, etc of third parties. Time line for forming the opinionof evasion of tax for the goods in transit - HELD THAT:- Under Rule 138C of the CGST Rules, 2017, the proper officer has to prepare a summary report of every inspection of goods within 24 hours in Part-A of FORM GST-EWB-4 and the final report in Part B of such form has to be recorded in three days, however, the period of three days can be extended for further period of three days by the Commissioner or by any officer authorised by him, if circumstances warrant. Such request of extension of time is as per FORM MOV-03. Thus, the limitation of preparing the final report FORM-MOV-04, after inspection and verification of the conveyance and goods cannot be extended beyond the period of six days. In case, it is found that there is blatant evasion of tax, then the goods and conveyance can be seized, and FORM MOV-10 can be issued. Hence, for the goods which are in intercepted and are in transit, the opinion of “intention to evade the payment of tax’, has to be confined within the aforesaid period for confiscation, and if no opinion is formed, the goods and conveyance are required to be released by resorting to the provisions of Section 129 of the CGST Act. The Notices issued under FORM MOV-10 or Order under FORM MV-11 shall be re-examined - it is found that the confiscation Notice or Confiscation runs contrary to the observations made in the present judgement and order, the same shall be withdrawn - The goods or conveyance, seized during transit shall be released by resorting to the provisions of Section 129 of the Act in case any infringement is found under that Section - Since, in some of the matters, the goods which are confiscated are already released, such release is made subject to final outcome of confiscation proceedings, and if there is stay operating on confiscation, the same shall continue to operate till final order is passed. Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, after the 01.01.2022 amendments, proceedings under Section 129 of the CGST Act must be completed before invoking Section 130, or whether detention/seizure and confiscation remain independent and mutually exclusive regimes. 1.2 Effect of deletion of the non-obstante clause from Section 130 and retention in Section 129 - whether Section 129 overrides or renders Section 130 inapplicable in cases of goods and conveyance intercepted in transit. 1.3 Whether Section 67(6) of the CGST Act continues to permit provisional release of goods and/or conveyance once Section 129 has been amended and its linkage with Section 67(6) deleted. 1.4 Validity and applicability of Circular No. 41/15/2018-GST dated 13.04.2018 and the MOV procedure (including FORM GST MOV-10 & MOV-11) in the post-amendment regime, and the manner in which those forms may be used. 1.5 Scope and limits of the power to invoke Section 130 at the stage of interception in transit, including: (a) the requirement to establish 'intent to evade payment of tax'; (b) reliance on minor/documentary discrepancies; and (c) the timeframe within which such opinion must be formed. 1.6 Whether 'conveyance' is covered by the expression 'goods' or 'things' under Section 67(2) and Section 67(6), and the resulting impact on seizure and provisional release of conveyances vis-à-vis Sections 129 and 130. 1.7 Identification of the 'proper officer' competent to exercise powers under Section 130 and issue FORM GST MOV-10/MOV-11, in light of Rule 138B of the CGST Rules and administrative orders. 1.8 Consequential relief and directions in respect of existing confiscation notices/orders (MOV-10/MOV-11) issued in the petitioners' cases. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2 - Relationship between Sections 129 and 130 post-amendment; effect of non-obstante clauses Legal framework discussed 2.1 The Court examined amended Sections 129 and 130 of the CGST Act, the Finance Act, 2021, the Memorandum explaining the Finance Bill, 2021, and Minutes of the 39th GST Council Meeting, which expressly recorded the intention 'to delink' proceedings under Section 129 from Section 130, and to delink both from Sections 73 and 74. 2.2 The Court relied upon the earlier Division Bench judgment in Synergy Fertichem Private Limited, which, on the pre-amendment text, had held that Sections 129 and 130 are independent and mutually exclusive, and that Section 130 is not dependent on Section 129(6), and can even be invoked at the threshold in appropriate cases. Interpretation and reasoning 2.3 The legislative amendments (including deletion of the non-obstante clause from Section 130 and retention in Section 129) are understood as a formal 'delinking' of the two provisions, not as making one subordinate to the other. Both provisions now operate independently within their respective fields. 2.4 Section 129 is a special, self-contained regime for detention, seizure and release of goods and conveyance in transit, with enhanced penalties and a recovery mechanism through sale/auction (Rule 144A, amended Rule 154). It applies where there is contravention in transit but no element of 'intent to evade tax' is yet established. 2.5 Section 130, by contrast, is a confiscatory provision with grave consequences (vesting of title in Government) that is triggered where contraventions under clauses (i) to (v) are attended by 'intent to evade payment of tax'. It is not controlled by Section 129, and can be invoked both (a) after proceedings under Section 129, and (b) at the threshold in egregious cases, if requisite intent is made out. 2.6 The Court re-affirmed Synergy Fertichem that: (i) Section 130 is not dependent on Section 129 or its sub-sections; (ii) the power to confiscate does not arise only upon failure to pay penalty under Section 129; and (iii) even post-release under Section 129, authorities may initiate Section 130 proceedings if incriminating material later emerges. 2.7 On the non-obstante clause, the Court reiterated the settled principle that such clause gives overriding effect only in case of conflict. Since Sections 129 and 130 operate in different fields, there is no actual conflict. The presence of a non-obstante clause in Section 129, and its deletion from Section 130, does not bar or curtail the operation of Section 130 where 'intent to evade tax' is established. 2.8 Section 129 'overrides' other provisions only to the extent of the detention/seizure/release mechanism in the absence of established intent to evade tax. Once elements of Section 130 are satisfied, confiscation can still be resorted to, even where goods were initially detained under Section 129. Conclusions 2.9 Sections 129 and 130 remain independent, mutually exclusive provisions; Section 130 is not dependent on completion or failure of proceedings under Section 129. 2.10 The retention of the non-obstante clause in Section 129 and its deletion from Section 130 does not extinguish, subordinate or suspend the power of confiscation under Section 130 for goods or conveyance intercepted in transit. 2.11 Authorities are not required, as a matter of law, to complete the entire Section 129 process before invoking Section 130, provided the stringent conditions for invoking Section 130 (especially 'intent to evade payment of tax') are met and properly recorded. Issue 3 & 6 - Applicability of Section 67(6) after amendment; scope of 'goods', 'things' and 'conveyance' under Sections 67, 129 and 130 Legal framework discussed 2.12 The Court analysed Sections 67(1), 67(2), 67(6), 129 (with the deletion of sub-section (2)), and the definitions of 'goods' (Section 2(52)) and 'conveyance' (Section 2(34)). Interpretation and reasoning 2.13 Section 67(1) and (2) concern inspection, search and seizure at business premises, warehouses or other places, by a proper officer not below the rank of Joint Commissioner. Section 67(2) authorises seizure of goods and documents or books or 'things' liable to confiscation, but does not itself confer confiscation power; confiscation is to be done under Section 130. 2.14 Applying noscitur a sociis, the word 'things' in Section 67(2) is read in association with 'documents or books', referring to articles or items found in premises, not to 'conveyances'. Hence, 'conveyance' is not covered under 'things' for Section 67(2) or 67(6). 2.15 Section 67(6) permits provisional release only of 'goods so seized under sub-section (2)'. With the deletion of Section 129(2), which earlier applied Section 67(6) mutatis mutandis to goods and conveyances detained in transit, the statutory link between Section 129 and Section 67(6) has been consciously removed. 2.16 Section 129 now independently regulates detention, seizure and release of both goods and conveyance in transit; the remedy of provisional release under Section 67(6) for goods or conveyance seized under Section 129 is no longer available. 2.17 'Conveyance' is separately defined and deliberately kept distinct from 'goods' in Sections 129 and 130. It is therefore incorrect to treat conveyance as 'goods' or as 'things' under Section 67(2)/(6) for the purpose of seizure and provisional release in transit cases. Conclusions 2.18 After the 01.01.2022 amendment and deletion of Section 129(2), Section 67(6) cannot be invoked for provisional release of goods or conveyance seized or detained under Section 129. 2.19 For transit-related seizure/detention, the only mechanism for release (including of conveyance) is that expressly provided under Section 129 and the applicable rules; Section 67(6) is confined to goods seized under Section 67(2) in premises-based search and seizure. 2.20 Conveyance seized in transit cannot be released under Section 67(6); its seizure/release/confiscation must follow Sections 129 and 130 only. Issue 4 & 7 - Validity and use of Circular dated 13.04.2018, MOV-forms and identification of proper officer under Section 130 and Rule 138B Legal framework discussed 2.21 The Court considered Circular No. 41/15/2018-GST dated 13.04.2018 (issued under Section 168), particularly paragraph 2(l); FORM GST MOV-10 and its text; Rule 138B and Rule 138C of the CGST Rules; and orders/circulars specifying the 'proper officer' for Section 130. Interpretation and reasoning 2.22 The Circular prescribes the procedural sequence of interception, inspection, detention, release and confiscation through MOV-forms (MOV-01 to MOV-11). Being issued under Section 168 to secure uniform implementation, it is valid unless it contradicts the statute. The Court found no such inconsistency; the Circular tracks and operationalises statutory provisions. 2.23 Paragraph 2(l) and FORM MOV-10 permit the proper officer, 'where the proper officer is of the opinion that such movement of goods is being effected to evade payment of tax', to directly invoke Section 130 by issuing MOV-10, specifying tax, penalty and fine under Section 130 read with Section 122. 2.24 MOV-10 is thus permissible only where the officer forms a bona fide opinion, on concrete material, that movement is with intent to evade tax, not merely on minor or technical defects. It cannot be issued mechanically, nor used to bypass Section 129 in ordinary contravention cases lacking such intent. 2.25 Rule 138B authorises interception and physical verification of conveyance/e-way bills. Its proviso requires that where interception is based on specific information regarding evasion of tax, physical verification may be carried out by an officer only after obtaining approval of the Commissioner or authorised officer. 2.26 Administrative circulars designate the proper officer for exercising powers under Section 130(1)-(7) as Deputy/Assistant Commissioner (Central Tax) or Assistant Commissioner of State Tax. Therefore, MOV-10/MOV-11 must be issued by the properly empowered jurisdictional officer; confiscation orders by officers lacking such authority are without jurisdiction. Conclusions 2.27 Circular dated 13.04.2018 and the MOV-form procedure, including MOV-10/MOV-11, are intra vires and remain applicable post-amendment, subject to being applied consistently with Sections 129 and 130. 2.28 MOV-10 (notice of confiscation) may be issued directly at the stage of detention/seizure only where the officer, based on facts and after necessary approval under Rule 138B (where required), forms a reasoned opinion that movement is with intent to evade tax. 2.29 Only officers notified as 'proper officers' for Section 130 may issue MOV-10/MOV-11; any confiscation action taken under these forms by officers not so authorised is illegal and without authority. Issue 5 - Conditions, limits and timing for invoking Section 130 at interception; 'intent to evade' and use of document discrepancies/portal data Legal framework discussed 2.30 The Court relied on Section 130(1) ('with intent to evade payment of tax'), Sections 68 and 129 (interception/detention in transit), Rules 138B and 138C, and the clarificatory Circular dated 14.09.2018 (CBEC/20/16/03/2017-GST) regarding minor errors in documents/e-way bills. 2.31 The Court also followed the reasoning of Synergy Fertichem on when Section 130 may be invoked at the threshold, including the need for a strong, good-faith case and the necessity of recording reasons. Interpretation and reasoning 2.32 Detention, seizure and confiscation are distinct stages: (i) detention - temporary withholding pending verification; (ii) seizure - taking possession upon confirmation of irregularities/contraventions; (iii) confiscation - final, punitive stage, only when contraventions are established with intent to evade tax. 2.33 For goods in transit, the proper officer must, at the time of interception and within the time limits of Rule 138C (summary in 24 hours; final report in 3 days, extendable by another 3 days), decide whether there is prima facie 'intent to evade tax'. If such intent is not made out within this frame, the officer must proceed only under Section 129. 2.34 Confiscation is a measure of 'last resort' with drastic consequences and cannot be founded on mere suspicion or ipse dixit. The opinion on 'intent to evade tax' must arise from objective, concrete material such as forged/absent documents, fake registrations, clearly deceptive mismatch of goods or destination, etc., not from trivial discrepancies. 2.35 The Circular dated 14.09.2018 clarifies that proceedings under Section 129 should not be initiated for minor 'first degree' errors (e.g. spelling mistakes in names, minor PIN code error not affecting validity, minor vehicle number mismatch, small HSN digit error where tax rate is correct). The Court extended this logic: such minor aberrations cannot justify seizure or confiscation. 2.36 Where contraventions are of a 'second degree' i.e. there is violation of the Act/Rules but no clear nexus with deliberate tax evasion, the assessee must be confined to Section 129 proceedings - payment of tax and penalty as specified therein, with the matter concluding upon such payment or resulting in sale under Section 129(6) if payment is not made. 2.37 Only where contraventions are of the 'highest degree' - such as absence of any valid documents, forged or fake documents, fake e-way bills, fake registration, complete mismatch/diversion of goods, or other egregious facts clearly evidencing intent to evade tax - may the officer resort to Section 130 and issue MOV-10. 2.38 The officer at interception cannot undertake detailed assessment or examination of portal data or third-party discrepancies (such as supplier's suppliers) to excavate possible tax evasion; such issues are for regular assessment or separate proceedings, not for confiscation action in transit. 2.39 The 'intent to evade tax' must be attributable to the person/dealer directly or proximately linked to the contravention; the conduct of remote third parties cannot be treated as sufficient foundation for confiscation of goods in transit. 2.40 In line with Synergy Fertichem, where confiscation is proposed at the threshold, reasons for believing that intent to evade exists should be recorded and, consistent with Rule 138B's proviso, appropriate approvals must be obtained. Conclusions 2.41 Section 130 may be invoked at the stage of interception only where a strong, fact-based case of 'intent to evade payment of tax' is made out, supported by concrete incriminating material. 2.42 Minor/documentary discrepancies and first-degree errors as identified in the Circular dated 14.09.2018 cannot justify seizure or confiscation. 2.43 Where contravention is present but not demonstrably linked to evasion intent, proceedings must be confined to Section 129, not escalated to Section 130. 2.44 The opinion of 'intent to evade' for goods in transit must ordinarily be formed within the time-frame prescribed under Rule 138C (maximum six days from interception); if not formed, the authorities are to proceed only under Section 129. Subsequent incriminating material, if discovered later, can nonetheless justify initiation of confiscation proceedings under Section 130. 2.45 Authorities cannot use third-party portal data or remote supplier discrepancies, without clear nexus, as the sole basis to confiscate goods in transit. Issue 8 - Consequential directions and treatment of existing MOV-10/MOV-11 notices and confiscation orders Interpretation and reasoning 2.46 The Court examined sample cases indicating that MOV-10 was sometimes issued immediately or soon after MOV-4/MOV-6/MOV-7, including instances where goods were released under MOV-6 and yet confiscation was initiated, and instances of time-line violations under Section 129(3). This revealed a pattern of mechanical or premature resort to Section 130 without a properly structured inquiry into evasion intent. 2.47 In light of the clarified legal position, a case-by-case re-examination of all outstanding MOV-10/MOV-11 notices and confiscation orders was considered necessary, rather than blanket quashing or upholding. Conclusions / Directions 2.48 All notices under FORM GST MOV-10 and orders under FORM GST MOV-11 in the petitions are to be re-examined by the respondent authorities in light of the Court's observations on: (a) independence of Sections 129 and 130; (b) requirement of 'intent to evade tax'; (c) limits from Circulars and Rules 138B/138C; and (d) competence of the issuing officer. 2.49 If upon such reconsideration the confiscation notice/order is found contrary to the principles and limits laid down in this judgment, it shall be withdrawn. 2.50 Where only Section 129 is attracted (no established intent to evade tax), the seized goods or conveyance shall be released in accordance with Section 129, and any continuing detention/confiscation solely under Section 130 shall not be sustained. 2.51 In matters where goods have already been released pending confiscation proceedings, such release shall remain subject to the final outcome of those proceedings, and any existing stay on confiscation shall continue until final orders are passed. 2.52 Where, after reconsideration, the authorities still find that confiscation under Section 130 is warranted, they shall defer taking confiscatory action for a period of two weeks to enable the affected parties to approach the Court, if so advised. 2.53 All necessary orders after reconsideration are to be passed within 12 weeks from receipt of the writ of the Court's order. 2.54 Given that confiscation is a harsh measure with significant impact on trade and finance, any future action by authorised officers in defiance of the principles and limits articulated in this judgment may expose such officers to contempt proceedings.