Goods sold which were seized by Department

[Rajesh Kumar]

Dear sir/madam,

Department conducted search and found stock at undeclared place or stock found without invoices. Now Department seized the said goods under INS-02 and handed over through INS-03 for safe custody.

Later on , party sold out these goods without informing Department and without release from Department.

Now what action can Department take against the party ?

[Amit Agrawal]

As per Section 67 (10) of the CGST Act, 2017, the provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to search and seizure, shall, so far as may be, apply to search and seizure under this section subject to the modification that sub-section (5) of section 165 of the said Code shall have effect as if for the word “Magistrate”, wherever it occurs, the word “Commissioner” were substituted.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Lav Prajapati]

Mr. Rajesh

on the basis of assumption, that sale made through invoice only without actual supply of goods

Yes Department take a action additional under section 122 as well as 122(1A)

Penalty on Supplier of goods

In this case party sold those goods which is already sezied by the department. so that situation fall under offence under section 122(1)(ii) i.e. issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder;

so party also liable to penalty under section 122.

Penalty on Receiver of the goods

under section 122(1A) Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.

[KASTURI SETHI]

I agree with both experts.

MAXIMUM PENAL ACTION

(i) Recovery of tax along with interest

(ii) Penalty imposable. May be extended to 200% of tax evaded.

(iii) Various other penalties for not proper maintenance of records and accounts/returns

(iv) Redemption fine

(v) It can open pandora's box depending upon the results of investigations. More parties can be brought into the case of evasion of tax.

This is a very very serious lapse/offence on the part of the assessee. The party has no excuse at all. The party is statutorily bound to follow the instructions contained in Form GST INS-02 and Form GST INS-03. Instructions are very much clear on both GST Forms.

I have seen such a case for the first time in my life wherein the party has dared to dispose of seized goods without permission from the department.

[Amit Agrawal]

Its indeed shocking action by the tax-payer, showing scant regard to laws of land. Metaphorically speaking, Tax-payer has himself given "licence to kill" to the Dept.

[KASTURI SETHI]

Had the assessee consulted his advocate in advance, he would not have been in dire straits..

[Amit Agrawal]

@ Shri Kasturi Sethi Ji,

While I want to agree with you for your last post but conduct of tax-payer is not aspiring at all.

If tax-payer does not bother about law & secretly sales goods under seizure despite being specifically told not do so in writing by Dept. officer, it is clear that he feels he is above law. Hence, I am doubtful that he would have followed any good advice from advocate / consultant. Only when he will face music of law as consequence of his belligerence, he will probably understand.

[KASTURI SETHI]

Dear Sir,

There is a lot of substance in your views.

In our real life, sometimes we observe that even highly qualified, seasoned & knowledgeable persons commit mistakes out of frustration and tension and in a hurry. Therefore, remote possibility of presence of bona fide mistake cannot be ruled out. Only wearer knows where the shoe pinches.

At the same time I do not deny that rules and regulations have been framed to be honored and followed in true spirit and not meant for flouting like anything.

[Amit Agrawal]

@ Shri Kasturi Sethi Ji,

You are right about remote possibility of human emotions behind such actions. And I fully agree with you in that context.

But, I feel that committing such grave error (despite being made aware by Dept. not to do so and despite already under grave suspicion of Dept. leading to seizure of goods) merely 'out of frustration and tension and in a hurry' cannot be called bonafide mistake under law in subject situation under discussion here.

However, your life experiences are much more than mine. Probably, you are more right in this.

[KASTURI SETHI]

Dear Sir,

You have rightly opined that emotions have no room in the realm of law.

[Rajesh Kumar]

Respected sir / madam ,

The taxpayer sold out the said seized goods in retail through cash payment due to ignorance as per taxpayer.

Now, which penal provisions can Department initiate against the taxpayer.

Can they report to local police in this regard ?

AI Summary

Sale of seized goods: disposal without departmental release triggers tax recovery, monetary penalties and expanded enforcement.
Disposal of goods seized under the departmental search and seizure regime without departmental release constitutes a statutory lapse attracting recovery of tax with interest and monetary penalties. Issuing invoices or transacting in respect of goods not supplied and sold while under seizure can lead to proceedings against the supplier for improper invoicing and against any person who retains the benefit of the transaction, who may be liable to a penalty equivalent to the tax consequence. Compliance with written instructions on Form GST INS-02 and Form GST INS-03 is mandatory and breach exposes the taxpayer to expanded investigations and multiple enforcement measures.