Penalty u/s 129 and 130, Section 17(5)(i)

[CHINTAPALLI MANIKANTA]

Dear Sir/Madam

Please respond to my query

Thanks in advance

After amendment of Section 129 now penalty is only needed to be paid for release of goods and conveyance - and tax is to be paid along with GSTR-3B. So 17(5)(i) says tax paid in accordance with Sec 74, 129, 130 - ITC is not available - so now 17(5)(i) is not applicable in case of sec 129? Means we can take ITC.

And in sec 130 the word tax is not there, nowhere said to pay tax - means 17(5)(i) doesn't apply here. If yes then why it sec 130 included in 17(5)(i).

Is my understanding correct.

[Shilpi Jain]

Agreed. The word now used in Sec.129 is penalty and not tax.

17(5) remains the way it was when the earlier prov of 129 existed.

[KASTURI SETHI]

SH.Chintapalli Manikanta Ji,

Sections 129 and 130 of CGST Act are seas. In addition to penalties, fine etc, both Sections also talk of tax evasion. You cannot deny that the ultimate purpose of both Sections is to check tax evasion and deter tax evaders. Both Sections are not independent of the element of tax-evasion.

[KASTURI SETHI]

Sections 74, 129 & 130 of CGST Act under Section 17(5)(i) are interwoven. Sections 129 and 130 can lay foundation for raising demand of tax, interest, penalty, fine etc. under Section 74 of CGST Act, depending upon the nature of offence.

So not even remote possibility of availing ITC in the scenario depicted by the querist.

[Alkesh Jani]

Shri,

As per the query, I am of the view that Section 129 is for goods under transit if seized or detained. Therefore, penalty is prescribed when goods and/or conveyance is seized or detained during the movement (transportation of goods).

For now, it is settled law that detaining officer cannot act as assessing officer. With regards to section 129 and 130, on plain reading no where payment of tax is mentioned, as it will be against the principles of self-assessment, and I am sure that no credit is available for any penalty paid, as section 16 talks of tax charged and not of penalty.

However, in some cases, if any tax is paid during the course of confiscation, detention or seizer, no credit is available for such tax paid, as it will be out of the ambit of term ‘Supply’.

Our experts are requested to correct me if the view taken is mistaken or has missed something.

Thanks.

[Alkesh Jani]

Dear All,

just to add that Section 129 and 130 as on 01.01.2022.

Thanks

[KASTURI SETHI]

Dear Sh.Alkesh Jani Ji,

My response is as under :-

"As per the query, I am of the view that Section 129 is for goods under transit if seized or detained. Therefore, penalty is prescribed when goods and/or conveyance is seized or detained during the movement (transportation of goods)." Agreed.

"For now, it is settled law that detaining officer cannot act as assessing officer." (Agreed)

"With regards to Sections 129 and 130, on plain reading no where payment of tax is mentioned, (Do not agree)." Without implication of the tax element, the purpose of Sections 129 and 130 is defeated.

"as it will be against the principles of self-assessment, and I am sure that no credit is available for any penalty paid, as section 16 talks of tax charged and not of penalty ".(Agreed)

"However, in some cases, if any tax is paid during the course of confiscation, detention or seizer, no credit is available for such tax paid, as it will be out of the ambit of term ‘Supply’." (Agreed but subject to the facts & circumstances of each.)

Waiting eagerly for your response on each point. Your views matter a lot for me also.

[Sadanand Bulbule]

Dear all

Since 01/01/2022, the element of tax is subsumed in penalty under Section 129 and fine under Section 130. However rate of tax is required to be reckoned for the purpose of quantifying the amount penalty or fine as the case may be. Determination of tax or its demand is outside the domain of Section 129/130. Thus in my opinion, the question of paying tax in addition to penalty or fine does not arise,much less utilizing its credit. So referral of Section 17[5][1] under such situation is not needed.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, We are on the same page. Only way of expression is different. Your art of expression has made the picture crystal clear in a better way. I repeat that you have echoed my thoughts.

To cap it all, the querist cannot get what in his mind is brewing.

[Alkesh Jani]

Respected Shri Kasturiji Sir,

I am glad that you are in agreement with most of the view taken by me, my view where disagreement is as under

It is settled by Apex court that Credit earned is property and vested right under constitution of India. If we see the provisions of Section 129 and 130 before amendment, tax was required to be paid along with penalty as such, ITC was denied under Section 17(5). Now if the goods in transit are detained and /or confiscated or seized, even after satisfying the term supply, the receiver of the goods may be deprived of his vested right, which is against the spirit of law. The Rule of interpretation says that the provision should be read to make another provision work and not to struck down, if ITC is denied it may be in contradiction to the provisions of Section 16 which receiver of the goods has earned and also his vested right and property.

Further, various courts has held that provisions relating to E-way bill is a procedural provision (mechanical) and does not prove the intention to evade the tax, hence receiver of the goods may not suffer for ITC earned. Thus, making suitable amendment, makes the other provision workable, will surely reduce the mitigation and/or litigation.

Regarding quantification of penalty, the open market value can be taken, as the transaction value may not be accepted by the Officer, as he thinks that the goods transported are with intent to evade the payment of tax.

Thanks

With Due Regards.

[Padmanathan KV]

Dear querist, your understanding is correct. Post amendment, section 129 does not provide for tax. Only penalty @ 200% of tax is levied. So, it does not impact 17(5) after the amendment.

[CHINTAPALLI MANIKANTA]

I agree with all the experts.

Thanks for clearing the doubt that ITC can be availed post amendment of Sec 129.

AI Summary

Input Tax Credit availability: amendment treating detention penalty as non tax may permit ITC, affecting denial rules.
Amendment narrowed the transit detention/confiscation levy to a penalty or fine, distinct from tax on supply; therefore such penalty may fall outside the input tax credit denial, although where detention/confiscation leads to a separate tax demand under general assessment provisions the denial rule may still apply. Practitioners differ: some treat the provisions as interwoven so that subsequent tax demands trigger credit denial, while others view the penalty as non tax and thus not subject to the credit denial, subject to factual determination whether tax was in fact paid during enforcement.