Confiscation Of Goods And Conveyance And Levy Of Penalty

Confiscation Of Goods And Conveyance And Levy Of Penalty

Each law has penal and corrective provisions which ensure and encourage taxpayers to adhere to the legal provisions in their entirety. However, laws are different and so are the penalties prescribed. GST law also has certain penalties prescribed for specified offences. These offences and penalties can be read in our previous knowledge blog. This blog attempts to detail out one such penal consequence which relates to the confiscation of goods and conveyances in specific cases.

LIST OF TOPICS COVERED: 

Section 130 of the CGST Act, 2017 (the Act) lays down the provisions for confiscation of goods and conveyance and levy of penalty. As per the said provision, goods and conveyance can be confiscated in one of the scenarios mentioned below: Legal Provisions

  • Thus, in any of the above situations, the proper officer can confiscate goods and conveyance and levy penalty on the defaulter. Practically, there have been instances where goods and conveyances have been confiscated when the underlying documents are not appropriate or are missing. Rule 138A of the Act prescribes documents that the person in charge of the vehicle carrying goods need to possess. The said rule prescribes the following documents: 
  1. The invoice or bill of supply or delivery challan, as the case may be; 
  2. A copy of the e-way bill in physical form or the e-way bill number in electronic form or mapped to RFID embedded on to the conveyance in such manner as may be prescribed 
  • However, the proper officer is required to allow the defaulter to pay a fine instead of confiscation.  
  • Such a fine cannot exceed the market value of goods less tax chargeable thereon. Moreover, the aggregate of such fine and penalty cannot be less than one hundred percent of the tax payable on such goods.  
  • In a situation where the conveyance is given on hire, the owner of such conveyance would also be provided with an opportunity to pay a fine equal to the tax payable on the goods being transported thereon instead of the confiscation. 
  • The proper officer is required to give an opportunity of being heard to the concerned taxpayer without which no confiscation can be made. 
  • The title of the goods confiscated under this act would vest with the Government. 
  • The proper officer may dispose of the confiscated goods and conveyance after giving a reasonable time not exceeding three months to the taxpayer to pay relevant fine. Before disposing of the confiscated goods and conveyance, the proper officer should be satisfied that such goods would not be required in any other proceedings under this Act. Moreover, the sales proceeds after disposal need to be deposited with the Government.  
  • The final order for confiscation of goods is passed by the authorities in Form GST MOV – 11. Such order has to be served upon the owner of the goods and conveyance. If the authorities wish, they can issue a common order to both the owners. Moreover, such an order has to be uploaded on the common portal as well.  
  • The said order contains the detailed computation of tax, penalty, fine for goods, and fine for conveyance. Such an order would also contain a time limit not exceeding three months to make the payment of tax, penalty, and fine imposed in lieu of confiscation of goods. 

Amendments made by Union Budget 2021

The Union Finance Budget 2021 has prescribed the following amendment to Section 130: 

Before Amendment

(1) Notwithstanding anything contained in this Act, if any person— (i) supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or (ii) does not account for any goods on which he is liable to pay tax under this Act; or (iii) supplies any goods liable to tax under this Act without having applied for registration; or (iv) contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or (v) uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent if any, and the person in charge of the conveyance, then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122.

(2) Whenever confiscation of any goods or conveyance is authorized by this Act, the officer adjudging it shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the said officer thinks fit: Provided that such fine leviable shall not exceed the market value of the goods confiscated, less the tax chargeable thereon: Provided further that the aggregate of such fine and penalty leviable shall not be less than the amount of penalty leviable under sub-section (1) of section 129: Provided also that where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon.

(3) Where any fine in lieu of confiscation of goods or conveyance is imposed under sub-section (2), the owner of such goods or conveyance or the person referred to in sub-section (1), shall, in addition, be liable to any tax, penalty, and charges payable in respect of such goods or conveyance.

After Amendment

1) Where— (i) supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or (ii) does not account for any goods on which he is liable to pay tax under this Act; or (iii) supplies any goods liable to tax under this Act without having applied for registration; or (iv) contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or (v) uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent if any, and the person in charge of the conveyance, then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122.

(2) Whenever confiscation of any goods or conveyance is authorized by this Act, the officer adjudging it shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the said officer thinks fit: Provided that such fine leviable shall not exceed the market value of the goods confiscated, less the tax chargeable thereon: Provided further that the aggregate of such fine and penalty leviable shall not be less than penalty equal to hundred percent. of the tax payable on such goods” shall be substituted. Provided also that where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon.

Before Amendments After Amendments
(1) Notwithstanding anything contained in this Act, if any person— (i) supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or (ii) does not account for any goods on which he is liable to pay tax under this Act; or (iii) supplies any goods liable to tax under this Act without having applied for registration; or (iv) contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or (v) uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance, then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122. (2) Whenever confiscation of any goods or conveyance is authorized by this Act, the officer adjudging it shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the said officer thinks fit: Provided that such fine leviable shall not exceed the market value of the goods confiscated, less the tax chargeable thereon: Provided further that the aggregate of such fine and penalty leviable shall not be less than the amount of penalty leviable under sub-section (1) of section 129: Provided also that where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon. (3) Where any fine in lieu of confiscation of goods or conveyance is imposed under sub-section (2), the owner of such goods or conveyance or the person referred to in sub-section (1), shall, in addition, be liable to any tax, penalty, and charges payable in respect of such goods or conveyance.
1) Where— (i) supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or (ii) does not account for any goods on which he is liable to pay tax under this Act; or (iii) supplies any goods liable to tax under this Act without having applied for registration; or (iv) contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or (v) uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance, then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122. (2) Whenever confiscation of any goods or conveyance is authorized by this Act, the officer adjudging it shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the said officer thinks fit: Provided that such fine leviable shall not exceed the market value of the goods confiscated, less the tax chargeable thereon: chargeable thereon: Provided further that the aggregate of such fine and penalty leviable shall not be less than penalty equal to hundred per cent. of the tax payable on such goods” shall be substituted. Provided also that where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon.

Implications Of Amendments

  • The section earlier began with a non-obstante clause ‘Notwithstanding anything contained in this act’. However, the Budget removed the non-obstante condition from this Section. Therefore, in case of any conflict between the provisions, the section would no longer have an overriding effect. 
  • The aggregate of fine and penalty prescribed under the said Section was linked with Section 129 of the CGST Act, 2017. This linkage has been removed and once the amendment is notified the aggregate of fine and penalty would be equal to a hundred percent of the tax payable on such goods as against the amount of penalty leviable under sub-section (1) of section 129 which was prescribed earlier. 
  • The sub-section 130(3) of the Act has been omitted which read as ‘Where any fine in lieu of confiscation of goods or conveyance is imposed under sub-section (2), the owner of such goods or conveyance or the person referred to in sub-section (1), shall, in addition, be liable to any tax, penalty, and charges payable in respect of such goods or conveyance.’ Therefore, the section now limits the payment to fines and penalties. 

Key Rulings

Some key rulings:

Sr. No.

Name

Highlights

1

Synergy Fertichem Pvt. Ltd Vs State of Gujarat The Gujarat HC held “When the law requires an intention to evade payment of duty, then it is not mere failure to pay duty. It must be something more. This something more should not be construed as obligatory on the part of the Revenue to establish or prove the necessary men’s rea for the purpose of confiscation and penalty. The word “evade” in the context means defeating the provisions of the law of paying tax. It is made more stringent by the use of the word “intent”. The assessee must deliberately avoid the payment of tax which is payable in accordance with the law. However, the element of men’s rea cannot be read into Section 130 of the Act.” Thus, the HC concluded that to instigate Section 130, there should be an intentional failure to pay taxes.

2

Sri Krishna Traders vs. the State of Gujarat The Gujarat HC relied upon the ruling of Synergy Fertichem. The HC ruled that non-generation of e-way bill and undervaluation of goods are not reasons good enough to invoke Section 130 of the CGST Act, 2017.

3

M/s Indus Towers Ltd. vs The Asstt. STO The Kerala HC held that under Section 130 of the CGST Act, 2017, confiscation is envisaged if a taxable supply is made in contravention to the Act and with an intent to evade duty. Mere procedural lapses should not result in confiscation of goods.

4

Hariom Traders Through Proprietor Faladu Yatin Pravinbhai vs.The State of Gujarat The Gujarat HC refused to interfere with revenue’s confiscation proceedings. The HC directed the assessed to file a reply to the SCN issued by the revenue. The HC also directed the revenue to conclude proceedings within the timeline cited as the goods are of perishable nature.

5

Anant Jignesh Shah, Proprietor of M/s. Nakoda and Company vs.The Union of India The Gujarat HC quashed the confiscation proceedings stating that confiscation cannot take place merely on suspicion. The HC noted that the SCN has been issued on an assumption that the driver of the vehicle might have indulged in contravention of law in the past. Hence, the order is not tenable under the law.

Conclusion

Most of the penal provisions under GST such as provisional attachment, confiscation etc. seem to function on the proper officer’s best judgment. However, best judgment is always subjective. In the case of confiscation of goods and vehicles, the provision requires the taxpayer or the assessee to have an intention of evading tax. However, intention is not something that can be measured. In certain cases, the facts may prove that the assessee had an intent to evade duty; however, in other cases, it may be difficult to evaluate whether the intention to evade duty exists.  

Such provisions could often result in two scenarios – one where a taxpayer takes advantage of the ambiguity and escapes penalty. Second, the suspicious officers harass truthful and diligent taxpayers for honest mistakes. The likelihood of the second scenario is higher.  

Such wide and unchallenged powers are sometimes exploited and the outcome is farreaching. Confiscation of goods and vehicles is an extreme step that should be taken only in rare situations. It hampers the financial viability of the Company. However, this is not the case. Officers very frequently take this significant power very lightly and invoke Section 130 for the smallest of mistakes. Confiscation of goods and vehicles should only be done in the case where the officers feel and it is evident that the revenue of the Government is under threat. Despite the HC reiterating the importance of using such extreme powers sparingly, it seems that the officers do not follow. Hence a strict guideline from CBIC is the need of the hour.

Sharing is caring!