Goods and Conveyance in transit - Inclusive Reforms

Goods & Conveyance in transit - Inclusive Reforms

The tax laws have several penalties prescribed for non-compliance or violating the laws. One such penalty that indirect taxes have had for ages are the detention and seizure of goods. Even during the VAT regime, there were vehicle detention and seizure of material provisions in place. In common parlance, detention means not permitting the owner of the goods or conveyance access to such goods or conveyance. However, under detention, only access is denied; ownership and possession remain with the owner of goods. 

Whereas Seizure of goods means the possession of goods is taken over by the department. Another related term is confiscation of goods which is the final transfer of ownership and possession of goods to the revenue authority. 

  • Section 129 of the CGST Act, 2017 (the Act) lays down the provisions for detention and seizure and release of goods and conveyance in transit. The section prescribes detention and seizure if the taxpayer transports or stores the goods in transit in violation of any GST rules or section. 
  • The said section prescribes that the following are liable for detention or seizure:
  1. Goods; 
  2. Conveyance used as a means of transport for carrying the said goods 
  3. Documents related to such goods 
  • The provision prescribes release of such detained and seized goods in any of the following situations: 
  1. If the owner of the goods come forward to discharge penalty: On payment of penalty @ 200% of the tax payable on such goods; if goods are exempted, then 2% of the value of goods or INR 25,000, whichever is less. 
  2. If the owner of the goods does not come forward to discharge penalty: On payment of penalty @ 50% of the value of goods or 200% of the tax payable on such goods, whichever is higher; if goods are exempted, then 5% of the value of goods or INR 25,000, whichever is less. 
  3. If the taxpayer furnishes a security of the amount determined in either of the two clauses stated above, in the manner prescribed. 
  • The provision also mandates an order to be issued for detention or seizure on the person transporting the goods before actually detaining or seizing goods. 
  • Moreover, in line with the principle of natural justice, the concerned taxpayer has to be given an opportunity of being heard. 
  • The proper officer is required to issue a notice in FORM GST MOV – 07 to the concerned taxpayer within 7 days of detention or seizure of goods. Such notice should specify the penalty payable. Further, within 7 days of issue of such notice, an order needs to be passed in FORM GST MOV – 06 with penalty as determined (cited above). 
  • Once the taxpayer pays off the penalty as prescribed, the proceedings under this section will have deemed to be concluded. 
  • However, in a case where the taxpayer does not pay the prescribed penalty within 15 days from the date of receipt of the order, then the proper officer may sell or dispose the goods or conveyance. If the underlying goods are perishable or hazardous in nature or are likely to depreciate in value over time the proper officer could reduce the said period of 15 days. 
  • In case the transporter pays the penalty or INR 1 lakhs, whichever is less, the conveyance shall be released.   

Amendments made by Union Budget 2021 and its implications

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

Before Amendment

After Amendment

1) Notwithstanding anything contained in this Act, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure, shall be released,-

(a) on payment of the applicable tax and penalty equal to one hundred per cent of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent. of the value of goods or twenty five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such tax and penalty;

(b) On payment of the applicable tax and penalty equal to the fifty per cent. of the value of the goods reduced by the tax amount paid thereon and, in case of exempted goods, on payment of an amount equal to five per cent. of the value of goods or twenty five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such tax and penalty;

(c) upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed:
Provided that no such goods or conveyance shall be detained or seized without serving an order of detention or seizure on the person transporting the goods.

(2) The provisions of subsection (6) of section 67 shall, mutatis mutandis, apply for detention and seizure of goods and conveyances.

(3) The proper officer detaining or seizing goods or conveyances shall issue a notice specifying the tax and penalty payable and thereafter, pass an order for payment of tax and penalty under clause (a) or clause (b) or clause (c).

(4) No tax, interest, or penalty shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard.

(5) On payment of amount referred in sub-section (1), all proceedings in respect of the notice specified in subsection (3) shall be deemed to be concluded.

(6) Where the person transporting any goods or the owner of the goods fails to pay the amount of tax and penalty as provided in sub-section (1) within fourteen days of such detention or seizure, further proceedings shall be initiated in accordance with the provisions of section 130: Provided that where the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with the passage of time, the said period of [fourteen days]100 may be reduced by the proper officer.

(1) Notwithstanding anything contained in this Act, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure, shall be released,-

(a) on payment of penalty equal to two hundred per cent of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty;

(a) on payment of penalty equal to two hundred per cent of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty;

(c) upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed:
Provided that no such goods or conveyance shall be detained or seized without serving an order of detention or seizure on the person transporting the goods.

(3) The proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of subsection (1);

(4) No penalty shall be determined under subsection (3) without giving the person concerned an opportunity of being heard.

(5) On payment of amount referred in sub-section (1), all proceedings in respect of the notice specified in subsection (3) shall be deemed to be concluded.

(6) Where the person transporting any goods or the owner of such goods fails to pay the amount of penalty under sub-section (1) within fifteen days from the date of receipt of the copy of the order passed under sub-section (3), the goods or conveyance so detained or seized shall be liable to be sold or disposed of otherwise, in such manner and within such time as may be prescribed, to recover the penalty payable under sub-section (3)

Provided that the conveyance shall be released on payment by the transporter of penalty under sub-section (3) or one lakh rupees, whichever is less Provided further that where the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with the passage of time, the said period of fifteen days may be reduced by the proper officer.”

Implications of amendments

  • The earlier requirement of payment of a penalty equal to 100% of tax payable along with the tax liability on such detained goods has been done away with. The amended provision only demands penalty amount to be paid which has been increased from the erstwhile 100% of the tax to 200% of tax.
  • Further, the law has been amended to prescribe procedure and time frame for issuing notice with regards to the detention of goods. As per the amended law, the proper officer detaining or seizing the goods or conveyance shall issue a notice within 7 days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of 7 days from the date of service of such notice, for payment of penalty. Further, where the assessee fails to make the payment of penalty amount within a period of 15 days from the date of receipt of the order passed, the goods or conveyance so detained or seized shall be liable to be sold or disposed of otherwise, in such manner and within such time as may be prescribed, to recover the penalty payable.
  • The amendments would also result in delinking of proceedings u/s 129 with that of section 130 of the CGST Act, 2017 relating to the confiscation of goods or conveyances and levy of penalty.

Key Rulings

Some key rulings:

Sr. No.

Name

Highlights

1

Assistant State Tax Officer, Squad No VII v. M/s Indus Towers Limited WA No 371/2018 The Kerala HC held that Section 129 entitles the officers to levy tax and penalty even on a transaction which is not otherwise taxable and there is no need for any the existence of mens rea or the intention to evade tax before levying penalty.

2

Vijay Metal vs. Deputy Commercial Tax Officer [TS(DB)-GST-HC(TEL)-2021-239] The Telangana HC observed that there is no restriction on the consignor when the consignees are in two different States, to load the consignments to two different destinations intended for two different parties in two different States on a single conveyance; and also there is no rule that consignments intended for a party at a shorter distance should be offloaded first. The HC noted that the revenue ignored the operational convenience of the transporter and acted “mechanically without application of mind” and remarked that “for the bonafide action of the transporter, the respondent cannot mulct the petitioner with tax and penalty”. The HC set aside the detention order u/s 129 of CGST Act.

3

Ingram Micro Private Limited vs. The Union of lndia [TS(DB)-GST-HC(BOM)-2021-233] The Bombay HC issued notice to the Attorney General of India on a writ petition seeking a declaration that section 129 (Detention, seizure, and release of goods and conveyances in transit) of the CGST Act, 2017 is ultra vires and unconstitutional. The matter is pending for final hearing.

4

Rimi Sales Agency vs. The Union of lndia [TS(DB)-GST-HC(TRI)-2021-226] Tripura HC sets aside detention orders under section 129(3) of the CGST Act on the ground that assessee was not afforded reasonable opportunity of presenting its case, remarking the same to be “grossest possible violation of principles of natural justice”. The HC also held that the conduct of revenue authorities was impermissible.

5

Daily Expressvs.The Assistant State Tax OfficerTS(DB)-GST-HC(KER)-2019-430 The Kerala HC dismissed the writ appeal against the order of Single Judge upholding penalty u/s 129(1) against transporter. The HC held that Section 129(1) makes it adequately clear that any person who is interested in the goods shall be liable under Section 129(1)(b), The petitioner’s reliance upon Section 126 to argue that no officer shall under this Act impose any penalty for minor breaches of tax regulations or procedural requirements was rejected stating that Section 126 refers to a ‘minor breach’ while Explanation (a) to Section 126 prescribes that a breach shall be considered a ‘minor breach’, if the amount of tax involved is less than Rs. 5000/-, hence, Section 126 is not attracted in present case.

6

M/S. K.B. Enterprises chail chowk, distt mandi vs The Assistant Commissioner State Taxes & Excise Chamba, HP The authority noted that clerical errors in e-way bill are minor mistakes that cannot be used to invoke detention of goods. Further, it was held that Circular no. 64/38/2018 and the subsequent notification under the HPGST Act have to be followed and the benefit cannot be denied to the appellant for paltry errors of two digits in the vehicle number. The e-way bill has been duly generated and no mistake has been found in all other information entered in the e-way bill. The respondents have also not been able to prove beyond doubt nor submit any substantial evidence that the appellant was adopting the system of wrong mentioning of vehicle numbers in the EWB as their modus operandi to evade taxes. Hence, the order of ACST&E, Chamba was set aside.

Conclusion

Section 129 prescribes for detention and seizure of goods and/or conveyance in case they are transported in breach of any provision of the act. Although this is not the first time that Indian indirect taxes have had detention and seizure provisions, this certainly can be said to be the first time when such an overreaching power has been provided to officers for ‘any contravention’. The powers provided u/s 129 are a subject matter of writ petitions before High Courts for the reason that the powers given to proper officers are arbitrary.

The taxpayers, even for inadvertent errors can be charged with a hefty penalty which extends to 200% of tax! The term ‘contravention of the provisions of the Act’ can be interpreted in the strictest sense possible. There have been instances when the authorities have invoked Section 129 in case of errors on e-way bills or invoices, other procedural lapses, etc. It is certain the lawmakers did not have such dreadful fines and penalties for simple human errors. However, most of the authorities do not in a real sense try to understand the intentions of the taxpayers before invoking such high penalties on taxpayers. Notably, the CBIC after receiving various representations in this regard had issued a circular no. 64/38/2018 – GST dated 14 September 2018, which modified certain procedures for interception of conveyances for inspection of goods in movement, and detention, release, and confiscation of such goods and conveyances. The said circular has specified that in case a consignment is accompanied with an invoice and e-way bill, then proceedings u/s 129 of the Act cannot be initiated in the following cases. However, a penalty of INR 500/- can be imposed u/s 125 of the Act.

  • Incorrect spellings where GSTINs are correct.
  • Errors in pin code where address is correct, provided that such error should not result in a change of validity of e-way bill.
  • Errors in the address provided that locality and other details are correct.
  • Error in one or two digits of document no.
  • Errors in 4/6 digit HSN’s, where the first two digits and tax rates are correctly mentioned.
  • Errors in one or two digits of a vehicle no.

Therefore, if the deficiencies include any of the above cases, detention proceedings cannot be initiated.

Irrespective of the circulars and guidelines issued by CBIC, there still persists arbitrary exercise of power as far as detention and seizure are concerned. There needs to be some sort of pre-defined consequences on officers who are held to be misusing their powers; only then can we achieve rational and logical exercise of powers.

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