GST Caselaw

Kerala High Court -Can Tax Officer invoke Section 129 of CGST Act and detain goods on the ground that tax paid on the goods being transported is less

#GSTCase-30-N.V.K. Mohammed Sulthan Rawther and Sons and Willson [2019] 101 taxmann.com 24 (Kerala)

 

  1. Question before the High Court:

Can the State Tax Officer invoke Section 129 of the Act and detain goods on the ground the tax paid on the product is less?

  1. Fact:

Petitioner consigned a load of Roja betel nut to its dealer, through tax invoice dated 22.09.2018 alongwith eway bill with “HSN 0802”, and paid the tax at 5%. On 26.09.2018 ASTO detained goods, alleging that first petitioner’s product fits the description “HSN 2106” and attracts 18% tax-not 5%.

 

  1. Contention of the Petitioner:

The consignment carried all the valid documents and they cannot be accused of evading tax; the worst that can be attributed to them is about the correct rate of tax. Detention power conferred on the officers, either under Section 68 or Section 129, must be exercised only under the circumstances and grounds set out in those provisions.

The dispute about the rate of tax is not a matter for adjudication in a proceeding under Section 68 or 129 of the GST Act. Section 122 of the GST Act defines the offences warranting imposition of penalty. Misclassification of goods in the invoice, according to him, is not an offence falling under either Section 122, 67, or 68 of the Act.

The adjudication of the rate-issue is a matter to be undertaken by the assessing officer alone, but not by the inspecting officials exercising powers under Sections 67, 68, 69 or 129 of the CGST Act/ KGST Act, 2017 relying upon the judgement in the matter of Rams v. STO [1993] 91 STC 216.

 

  1. Contention of the Respondent

ASTO has plenary powers under that Section to intercept any goods and detain them on any ground enumerated in Section 129 of CGST Act, 2017. ASTO’s entertaining a doubt about the misclassification and the exigibility of tax at a particular rate cannot be assailed.

 

  1. Discussion by the Court

 

A literal reading of Section 129 of the Act presents a different picture and, perhaps, lends support to the State’s view. But purposive interpretation and the practical commercial considerations trump that view.

 

  • J.K. Synthetics Ltd.v. CTO 1994 taxmann.com 370 (SC)

Apex Court held that a dealer must deposit full tax due, based on the information furnished and that information must be correct and complete to the best of the dealer’s knowledge and belief. If the dealer has furnished full particulars regarding his business, without wilfully omitting or withholding any particular information affecting the assessment of tax, and if he honestly believes to be ‘correct and complete’, the dealer is said to have acted ‘bona fide‘ in depositing the tax due and filing the return. Of course, the tax so deposited is to be deemed to be provisional and subject to necessary adjustments under the final assessment. The court finally held that if the assessee pays the tax, which according to him is due based on the information supplied in his return, there would be no default on his part to meet his statutory obligation. Therefore, it would be difficult to hold that the ‘tax payable’ by him ‘is not paid’ and that he is liable for consequences.

 

  • Rams v. STO [1993] 91 STC 216

The matter in the given case was regarding situations where there is a genuine dispute of whether there was any taxable sale or not. The court observed that it is not for check-post authority to act on mere suspicion and to find that there is any attempt at evasion of payment of tax, which alone vests him with the jurisdiction to act under S. 29A. At best, he can only alert the assessing authority in Ernakulam to initiate proceedings for assessment of any alleged sale, at which the petitioner will have all his opportunities to put forward his picas on law and on fact. The process of detention of the goods at the check post, cannot be resorted to in such cases when there is a bona fide dispute regarding the very existence of a sale and exigibility for tax. S. 29 A is not intended to subserve such an object.

 

  1. Findings

 

  • In light of Judgement of Apex Court in the matter of J .K. Synthetics: The petitioner has declared the HSN Code he has felt his product would attract and paid the tax accordingly. The returns are very much on record before the assessing officer. Therefore, to that extent the first petitioner’s conduct cannot be faulted, nor can he be accused of evading the tax.

 

  • In light of Judgement of Kerala High Court in the matter of Rams: If the inspecting authority entertains any suspicion that there is an attempt to evade tax, they can at best alert assessing authority to initiate the proceedings “for assessment of any alleged sale, at which the petitioner will have all his opportunities to put forward his pleas on law and on fact.” The process of detention of the goods cannot be resorted to when the dispute is bona fide, especially, concerning the exigibility of tax and, more particularly, the rate of that tax.

 

  1. Held:

 The case falls within the adjudicatory ambit of both J.K. Synthetics Limited (supra) and Rams and accordingly detention was held to be arbitrary and unsustainable, and set aside. As a result, the Assistant State Tax Officer was required to release the goods.

 

  1. Comment:

The judgement is a significant judgement in cases wherein conveyances and goods have been detained for misclassification of tax rates. This is one of the most common grounds for the detention of the goods and the judgement gives relief in such cases as a lengthy enquiry regarding applicable tax rate on goods cannot be conducted by the office detaining the goods and in almost all cases, such cases result in creation of demands against the dealers.

 

The dealers in such cases are under the pressure to get the goods released because they have to ensure that the good reach on time as there are prior commitments under the contacts for the timely delivery of the goods. The enquiry regarding proper documents at the time of transport can be conducted on the spot as it’s more a fact based enquiry rather than involving a interpretational issue. The determination of tax rate is an interpretational issue which can be at best conducted on a logical and detailed manner by the assessing officer.

 

However for the applicability of the given judgement, correctness of the returns as per records should be ensured by the dealer.  Secondly how far the revenue is able to press upon the below observation of the court in future in similar matters can also be significant i.e.

 

“A literal reading of Section 129 of the Act presents a different picture and, perhaps, lends support to the State’s view. But purposive interpretation and the practical commercial considerations trump that view.”

 

A fight between the literal and purposive construction of Section 129 of CGST Act, 2017 in offering.

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