Dealer Can’t Undervalue Goods To Escape Tax, Under The Garb of E-Way Bill Isn’t Required For Goods Below Rs. 50,000: Allahabad High Court

Observing that the value of certain transported goods, as disclosed by the dealer, was roughly one-tenth of the value arrived at by the detaining authority, the bench of Justice Rohit Ranjan Agarwal remarked that the purpose of dispensing E-Way bill for goods below Rs.50,000, does not allow the dealer to undervalue his goods so as to escape bringing it to the notice of the Government and the Taxing Authorities by uploading the same on the Web-Portal.

The petitioner, M/s Radha Fragrance, is a registered dealer under the Haryana State Goods and Service Tax Act, 2017, who is in the business of manufacturing and sale of Pan Masala and Chewing Tobacco.

The petitioner agreed to supply Pan Masala and Chewing Tobacco to two registered dealers of State of Jharkhand. However, the goods in transit from the State of Haryana to Jharkhand were intercepted and detained by the Mobile Squad in the State of Uttar Pradesh.

The goods were not carrying E-Way Bill under Rule 138 of CGST Rules, 2017, as the value of the goods were claimed to be below Rs. 50,000.

The Mobile Squad, however, concluded that the basic value of the cartoons being transported was over Rs.7,00,000 while the value on the tax invoices was declared collectively as Rs.69,600.

The GST authorities issued a show cause notice, which was followed by an order under Section 129(3) of the CGST Act, 2017 read with Section 20 of the IGST Act, 2017, directing the petitioner to deposit the integrated tax along with penalty.

The said order was confirmed in an appeal filed by the assessee before the First Appellate Authority.

Against this, the petitioner filed a writ petition before the Allahabad High Court.

Section 129 of the CGST Act empowers the proper officer to detain and seize goods and conveyance in transit, in cases where any person transports the goods or stores them while they are in transit, in contravention of the provisions of the CGST Act or the Rules made under the said Act. Under Section 129(3), the proper officer detaining or seizing the goods/conveyance, has the power to issue a notice and thereafter, pass an order for payment of tax and penalty.

The Revenue Department submitted before the High Court that the petitioner, in order to avoid E-Way bill and avoid the production and the sale from being uploaded on the web-portal, had deliberately undervalued the goods.

The High Court held that the very purpose of downloading the E-Way bill is that every good, which is in transit, is recorded in the Web Portal and the Government has a clear picture of the goods which are manufactured and sold by the dealers, either Inter-State or Intra-State.

Referring to the facts of the case, the bench reckoned that the Taxing Authorities, on fair valuation, found that the goods which were in transit, i.e., both the Pan Masala and Tobacco, accounted for over Rs. 7,00,000 and the petitioner had grossly undervalued the goods, showing negligible value of the same. It was on this undervaluation of goods that the authorities proceeded and imposed IGST and penalty, it noted.

While concluding that huge amount of Pan Masala and Tobacco were being transported by the petitioner by undervaluing the goods, without downloading the mandatory E-Way bill, the Court remarked, “In the garb of technicalities, no benefit can be given to a dealer who has intentionally undervalued his goods to escape from the eyes of law.”

“It is only to protect small trade where the value is minimal that the necessity of downloading E-Way bill is dispensed with by the Government. The purpose of dispensing E-Way bill for the goods below Rs.50,000/- does not allow the dealer to undervalue his goods so as to escape it from bringing to the notice of the Government and the Taxing Authorities by uploading the same on the Web-Portal,” it said.

The Court ruled that under the garb of certain protection given under Rule 138, dispensing the requirement of E-Way bill for goods valuing below Rs.50,000, a dealer who is a manufacturer, cannot be allowed to send his goods to different consignees by undervaluing the same, and without the Tax Authorities proceeding to take action against him under the Act.

It added: “If such a conduct of a dealer is permitted, it will harm the business world and lead to a parallel economy and the very purpose of enactment of Goods and Service Tax Act would frustrate. The idea of ‘One Nation One Tax’ was to subsume all other taxes into one and bring transparency in the business world.”

The petitioner submitted before the High Court that the dealer had started his business only in the year 2018 and to compete in the Pan Masala segment, he was offering huge discount. Thus, the price disclosed in the Tax Invoices cannot be disbelieved considering the competitiveness in the business, it pleaded.

Observing that the value of Pan Masala, as disclosed by the dealer, was roughly one-tenth of the value arrived by the detaining authority, the High Court dismissed the arguments of the petitioner.

“This Court finds that it is a case of grossly undervaluing the 3,84,000 pouches of Pan Masala being sent by the dealer disclosing its price as Rs.69,600/-. The only conclusion, which can be drawn is that to avoid downloading E-Way bill and brining the transaction on record that the goods were undervalued to such an extent,” it added.

Holding that it was a clear case of undervaluation of goods, the bench said that a dealer cannot be permitted to take shelter of the fact that no E-Way bill is required in case of goods valued less than Rs.50,000.

The Court thus dismissed the writ petition.

Case Title: M/s Radha Fragrance versus Union of India & Ors.

Dated: 14.02.2023

Counsel for the Petitioner: Murari Mohan Rai, Lokesh Mittal

Counsel for the Respondent: A.S.G.I., C.S.C., Krishna Ji Shukla

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