Intent To Evade Tax Sine Qua Non For Initiation Of Proceedings U/S 129 And 130 Of CGST Act: Allahabad High Court

The Allahabad High Court has held that it is necessary for the authorities to establish intention to evade tax for proceedings under Sections 129 and 130 of Central Goods and Service Tax Act, 2017. The Court held that without recording a finding a as to intention to evade tax, proceedings can at best be initiated under Section 122 of the Act.

Dealing with Section 129 and Section 130 of the Act, Justice Piyush Agrawal held

“Both the sections revolve around a similar issue and provide for the proceedings available at the hands of the proper Officer upon him having found the goods in violation of the provisions of the Act, Rule 138 of the Rules framed under the CGST Act being one of them. Upon a purposive reading of the sections, it would sufice to state that the legislation makes intent to evade tax a sine qua non for initiation of the proceedings under sections 129 and 130 of the CGST Act.”

Petitioner’s goods were intercepted and detained near Kanpur. Petitioner claimed that he was not aware of cancellation of e-way bills by purchasing dealer. However, dissatisfied by the reply, the authorities imposed penalty under Section 129 of the Act.

Counsel for petitioner argued that the goods were accompanied by genuine documents and the fact of cancellation of e-way bills by the purchasing dealer was not known to the petitioner. Further, it was summited that there was no observation with regard to intention to evade tax recorded was recorded against the petitioner, thus, penalty if any could have been levied under section 122(ix) of the CGST Act and not under section 129(3).

Per Contra, Counsel for Authorities argued that petitioner had not brought on record any genuine and valid e-way bill for the proceedings to be vitiated. It was argued that the non-obstante clause in Section 129 has an overriding effect over all provisions of the Act, thus proceedings under Section 129 were justified.

The Court observed that it is important to read Section 130 along with Section 129, for proceedings under the latter. The mandatory presence of intention to evade tax under Section 130 must be fulfilled before imposing penalty under Section 129.

Further, the Court observed that once intention to evade tax had not been observed by the authorities, proceedings could only be initiated under Section 122 (Penalty for Certain Offences) for minor breach, which was due to cancellation of e-way bills by the purchasing dealer.

“Section 129 of the CGST Act must be read with section 130 of the said Act, which mandate the intention to evade payment of tax. Once the authorities have not observed that there was intent to evade payment of tax, proceedings under section 129 of the CGST Act ought not to have been initiated, but it could be done under section 122 of the CGST Act in the facts & circumstances of the present case.”

While quashing the penalty orders, the Court mentioned M/s Gobind Tobacco Manufacturing Company & Another Vs. State of U.P. & Others, wherein a division bench of the Allahabad High Court had imposed heavy cost on the Department for abusing its powers.

Case Title: M/S Shyam Sel And Power Limited vs. State Of U.P. And 2 Others [WRIT TAX No. - 603 of 2023]

Case Citation: 2023 LiveLaw (AB) 374

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