Release Of Goods During Pendency Of Confiscation Proceedings Under CGST Act Permissible On Payment Of Fine : Kerala High Court

In a vital decision, the Kerala High Court on Monday determined the scope and ambit of the powers of the release of goods while the confiscation proceedings are going on under the Central Goods and Services Tax Act, 2017. 

Dismissing a review petition preferred by a Tax Officer, Justice Bechu Kurian held:

(1)The provisions of section 130 of the Act contemplate release of goods on payment of fine in lieu of confiscation at two stages (i) during the process of adjudication under section 130(2) and (ii) post-adjudication under section 130(3) of the Act.

(2) At the time of release of goods under section 130(2) of the Act, the owner of the goods is required to pay the fine in lieu of confiscation alone, while penalty tax and other charges can be paid after adjudication.

(3) The basis for calculating the fine in lieu of confiscation under section 130 of the Act is only the market value as defined under section 2(73) of the Act and not the maximum retail price. 

Facts:

Upon officers of the Kerala State GST Department inspecting the godowns of the respondent herein, they seized some beedis which are perishable goods. 

Thereafter, the Tax Officer issued three separate show-cause notices proposing to confiscate the goods and the conveyances and levied penalty under section 130 of the Act specifying the quantum to be paid as fine in lieu of confiscation.

Immediately, the respondent filed a petition challenging the show-cause notices. He alleged that the goods were not liable for confiscation and that perishable goods cannot be detained indefinitely. 

It was argued that the goods were liable to be released on a provisional basis, upon execution of a bond or a bank guarantee. 

Accordingly, the Court directed the Tax Officer to release the goods in favour of the dealer, on payment of the amounts contemplated under section 130(2) of the Act.

Against this interim order, the Tax Officer moved a review petition.

Key Findings:

(i) Whether the provisions of section 130 of the Act contemplate any provisional release of goods, as directed in the interim order of this Court?

The Single Judge found that there was a purpose behind establishing two different stages in which the goods can be released - during adjudication and post-adjudication.

"The purpose of the two-stage release is that, if the owner of the goods, even before being deprived of his title to the goods or conveyance, is ready to pay the fine stipulated by the officer, then without further wrangles, if the goods and or conveyance can be released to the said owner, the same avoids unnecessary procedural formalities." 

This way, it was observed that if the fine is paid at the initial stage, no prejudice would be caused to the revenue, since by virtue of section 130(7) even after adjudication, an option to pay fine is to be offered peremptorily.

Based on the said deliberations, the Court held that Section 130(2) applied before the order of confiscation is issued. 

It was added that the absence of the use of the words 'provisional release' or non-reference to section 67(6) of the Act is not determinative of the intent of the section.

"...though section 130(2) is not a case of provisional release, the sub-clause confers power upon the competent officer to release the goods on payment of fine in lieu of confiscation, while the proceedings for confiscation are continuing and before orders of adjudication are passed."

(ii) Whether the amount payable for release of the goods under section 130 of the Act is fine alone or is it fine, penalty and tax to be paid together for securing release of the goods?

While understanding the scope of Section 130(3), the Court said it cannot ignore the interplay between section 130(2) and 130(3) of the Act. To enable release of goods under section 130(2), a fine in lieu of confiscation has to be imposed.

When the owner of the goods opts to pay a fine in lieu of confiscation while the adjudication is continuing, an obligation to pay the tax, penalty and charges for such goods or conveyance, becomes payable in addition to the fine. Thus, when the fine is paid in lieu of confiscation, the tax, penalty and other charges become payable thereon.

The Court took the view that when a fine in lieu of confiscation is paid by a dealer under section 130(2), the liability for payment of tax, penalty and charges will fall upon the dealer, in addition to the fine and they need be paid only after adjudication.

"To obtain the release of the goods or conveyances, while the adjudication proceedings are continuing, the taxpayer needs to pay only the fine and not the tax, penalty and charges thereon. The tax, penalty and charges can be paid after adjudication."

(iii) What is the basis or rate for calculating the fine under section 130 of the Act?

The Court found that if the goods subject to confiscation proceedings carries an invoice and the Proper Officer has no dispute on the value mentioned in the invoice based upon a preliminary appreciation of the amount payable for goods or services of a like-kind or quality, at or about the same time and at the same commercial level, then that shall be the market value.

However, if the amount is disputed by the taxpayer, it calls for a determination during adjudication, where an opportunity for showing the true market value of the property will be available to the taxpayer.

"A reading of the definition, no doubt, reveals that the statute does not reckon MRP as the criteria for determining the fine leviable. The intention and the explicit words used in the statute clearly indicates that the proper officer cannot base the fine on the MRP imprinted on the goods if there are other materials available to fix the market value."

Therefore, the Court decided that if the dealer has a dispute on the value fixed tentatively by the Proper Officer, he can dispute the same during the course of adjudication and get a determination of the market value.

It was further added that the amount payable is in the realm of a disputed question of fact and the Court cannot determine, in this proceeding, the quantum payable by the dealer. 

Accordingly, finding no merit in the review petition, the Court dismissed the matter. 

Senior Government Pleader Thushara James appeared for the petitioner and Senior Advocate K.Srikumar instructed by Advocate Manoj Chandran and Ammu Charles appeared for the respondents. 

Case Title: State Tax Officer & Ors. v. Y. Balakrishnan

Click Here To Read/Download The Order