Regulatory Measures Under GST Laws Necessary To Prevent Tax Evasion, Not Violative Of Fundamental Right To Trade: Calcutta High Court

Justice Rajarshi Bharadwaj reasoned that such regulatory measures are “necessary to ensure compliance and prevent tax evasion”.

The observation comes in a petition filed by an iron and steel trader, contending that the mismatch in the description of its goods seized during transportation and the physical verification by the GST Department were minimal and the GST authority's action of seizing its goods and vehicle under Section 129(1) of GST Act and Rule 138A of the CGST Rules, was violative of its fundamental rights.

Significant to note that weight of Petitioner's goods mentioned in the invoices matched the weight recorded during the verification. However, there were categorization differences in as much, as the 'TMT Bars' were described as different in sizes.

Petitioner contended that the said discrepancies were minimal and did not constitute any unlawful intent to evade tax. It further alleged procedural violations and errors in documentation by the Respondents.

It also invoked Article 19(1)(g) of the Constitution to assert that it is entitled to sell goods without being required to specify the size of the goods in the invoice and the Respondents' insistence on segregating the components of the goods for valuation purposes is legally untenable.

The Respondents on the other hand contended that the seized goods exhibited a substantial deviation in both their description and quantity compared to what was declared, which directly resulted in a difference in the transaction value, pointing towards a deliberate attempt to evade tax.

It also argued that lack of consistency and transparency in Petitioner's inventory records suggested a deliberate attempt to conceal the true state of business affairs from the taxing authority.

At the outset, the High Court declared the detention of Petitioner's goods and vehicle to be lawful. It observed that the discrepancies between the declared description of goods and the physical verification report were significant.

“While the petitioner argued that the differences were minor trade variations, this Court concluded that the mismatch, coupled with a substantial gap between the declared and verified valuation, indicated a deliberate misrepresentation. Such discrepancies undermined the accuracy of the petitioner's declarations, which are crucial for determining tax liability, justifying the imposition of penalties under the GST framework.”

In this light, the Court said that petitioner's claim of procedural violations could not render the detention and subsequent proceedings invalid, as the core findings of the case remained unaffected.

It further observed,

“petitioner's invocation of Article 19(1)(g) of the Constitution, claiming that the actions of the tax authorities infringed upon the fundamental right to carry on trade, is rejected as regulatory measures under the GST laws are necessary to ensure compliance and prevent tax evasion and do not constitute a violation of fundamental rights.”

The High Court also agreed with the Respondents that Petitioner's failure to maintain consistent and transparent inventory records supports the inference of intent to evade taxes.

“This Court emphasized that under the GST laws, the burden of proof lies on the taxpayer to demonstrate compliance with statutory provisions. In this case, the petitioner failed to substantiate claims of legitimate trade practices or demonstrate that the valuation applied by the authorities was unreasonable,” Court said and dismissed the petition.

Appearance: Advocates Himangshu Kumar Ray, Subal Saha, Subhasis Podder, Sushant Bagaria for petitioner; Advocates A. Ray, Md. T.M. Siddiqui, D. Sahu, S. Sanyal for State

Case title: Ashok Sharma v. State of West Benal & Ors.

Case no.: W.P.A 26591 of 2024

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