Under the Goods and Services Tax (“GST”) regime, the entire procedure of detention, seizure, and release of goods is encapsulated in a single-oddly worded provision – Section 129 of the Central Goods and Services Tax, 2017 (“GST Act”).
The present article proposes to dissect the Section and analyze its salient features; thereafter, trace the relevant decisions which may act as a tonic to tangled assessees caught in a web of despair. Lastly, the article briefly discusses the amendment introduced vide the Finance Act, 2021 which is applicable with effect from January 1, 2022 and attempts to analyze whether such amendment is able to rectify the mistakes of its past.
Legal backdrop:
Section 68 of the GST Act read with Rule 138 of the Central Goods and Services Rules, 2017 (“CGST Rules“) provides that the person in charge of transporting goods is required to carry the invoice issued by the supplier along with an E-way bill, for goods exceeding value of specified limit. The E-way bill can be generated either by the supplier or the transporter on filling the details as specified under the form. On contravention of the aforesaid provisions, the proceedings relating to seizure detention, and release of the goods and the conveyance is undertaken as per Section 129 of the GST Act.
At this juncture, it is pertinent to conduct a schematic analysis of Section 129 prior to the amendment, which has the following salient features:
- Section 129(1) of the GST Act begins with a non-obstante clause that conveys that the other provisions of the Statute would not be an impediment to the measures envisaged under the Section. The said provision is invoked only when the transportation of goods is in contravention to the GST Act and Rules. It is only on payment of tax and penalty by the supplier/transporter as per clause (a) and (b) or on furnishing of security under clause (c) of Sub-section (1), shall the goods be released.
- Sub-section (2) makes the provisions of Section 67(6) apply mutatis mutandis, in as much as, the goods and conveyance which are seized and detailed, are liable to be released on provisional basis on furnishing security.
- Sub-section (3) read with Sub-section (4) allows the proper officer to issue a notice to raise a demand of both tax and penalty and thereafter pass an order after giving an opportunity of hearing. Surprisingly, the said provision does not specify as to whom such notice is to be raised, thereby allowing the proper officer to exercise his judgement to such extent and raise a demand on either the owner or the transporter of the goods. Another gray area for consideration in the aforesaid sub-sections is with respect to levy of interest, in as much as sub-section (3) allows the officer to only specify the tax and penalty in the notice but sub-section (4) allows the officer to pass an order with respect to tax, penalty as well as interest.
- Sub-section (5) deems to conclude the proceedings under sub-section (3) if payment of the amount is made under sub-section (1), which includes furnishing of security.
- Sub-section (6) strikes a chord between Sections 129 and 130 of the GST Act, such that, when the supplier/transporter does not make payment against detention proceedings within the specified time, confiscation proceedings shall be initiated.
Practical difficulties faced by industry:
On perusal of the aforesaid provision, it is evident that the loosely strung words in Section 129 created gaps in the applicability of the law. The Section appeared to grant the proper officers the power to demand tax at the stage of seizure and detention. The natural corollary was that the officers at this stage started to raise issues with regard to classification, valuation, and exigibility of tax on goods.
As the scope and applicability of Section 129 was only restricted to the time from seizure and detention of vehicle to its release, the proper officers were often ill-prepared and without proper evidence to support their allegations for the demand of tax. Such arbitrary and unbridled use of powers led to the intervention of various High Courts under writ jurisdiction in order to iron out the creases created due to the application and interpretation of Section 129.
It has been held that the proper officers conducting the inspection and passing the order of seizure and detention could not adjudicate on issues regarding classification, valuation and applicability of tax. Such officers only had the power to record its observations and in case of prima facie wrongdoing, forward the same to the assessee’s jurisdictional assessment officer in order to raise the issue at the stage of assessment or demand. The reason being that at the time of interception, seizure and detention of goods, the officer would not be able to conduct a thorough investigation with regard to the issue of taxability. As a result, such officers would not possess the proper information and evidence to support its allegations.
The unamended Section 129 does not distinguish between bona fide or clerical mistakes and serious offences. As a consequence, even in cases of minor defect such as expiry of E-way bill for unforeseen circumstances, the proper officers had used the said Section to demand both tax and penalty. The gaps in law allowed such draconian use of power to continue, till the timely intervention of Writ Courts.
The Hon’ble Supreme Court in a recent decision, took note of such practices, wherein the proper officer had detained goods for expiry of E-way bill. The officer had not considered the assessee’s reason for delay, which was due to a political rally and beyond the transporter’s control. It was held that the officer cannot assume evasion of tax merely on the expiry of E-way bill, in order to demand both tax and penalty. The notices were set aside as it was arbitrary use of powers and costs were also imposed on such officers for their actions.
In a decision by the Madras High Court, the assessee had challenged the demand for tax and penalty in case of a zero-rated supply where the E-way bill had expired for reasons beyond the control of the transporter. The Court held that Section 129 read with the penalty provisions and Circular dated September 14, 2018, does not paint all transgressions with the same brush and makes a definitive distinction between serious and substantive violations and minor/procedural errors. It was held that the officer acting under Section 129 has to take cognizance for the reasons for the delay and thereafter, adjudicate as to whether the act amounts to a serious or minor breach. The explanations and the circumstances for expiry of the E-way bill would assist in determining the quantum of penalty. The aforesaid decision restores the faith in the justice system, to have an overarching support of the Writ Courts to overlook, control and punish the tyranny of the taxman.
Amendment to Section 129 vide the Finance Act, 2021
The lacuna in the wordings of Section 129 had created an array of disputes still pending before various authorities and Courts all across the country and opened a pandora’s box. In fact, earlier when Section 129(1) specified payment of tax along with penalty, it led to a debate whether the amount collected under Section 129 was in the nature of tax under the law or not. Amidst the confusion, the Government has proposed to re-word the Section by way of an amendment vide the Finance Act, 2021, in order to blow rationality into the reading and administration of the provision and what it seeks to achieve.
The salient features of the amended Section made effective January 1, 2022, is as follows:
- The proper officer is now only allowed to demand penalty and not tax under sub-section (1) as a percentage of the tax amount. This amendment seeks to dilute the confusion around whether the payment under Section 129 was in the nature of tax or penalty and fortifies the view that the amount collected is in the nature of penalty itself.
- Amendments under sub-section (3) and (4) allows the officer to issue notices and pass orders only with respect to penalty of the specified amount and not tax or interest. Merely because the assessee has furnished a security, it would not expel him of the liability to pay penalty under the amended Section. The penalty finally imposed under the said Section can be recovered against such security furnished, unless the aggrieved party files an appeal.
- The chord between detention and confiscation under Sections 129 and 130, respectively, has been broken, in as much as, currently where the penalty is not paid within time, the officer may directly sell or dispose the goods without initiating confiscation proceedings.
Conclusion:
The aforesaid amendment vide the Finance Act, 2021 seems to repair the potholes left behind from the wordings of the unamended Section 129 of the GST Act. The amended section has increased the quantum penalty up to two hundred percent of the tax demand in case of taxable supplies. It appears to lower the burden on transporters as per the first provision to Section 129(6) of the Act, wherein, conveyance can be released on payment of penalty amount or Rs. 1,00,000/-, whichever is less. However, no such relief is sought to be provided in the case of suppliers, who may be penalized till twice the tax amount at the detention stage.
The amendment also fails to draw a line on the exercise of powers granted to the proper officer under the said Section. It does not distinguish the quantum of penalty that can be proposed to be demanded in case of bona fide mistakes, which is left to be covered by the general penal provisions under the CGST Act and the Circular dated September 14, 2018. Such exercise of judgment is still largely left to the good conscience of the proper officer, who is expected to act judiciously in every case of statutory fault. Though the law appears to pace towards an ideal situation and smoother administrative functioning of seizure and detention proceedings, its reality is yet to be put to test.
In light of the above, one can only hope that duty of care and reasonability is fulfilled by the authorities so that the woes of the industry are addressed in practicum.
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Mr. Sathya Narayan a Practicing Tax Professional with experience of 15+ years in corporates. He is the founder of Tax Pro Solutions a start-up firm incorporated in Chennai. He can be reached at taxpro335@gmail.com
