The Hon’ble High Court of Allahabad vide its order dated 06.10.2023 in the matter of M/s Balaji Traders and Another Vs. State of U.P. and 2 Others in Writ Tax No. – 784 of 2023, held that penalty under Section 129 of the CGST Act, can not be imposed on the interception of goods when the intent to evade payment of tax has not been alleged in the notice and the order affirming the penalty.

The Petitioners filed the petition before the Hon’ble High Court assailing the order 25.11.2022 affirming the penalty order under section 129(1) of the UPGST Act passed by Respondent No. 2 as well as the order the order dated 24.03.2023 passed by Respondent No. 3 rejecting the appeal of the petitioner.  Further, a prayer has also been made for a direction to refund the entire penalty amount of Rs. 5,58,286/- to the petitioner along with interest at the rate of 8% per month.

Facts of the Case: –

• That the petitioner no. 1 is a registered firm under GST and is engaged in the business of trading cigarette, pan-masala & food spices. In its normal course of business, the petitioner received an order of supply from one Vaishya Distributors, Nashik (Maharashtra). In pursuance of which, invoice no. 1406 dated 18.11.2022 was generated. The goods were supposed to be sent through railway.
• However, the goods were intercepted on 18.11.2022 outside the railway station, which were loaded in e-rickshaw and confiscated by the GST officials. Subsequent to which, a show cause notice was issued on 19.11.2022 to the petitioner imposing a penalty of Rs. 5,58,286/-.
• The Petitioner duly replied to the show cause notice and also deposited a penalty amount; whereupon, the goods were released. Though, The Assistant Commissioner passed the impugned order dated 25.11.2022 confirming the penalty under section 129(1) of the SGST Act.
• Aggrieved by the said order, the petitioner preferred an appeal, which was also dismissed vide order dated 24.03.2023 confirming the order dated 25.11.2022.

Petitioners’ Submissions: –

• It was submitted on the behalf of the petitioners that on receipt of the purchase order form Nashik, Maharashtra, tax invoice was raised, but the e-way bill could not be generated as there was some technical glitch. Further, for filling up the e-way bill, Railway Receipt number was required and therefore, on 18.11.2022, in the evening, the petitioner went to the Kanpur Railway Station for arranging the entire booking process and to obtain Railway Receipt number for generating the e-way bill and asked the e-rickshaw driver to wait outside the railway station itself.
• At the time of interception of goods, it was informed by the driver of e-rikshaw to the GST authorities that the owner of the goods, along with paper, is inside the railway station for getting the Railway Receipt prepared, but without waiting or cross-checking the said fact, the respondent – authorities not only confiscated the goods, but also issued show cause notice on 24.11.2022.
• That a detailed reply has been filed stating the said facts, but without considering the same, the impugned penalty order has been passed. There was no intention on the part of the Petitioner to evade payment of tax, and the authorities could have released the goods as there was no intention of the petitioner to evade payment of tax.
• No observation has been made about the intention of the petitioner to evade payment of tax while issuing the show cause notice, however, still the impugned orders have been passed imposing and confirming the penalty upon the petitioner.
• There was a technical glitch, due to which the e-way bill was not generated. Though, after coming to know that the goods have been confiscated, e-way bill, along with necessary tax invoices, were shown to the authorities, but the same have not been considered.
• To support its contentions, reliance was placed on the decisions of Apex Court in Special Leave to Appeal (C) No. 21132/2021 Assistant Commissioner (ST) & Others Vs. M/s Satyam Shivam Papers Private Limited & Another; judgment of Division Bench of this Court in M/s Bhawani Traders Vs. State of U.P. & Another Writ Tax No. 854/2023; M/s Gobind Tobacco Manufacturing Company & Another Vs. State of U.P. & 2 Others – Writ Tax No. 600/2022; M/s Shyam Sel & Power Limited Vs. State of U.P. & 2 Others – Writ Tax No. 603/2023; as well as the judgement of the Punjab & Haryana High Court in M/s Raghav Metals Vs. State of Haryana & Others – CWP No. 25057/2021

Respondents’ Submissions: –

• On the other hand, supporting the impugned order, it was argued on the behalf of the Respondents that at the time of interception of the goods outside the railway station, no documents were produced and therefore, the goods were rightly confiscated and thereafter, show cause notice was issued and impugned orders have been passed as there was a contravention of the provisions of the SGST Act and the Rules framed there-under. Therefore, the proceedings have rightly been initiated against the petitioners.
• Further, it was submitted that the case laws cited by the petitioners are on the fact of those case where the intention to evade payment of tax has been noticed and, in those cases, the goods were accompanied with proper documents. However, in the present case, no document whatsoever was produced at the time of interception.
• In the event the goods were not intercepted or confiscated, the petitioners would have succeeded in its motive of not entering the transaction in question in its books of account. Thus, it was prayed to dismiss the Writ Petition.

Held: –

• The Hon’ble Court after considering the submissions made and facts of the case, found that admittedly, the goods were intercepted and confiscated outside the railway station. The goods were loaded in e-rickshaw and the driver of the e-rickshaw had duly informed the authorities that the owner of the goods, along with documents, is inside the railway station and requested for waiting, but the respondents neither cross-checked the said fact nor waited for the Proprietor of the petitioner to come out. On the contrary, the goods have been confiscated and show cause notice was issued.
• However, when it came to the knowledge of the petitioner, he tried to show the documents, but in vain. The Petitioner on the very day i.e., on 24.11.2022, explaining its stand and circumstances in detail submitted a reply with the Authorities.
• It was observed by the Hon’ble Court that the petitioner also deposited the penalty as mentioned in the notice on 24.11.2022 itself, but the authorities have passed the order under section 129(3) of SGST Act on 25.11.2022 confirming the demand and penalty. The record further reveals that at the time of issuing notice or passing the order under section 129(3) of the SGST Act, not a word has been whispered with regard to intention to evade payment of tax.
• It was noticed by the Hon’ble Court that against the order passed under section 129(3) of the SGST Act, an appeal was preferred before the Additional Commissioner and in the impugned order, a fact has been mentioned that the owner of the goods, along with documents, were inside the railway station for getting the Railway Receipt as the number of the Railway Receipt is to be mentioned in the e-way bill, Part – B. Once this fact was brought, from the date of interception till the passing of the impugned order, not a word has been whispered by either of the authorities below that there was any intention of the petitioner to evade payment of tax.
• Moreover, it is also not in dispute that the petitioner, after getting the knowledge of the goods being intercepted and confiscated before passing the seizure order, has informed the authorities about the attending circumstances, but without considering the same, the impugned order under section 129(3) of the SGST Act has been passed.
• The Hon’ble taking note of the judgments relied upon by the petitioner in M/s Shyam Sel & Power Limited (supra), wherein it was held that ‘for invoking the proceeding under section 129(3) of the CGST Act, section 130 of the CGST Act was required to be read together, where the intent to evade payment of tax is mandatory, but while issuing notice or while passing the order of detention, seizure or demand of penalty, tax, no such intent of the petitioner was observed’, and other judgments laying down similar proposition in M/s Satyam Shivam Papers Private Limited; M/s Gobind Tobacco Manufacturing Company & Another Vs. State of U.P. & Others; M/s Bhawani Traders; M/s Raghav Metals (supra); found that in view of the facts & circumstances stated above as well as the law laid down by the Apex Court as well as this Court, as cited above, the impugned orders cannot be sustained in the eyes of law.

The Hon’ble High Court with the above discussions and findings, allowed the Writ Petition with a cost of Rs. 1,000/- payable to the Petitioner by the respondents, by quashing the impugned orders dated 25.11.2022 as well as the impugned order dated 24.03.2023.  The fine/penalty, if any, deposited by the petitioners pursuant to the impugned order shall be refunded to the petitioners.