27.02.2022 – Goods Shall Not Be Detained Or Confiscated On The Ground Of Contravention Of Provisions Of Law By Other Persons In The Supply Chain.

The Hon’ble High Court of Punjab and Haryana vide its order dated 04.02.2022 in the matter of M/s Shiv Enterprisess Vs.  State of Punjab and others in Writ Petition No. – CWP – 18392- 2021 held that the detention or confiscation of goods on the ground of contravention of provisions of law by other persons in the supply chain is bad in law, hence not sustainable.

The Petitioner preferred the Writ petition challenging the detention of its goods under Section 129 of the CGST Act, 2017 and prayed for releasing the same.

Facts: –

  • The petitioner sold copper scrap to M/s Mittal Enginnering Industries, Jagadhri and while the goods were in transit, the same were checked and the driver of the vehicle produced requisite documents i.e. invoice and E-way bill 30.08.2021.
  • Despite the fact, that the documents were in order, the said goods were detained on account of verification by issuing MOV-02 dated 30.08.2021 and the petitioner was directed to station the vehicle at office of the Assistant Commissioner.
  • The Petitioner duly filed reply to MOV-02 however the petitioner received a communication dated 11.09.2021 whereby it was informed that after verification, it has been found that one of the suppliers of the petitioner is not having any inward supply and is only engaged in outward supply without paying any tax, thus the petitioner is liable to be proceeded under Section 130(1) of PGST/CGST Act, 2017 and a show cause notice dated 14.09.2021 was issued.
  • The respondents submitted a investigation report dated 09.09.2021 disputing the status of the suppliers in the supply chain and submitted the other persons (suppliers) involved in the supply chain either do not have inward supply and paying no tax on outward supply or their registration has been cancelled by the department being defaulters and fraudulent.

Petitioner Plea: –

  • The petitioner denying the allegations/contentions of the respondents submitted that the investigation report dated 09.09.2021 is fabricated and antedated and has been prepared after filing of the Writ petition.
  • There was no reason for the authorities to proceed against him under Section 129 & section 130 of the CGST Act and same is malicious as the goods were being carried with documents as required under law and there was no intention to evade payment of tax.

On the other hand it was submitted on the behalf of the respondents that the action of State authorities is consonance with law as during investigation, incriminating material was found against the Petitioner suggesting evasion of tax at its end and the show cause notice was rightly issued and the petitioner needs to respond to the Show Cause Notice.

Held: –

  • The Hon’ble High Court after considering the relevant provisions, procedures as prescribed in the Act at length and Circular No. – 41/15/2018- GST dated 13.04.2018, in respect of detention, interception, inspection and confiscation of goods and conveyance, held that intent to evade payment of tax can be alleged against a person if the contravention of provisions of the Act has direct nexus with his actions. He cannot be held liable under Section 130 on the basis of default on the part of other persons in the supply chain.
  • Section 130 of the Act has to be construed strictly and wrongful claim of ITC is not one of the conditions enumerated in Section 130 for confiscation of the goods and conveyance.
  • Referring to the decision of Punjab and Haryana High Court in the matter of Xcell Automation Vs. State of Punjab and another – PLR (2007) Punjab and Haryana 685 and applying the principles of law and bare provisions of law held that the investigation report relied upon by the respondents lacks sting.
  • A trader cannot be accused of having intention to evade for acts and omissions which are not directly linked to his activity.
  • It is virtually impossible for the trader to ascertain as to whether input tax has been paid by its predecessors or not and ‘law does not compel a man to do that which he cannot perform possibly’- ‘Lex Non Cogit Ad Impossibilia’, thus he cannot be penalized for not doing so.
  • There is no allegation against the petitioner for contravention of any provision of the Act and the case made against the petitioner in the impugned Show Cause Notice is of wrongful claim of input tax credit, which under the provisions of the act can be claimed only if the same has been actually paid to the Government. Thus the proceedings initiated under Section130 on the basis of Show Cause Notice dated 14.09.2021 is not sustainable.

The Hon’ble High Court with the above findings set aside and quashed the order dated 30.08.2021 and show cause notice dated 14.09.2021 with the directions to release the goods and conveyance.

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