2025 (5) TMI 1607 - HC - GST

Rejection of appeal by appellate authority having filed beyond the statutory period of limitation - inordinate delay and lack of power in condoning the delay beyond the outer cap fixed under sub-Section (4) of Section 107 - Validity of show cause notice and the demand order - violation of the statutory provision - Imposition of penalty and redemption fine under Section 130 read with Section 122 of the OGST Act 2017 - shortage of the stock of goods noticed at the business premises at the time of search and seizure operation - evading the tax in clandestine manner - HELD THAT - In the present case there is no dispute on the conferment of power upon the proper officer to make inspection search and seizure upon the formation of a reason to believe that a taxable person has suppressed any transaction relating to the supply of goods and services or both or the stock of goods in hand or any goods liable to confiscation or any documents books or things which in his opinion shall be useful and relevant to any proceeding under the Act sub-Section (2) of Section 67. It is thus evident and eminent from the aforesaid provision that the power is conferred upon the proper officer to make search and seizure on a perceive reason to believe the eventualities provided in Section 67 liable to confiscation. It therefore cannot be said that the power to confiscate is eminently and/or evidently absent in the said proper officer and therefore exercise of such power cannot be fundamentally flawed on the ground of complete lack of inherent jurisdiction and powers. Even Section 122 of the Act exposes the taxable person liable for a penalty in the event it supplies any goods or services or both without issue of any invoices or issues an incorrect or false invoice with regard to any supply apart from the other incidents provided therein. Section 130 of the Act contains an exhaustive provision relating to the confiscation of goods or a conveyance and a levy of penalty which imbibes within itself the eventuality of supplying or receiving any goods in contravention to any provisions of the Act or the Rules made thereunder with intend to evade payment of tax. Sub-Section (2) of Section 130 of the Act postulates an option to pay a redemption fine in lieu of the confiscation. The conjoint reading of the provision as aforesaid are the expositions of the powers and the jurisdiction conferred upon the proper authorities not only to the inspection search and seizure but also the confiscation the goods and the payment of redemption fine in lieu of such confiscation. It is thus not a case of a complete lack of jurisdiction or powers but hovers around the exercise of such powers or jurisdiction in relation to goods liable to confiscation and the meaning to be assigned to the word goods . The word goods is defined in Section 2 (52) of the said Act to mean every kind of movable property other than money and securities and includes actionable claim growing crops grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. We find no ambiguity in the order of the appellate authority as the law is somewhat settled that the moment the outer cap is fixed in the statute beyond which the authority cannot travel the rejection in this regard cannot be faulted with. The discretion vested upon the authority to condone the delay if brindled with an outer cap being fixed in the statute the authority cannot exercise the power beyond such limit. The petitioner was conscious that the order of the appellate authority in rejecting the application on the ground of limitation cannot be assailed on the legal parameters took a circuitous route under Article 226 of the Constitution of India assailing the show cause notice and imposition of the redemption fine in lieu of confiscation of a goods which is not physically available. In the identical circumstances the coordinate Bench in case of Shri D. Murali Mohan Patanaik ( 2023 (2) TMI 93 - ORISSA HIGH COURT ) as referred above found that once the payment is made without protest it is not open to challenge the entire procedure adopted for confiscation liable to be struck down. Though the petitioner in the instant case pleaded that the said payment of redemption fine and penalty was under protest but we do not find from the documents that any such protest was recorded; rather there has been categorical stand taken before the authority admitting the shortage of the stocks and conceding the payment of penalty and the fine in lieu of confiscation. The comity of the judicial discipline demands the adherence of the decision of the coordinate Bench and the only option left to the subsequent coordinate Bench in the event of any dissent to refer the matter to the Chief Justice to constitute a Larger Bench. The subsequent coordinate Bench must record a cogent reason for dissent and in the event noticeable materials are not eminent and evident uniformity in a decision is the virtue. Thus we do not find that the instant case warrants invocation of extraordinary powers conferred under Article 226 of the Constitution of India. The writ petition thus fails. No order as to costs.

Summary

The core legal questions considered in this judgment are:

1. Whether the show cause notice and demand order imposing penalty and redemption fine under Section 130 read with Section 122 of the OGST Act, 2017, are valid when the goods alleged to be confiscated are not physically available at the time of issuance of the notice.

2. Whether the appellate authority under Section 107 of the OGST Act was correct in rejecting the appeal filed by the petitioner on the ground of limitation and lack of jurisdiction to condone delay beyond the statutory outer limit.

3. Whether the writ petition challenging the show cause notice and demand order is maintainable, particularly when statutory remedies are available and the petitioner had admitted the stock shortage and paid the penalty and redemption fine.

4. The extent and scope of powers conferred on the proper officer under Sections 67, 122, and 130 of the OGST Act, 2017, including the authority to confiscate goods, impose penalty, and levy redemption fine in lieu of confiscation.

5. The applicability of precedents relating to the imposition of redemption fine where goods are not physically available, especially the distinction between cases where goods were released on bond and those where goods are not available at all.

Issue-wise Detailed Analysis

1. Validity of Show Cause Notice and Demand Order When Goods Are Not Physically Available

The petitioner contended that the show cause notice and demand order under Section 130 of the OGST Act were illegal and void because the goods (MS Billet) alleged to be confiscated were not physically available at the time of issuance. The petitioner relied on several judgments from Customs law, including Chinku Exports and Finesse Creation INC, which held that redemption fine cannot be imposed if goods are not physically available unless the goods were released on bond or undertaking. The petitioner argued that since the goods were not physically available, the authority lacked jurisdiction to impose redemption fine or confiscate.

The Court examined the relevant statutory provisions. Section 67(2) of the OGST Act empowers proper officers to search and seize goods, documents, or books relevant to proceedings. Section 122 imposes penalty for supply of goods without invoice or issuance of false invoice. Section 130 provides for confiscation of goods liable to confiscation and allows payment of redemption fine in lieu of confiscation.

The Court noted that the definition of "goods" under Section 2(52) of the Act is broad and includes every kind of movable property other than money and securities. The Court emphasized that the power to confiscate and impose redemption fine is conferred by statute and must be given a purposive interpretation. The Court observed that the petitioner admitted the stock discrepancy and agreed to pay penalty and redemption fine, which was accepted by the authority.

Relying on the Supreme Court decision in Weston Components Ltd., the Court held that redemption fine can be imposed even if goods are not physically available where the goods were released on bond or undertaking. The Court distinguished this from cases where goods are not available at all without any bond or undertaking. The Court also relied on the Gujarat High Court decision in Synergy Fertichem Pvt. Ltd., which held that the prerequisite for imposing redemption fine is that the goods are liable to confiscation, and the fine is payable in lieu of confiscation.

Applying these precedents, the Court found that in the present case, the goods were seized and documents were seized under Form GST-INS-02. The petitioner admitted the shortage and agreed to pay penalty and redemption fine. The documents and seized materials were released after payment. Therefore, the authority acted within its jurisdiction in issuing the show cause notice and demand order. The Court rejected the petitioner's contention that the notice and order are nullities for want of physical availability of goods.

2. Rejection of Appeal by Appellate Authority on Ground of Limitation

The petitioner filed an appeal under Section 107 of the OGST Act almost two years after the demand order, which was rejected on limitation grounds. The appellate authority held it lacked jurisdiction to condone the delay beyond the outer limit fixed by sub-Section (4) of Section 107.

The Court upheld this decision, noting that the statutory provision places an outer cap on condonation of delay, and the authority cannot exercise discretion beyond that limit. The Court emphasized that limitation is a substantive condition precedent to the exercise of appellate jurisdiction and the rejection of the appeal on this ground cannot be faulted.

3. Maintainability of Writ Petition Challenging Show Cause Notice and Demand Order

The petitioner challenged the show cause notice and demand order by way of writ petition under Article 226 of the Constitution, contending the orders were illegal and void.

The Court analyzed the principles governing writ jurisdiction in the presence of alternative statutory remedies. It relied on Supreme Court precedents including Vicco Laboratories, Magadh Sugar and Energy Limited, and Radha Krishan Industries, which establish that writ jurisdiction should not ordinarily be exercised when efficacious alternative remedies exist, except in cases involving violation of fundamental rights, breach of natural justice, lack of jurisdiction, or challenge to vires of legislation.

The Court observed that the petitioner had admitted the stock shortage, paid penalty and redemption fine, and failed to file timely appeal. The Court noted that the writ petition essentially sought to re-agitate issues that could have been raised in appeal. The Court also relied on a coordinate Bench decision in Shri D. Murali Mohan Patanaik, which declined to interfere in similar circumstances where payment was made without protest and statutory remedies were available.

The Court held that the writ petition was not maintainable as the petitioner had failed to exhaust statutory remedies and did not raise any ground warranting interference under Article 226.

4. Scope of Powers under Sections 67, 122, and 130 of the OGST Act

The Court examined the statutory scheme conferring powers on proper officers to inspect, search, seize, confiscate goods, and impose penalties. Section 67(2) authorizes search and seizure where goods liable to confiscation or relevant documents are secreted. Section 122 imposes penalty for supply without invoice or false invoice. Section 130 provides for confiscation of goods and levy of redemption fine in lieu of confiscation.

The Court held that these provisions confer broad powers on authorities to combat tax evasion and enforce compliance. The power to impose redemption fine is linked to the authority to confiscate goods. The Court rejected the petitioner's narrow interpretation that physical availability of goods is a strict prerequisite for confiscation or redemption fine, emphasizing the legislative intent to prevent tax evasion.

5. Treatment of Competing Arguments and Precedents

The petitioner relied heavily on Customs law precedents such as Chinku Exports, Finesse Creation INC, and others, which held that redemption fine cannot be imposed if goods are not physically available unless released on bond. The petitioner argued that the instant case did not involve release on bond and thus the fine was wrongly imposed.

The Court distinguished these precedents by emphasizing that in the present case, the seized goods and documents were released after payment of penalty and redemption fine, effectively akin to release on bond. The Court also noted that the OGST Act provisions differ in some respects from Customs law but the doctrine of pari materia justifies reliance on Customs precedents.

The revenue side relied on the Gujarat High Court decision in Synergy Fertichem and Madras High Court decision in Visteon Automotive Systems, which upheld imposition of redemption fine without physical availability of goods if confiscation is authorized. The Court found these authorities more applicable and consistent with the statutory scheme.

Regarding limitation and writ jurisdiction, the Court rejected the petitioner's attempt to circumvent statutory appeal remedy by filing writ petition after delay. The Court cited Supreme Court authorities holding that writ jurisdiction cannot be exercised to re-open issues that can be decided in statutory appeals, except in exceptional cases involving jurisdictional errors or fundamental rights violations.

Conclusions

The Court concluded that:

- The proper officer had jurisdiction to issue the show cause notice and demand order under Sections 67, 122, and 130 of the OGST Act, 2017, including imposing penalty and redemption fine, despite the goods not being physically available at the time of notice, as the goods were seized and released after payment.

- The appeal filed by the petitioner was rightly rejected by the appellate authority on limitation grounds, as the authority lacked power to condone delay beyond the statutory outer limit.

- The writ petition challenging the show cause notice and demand order was not maintainable, since the petitioner admitted the shortage, paid the demanded amounts, and failed to exhaust statutory remedies timely.

- The principles of statutory interpretation, relevant precedents, and the legislative intent support the authority's actions in imposing penalty and redemption fine in the circumstances of this case.

Significant Holdings

"The power to confiscate goods and impose redemption fine under Section 130 of the OGST Act is not defeated merely because the goods are not physically available at the time of issuance of show cause notice, particularly where the goods were seized and released after payment of redemption fine and penalty."

"The appellate authority under Section 107 of the OGST Act lacks jurisdiction to condone delay beyond the outer limit fixed under sub-Section (4) of Section 107, and rejection of appeal on limitation grounds is not liable to be interfered with."

"The writ jurisdiction under Article 226 of the Constitution should not ordinarily be exercised to challenge show cause notices or demand orders where efficacious statutory remedies exist and have not been exhausted, except in cases of jurisdictional errors, violation of fundamental rights, or abuse of process."

"A decree or order passed by a Court or authority without inherent jurisdiction is a nullity and can be challenged at any stage, including collateral proceedings; however, an erroneous exercise of jurisdiction conferred by statute should be corrected through statutory appeals and not by writ petition."

"The definition of 'goods' under the OGST Act is wide and inclusive, and the provisions relating to confiscation and redemption fine must be interpreted purposively to prevent evasion of tax."