2025 (6) TMI 737 - HC - GST

Seeking Cancellation of Detention and subsequent confiscation of goods under Section 129(3) of the UP GST/CGST Act 2017 - evasion of tax - e-way bill generated prior to passing of the detention order - technical glitch - violation of circular dated 9.5.2018 - HELD THAT - Admittedly at the time of detention the goods in question was 4 MPD machines (Petrol and Diesel delivery machines) and same were to be used for installation at the petrol pump of BPCL at Atarra district Banda. A certificate has been brought on record showing that the said goods were not for trade therefore price of the same cannot be determined. Further none of the authorities have disputed the fact that goods in question were stock transfer in other words the goods were coming from BPCL Kanpur for installation at the petrol pump of BPCL at Atarra Distt. Banda. The goods in question were seized on the ground that e-way bill and delivery challan were not accompanying the goods at the time of interception but the same was generated and produced before passing the order of detention. Further none of the authorities below have recorded any finding with regard to evasion of tax. The issue in hand is squarely covered by the judgement of this Court in the case of M/s Vacment India Limited 2023 (10) TMI 863 - ALLAHABAD HIGH COURT and M/s Goverdhan Oil Mill 2024 (4) TMI 1271 - ALLAHABAD HIGH COURT . Thus the impugned orders dated 10.7.2023 and 29.1.2021 cannot be sustained in the eyes of law and same are hereby quashed. Accordingly the writ petition is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the detention and subsequent confiscation of goods under Section 129(3) of the UP GST/CGST Act, 2017, was valid when the e-way bill was generated after the interception but before the detention order was passed.
• Whether the goods in question, being stock transfer items intended for installation and not for sale in the open market, fall within the ambit of taxable supply and whether tax evasion has been established.
• Whether the procedural compliance under the GST law and relevant circulars was adhered to by the authorities while detaining the goods and imposing tax and penalty.
• Whether the impugned orders passed by the authorities below, including the order imposing tax and penalty and the dismissal of the appeal, were justified in law and fact.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of detention and confiscation under Section 129(3) when e-way bill was generated after interception but before detention order

The legal framework governing detention and confiscation under GST is primarily Section 129(3) of the UP GST/CGST Act, 2017, which empowers authorities to detain goods if accompanying documents such as e-way bills are not produced at the time of interception. The relevant procedural safeguards and timelines must be complied with, including issuance of notices and opportunities to produce documents.

The petitioner contended that although the e-way bill could not be generated initially due to a technical glitch, it was generated at 12:44 PM on 29.1.2021, prior to the detention order passed at 6:56 PM the same day. This sequence was critical to establish that the petitioner had complied with the requirement of producing the e-way bill before the detention order was passed.

The Court noted that the authorities had detained the goods on the ground that documents were an afterthought and that the e-way bill was not produced at the time of interception. However, the petitioner submitted the e-way bill along with the reply to the notice before the detention order was passed, which was not acknowledged or considered by the authorities. The Court found no dispute regarding the timing of the e-way bill generation and its production prior to detention.

Applying the law to these facts, the Court held that detention without considering the e-way bill produced before the detention order was contrary to the procedural requirements and principles of natural justice. The authorities failed to record any reasoned finding rejecting the e-way bill on valid grounds.

The competing argument from the respondent was to uphold the detention on the basis of absence of documents at the time of interception. However, the Court emphasized that the law requires consideration of documents produced before detention, and mere initial absence cannot justify detention if compliance is subsequently demonstrated.

Conclusion: The detention and confiscation under Section 129(3) were invalid as the e-way bill was generated and produced prior to the detention order, and the authorities erred in ignoring this fact.

Issue 2: Nature of goods as stock transfer and absence of tax evasion

The petitioner asserted that the goods-4 MPD machines (Petrol and Diesel delivery machines)-were stock transfer items from BPCL Kanpur to BPCL Atarra petrol pump for installation, not for sale in the open market, and thus not liable to tax or penalty for evasion.

The legal framework involves the GST provisions concerning stock transfers, which are generally not treated as taxable supplies attracting tax liability, provided proper documentation such as stock transfer notes and e-way bills are maintained. The Ministry of Petroleum and Natural Gas directives also prohibit sale of such goods in open market, reinforcing that these goods are not commercial sales items.

The Court examined the evidence, including a certificate confirming that the goods were not for trade and that their price could not be determined. None of the authorities below disputed the stock transfer nature of the goods. The Court also referred to precedents from this High Court, notably the judgements in M/s Vacmet India Ltd. and M/s Goverdhan Oil Mill, where similar issues were adjudicated in favor of the petitioner regarding stock transfers and absence of tax evasion.

The authorities failed to record any finding of tax evasion or dispute the stock transfer status. The petitioner's submission that no intention to evade tax existed was thus supported by the record and law.

The respondent's position did not effectively counter the petitioner's evidence or legal submissions on this issue.

Conclusion: The goods were rightly characterized as stock transfer items not subject to tax evasion proceedings, and the imposition of tax and penalty was unwarranted.

Issue 3: Compliance with procedural safeguards and relevant circulars

The petitioner argued that the entire proceeding violated the circular dated 9.5.2018 issued by the State Government, which provides guidelines on detention and release of goods and documents under GST. The petitioner submitted that procedural safeguards, including issuance of proper notices and consideration of replies, were not followed.

The Court noted that the petitioner had submitted the stock transfer note and e-way bill before the detention order but these were not acknowledged. The detention order and subsequent penalty were passed without proper consideration of the petitioner's submissions, violating procedural fairness.

The respondent did not demonstrate adherence to the circular's provisions or justify the rejection of the petitioner's documents and replies.

Conclusion: The authorities failed to comply with procedural safeguards and relevant circulars, rendering the impugned orders unsustainable.

Issue 4: Validity of impugned orders including appeal dismissal

The petitioner challenged the orders dated 10.7.2023 and 29.1.2021, including the dismissal of the appeal against the detention and penalty order.

The Court observed that the appellate authority did not consider the material on record, including the e-way bill and stock transfer nature of goods, and dismissed the appeal without proper adjudication.

Given the findings on the invalidity of detention, absence of tax evasion, and procedural lapses, the Court held that the impugned orders could not be sustained.

Conclusion: The impugned orders were quashed for failure to consider relevant facts and law.

3. SIGNIFICANT HOLDINGS

The Court held:

"The impugned orders dated 10.7.2023 and 29.1.2021 cannot be sustained in the eyes of law and same are hereby quashed."

Core principles established include:

• Detention of goods under GST law requires proper consideration of documents produced before the detention order; absence of documents at interception alone is insufficient to justify detention if compliance is subsequently demonstrated.
• Stock transfer of goods within the same entity or related units, especially when goods are not intended for sale in the open market, does not constitute taxable supply attracting tax evasion proceedings.
• Procedural safeguards, including issuance of notices and consideration of replies and documents, must be strictly followed in GST detention and penalty proceedings.
• Appellate authorities must consider all material on record and provide reasoned orders; dismissal without such consideration is unsustainable.

Final determinations:

• The detention and confiscation of the goods were illegal and set aside.
• The imposition of tax and penalty was unwarranted as no tax evasion was established.
• The appeal dismissal was improper and quashed.
• Any amounts deposited by the petitioner in connection with the impugned orders shall be refunded in accordance with law.