Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(Ker) 953

IN THE HIGH COURT OF KERALA AT ERNAKULAM
Bechu Kurian Thomas, J.
State Tax Officer, Investigation Branch-I, State GST Department and Ors. – Appellants
Versus
Y.Balakrishnan – Respondent
RP NO. 630 OF 2021
Decided On : 29-11-2021

Advocates:
Advocate Appeared:
For the Appellant : Dr. Thushara James, Sr.Government Pleader
For the Respondent: Sri.K.Srikumar (Sr.), Sri.K.Manoj Chandran, Smt.Ammu Charles, Advs.

Point of Law: Definition of the term market value clearly indicates that the term is not referable to the maximum retail price and on the contrary, it is a sale price that is agreed to between a bonafide supplier and a bonafide purchaser, who are not related to each other.

Headnote:
Central Goods and Services Tax Act, 2017 - order is preferred by the State Tax Officer, leading to seminal questions on the scope and ambit of the powers of release of goods while the confiscation proceedings- whether section 130(2) of the Act contemplates the release of goods by payment of fine in lieu of confiscation, even before orders of confiscation are issued. In addition, an incidental question that arises is on the quantum payable as fine in lieu of confiscation.
Finding of the Court:
first proviso to section 130(2) states that the fine leviable shall not exceed the market value of the goods confiscated. The term ‘market value’ is defined in section 2(73) to mean “the full amount which a recipient of a supply is required to pay in order to obtain the goods or services or both of like kind and quality at about the same time and at the same commercial level where the recipient and the supplier are not related” - If the goods that are subject to confiscation proceedings carries an invoice and the Proper Officer has no dispute on the value mentioned in the invoice based upon a preliminary appreciation of the amount payable for goods or services of a like kind or quality, at or about the same time and at the same commercial level, then that shall be the market value. If on the other hand, the tentative amount or the amount assumed to be the market value preliminarily is disputed by the taxpayer, it calls for a determination during adjudication, where an opportunity for showing the true market value of the property will be available to the taxpayer. A reading of the definition, no doubt, reveals that the statute does not reckon MRP as the criteria for determining the fine leviable. The intention and the explicit words used in the statute clearly indicates that the proper officer cannot base the fine on the MRP imprinted on the goods, if there are other materials available to fix the market value.
Result :Revision dismissed

Judgement Key Points

Key Points: - The judgment holds that release of goods in lieu of confiscation is contemplated at two stages: during adjudication under section 130(2) and post-adjudication under section 130(3) (!) (!) - At the time of release under section 130(2), the owner is to pay only the fine in lieu of confiscation; tax, penalty, and other charges are payable after adjudication (!) - The basis for calculating the fine in lieu of confiscation is the market value defined in section 2(73), not the maximum retail price; if invoice value is not disputed, it can be taken as market value, otherwise adjudication determines it (!) (!) (!) (!) (!) - The two-stage release mechanism is designed to avoid delays and perishable goods being detained;provisional release per se is not provisional in the sense of a separate provision but a release during adjudication (!) (!) (!) - The text clarifies that section 130(2) applies before the order of confiscation is issued, i.e., during adjudication, while section 130(7) contemplates disposal after confiscation with three months’ time to pay fine (!) (!) (!)

What is the basis for releasing goods in lieu of confiscation under section 130(2) of the Central Goods and Services Tax Act?

What is the correct basis or rate for calculating the fine in lieu of confiscation under section 130 of the Act?

What is the scope of provisional or during-adjudication release of goods under section 130, and can release occur before an order of confiscation is issued?

ORDER :

An interim order is the cause of this review petition. By the interim order, this Court directed release of goods that were the subject matter of proceedings for confiscation under the Central Goods and Services Tax Act, 2017 (for brevity ‘the Act’). A review petition against the interim order is preferred by the State Tax Officer, leading to seminal questions on the scope and ambit of the powers of release of goods while the confiscation proceedings are going on.

2. The primary question for consideration is whether section 130(2) of the Act contemplates the release of goods by payment of fine in lieu of confiscation, even before orders of confiscation are issued. In addition, an incidental question that arises is on the quantum payable as fine in lieu of confiscation.

3. The genesis of the dispute emerges from an inspection conducted by the officers of the Kerala State GST Department on 03-08-2021, who seized, as per Rule 139(2) of the Central Goods and Services Tax Rules, 2017, (for brevity ‘the Rules’), beedis, stored by the respondent in this review petition in his different godowns. Orders of prohibition were later issued under Rule 140 of the Rules. For easier comprehension, the review petitioners are hereafter referred to as ‘Tax Officer’, while the respondent will be referred to as the ‘dealer’.

4. It is appropriate to mention that beedi is an indigenous smoking product like a cigar or a cigarette, made by rolling a dried leaf filled with flaked tobacco and is undoubtedly perishable in nature, with a limited shelf life.

5. When attempts to obtain release of the seized beedis were unsuccessful, the dealer initially filed W.P.(C) No.17280 of 2021, wherein, by an interim order dated 26-08-2021, this Court observed that the dealer is free to approach the Tax Officer for release of goods. In the meantime, the Tax Officer issued three separate show cause notices, all dated 25-08-2021, proposing to confiscate the goods and the conveyances and levied penalty under section 130 of the Act.

6. The dealer immediately filed another writ petition as W.P.(C) No.18169 of 2021, challenging the show-cause notices. The notices specified, apart from tax and penalty, the quantum to be paid as fine in lieu of confiscation of the goods. For reference, the following are extracted from the three notices -Ext.P8, Ext.P8(a) and Ext.P8(b), (the part relating to tax and penalty are not extracted) issued to the dealer relating to the fine in lieu of confiscation:

Ext.P8

Sl. No.	Description of Goods	HSN code	Quantity	Total value	Central tax	State tax	Integrated tax	Cess
1	2	3	4	5	6	7	8	9
1	Beedi	2403	827200 packets	8272000	2326500	2326500	0	0

Ext.P8(a)

Sl. No.	Description of goods	HSN code	Quantity	Total value	Central tax	State tax/Union Territory Tax	Integrated tax	Cess
1	2	3	4	5	6	7	8	9
1	Beedi	2403	8500 packets	85000	23906	23906	0	0

Ext.P8(b)

Sl. No	Description of goods	HSN Code	Quantity	Total value	Central tax	State tax/Union Territory Tax	Integrated tax	Cess
1	2	3	4	5	6	7	8	9
1	Onam Diamond Beedi	2403	34 Bags(160 packets @ Rs. 200 per packet	Rs.10,88,000/-	306000	306000	0	0
2	SM Beedi	2403	64 Bags(120 packets @ Rs. 200/-per packet)+ 80 packets @ Rs. 200/-	Rs.15,52,000/-	436500	436500	0	0
			TOTAL (Rs.)		742500	742500

7. The writ petition was filed, alleging that the goods were not liable for confiscation and that perishable goods cannot be detained indefinitely. It was claimed that the goods were liable to be released on a provisional basis, upon execution of a bond or a bank guarant

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