Payment of Tax & Penalty For Release of Goods Doesn't Waive Right to Appeal; Final Order U/S 129(3) CGST Act Mandatory: Supreme Court - 2025-08-18

Payment for Release of Goods Doesn't End Proceedings; GST Officer Must Pass Final Order, Rules Supreme Court

New Delhi: In a significant ruling reinforcing taxpayer rights, the Supreme Court, led by Justice R. Mahadevan, has held that a Goods and Services Tax (GST) officer is statutorily obligated to pass a reasoned final order under Section 129 (3) of the CGST Act, 2017, even if the taxpayer has paid the demanded tax and penalty to secure the release of detained goods. The Court clarified that such payment, often made under business compulsion, cannot be construed as a waiver of the taxpayer's right to appeal.

The bench set aside an Allahabad High Court order which had dismissed a writ petition seeking a final adjudication order. The Supreme Court directed the GST authorities to pass a speaking order, thereby enabling the appellant to pursue their statutory remedies.

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Background of the Case

The appellant, M/s. ASP Traders Co., a registered dealer from Karnataka, had its consignment of Arecanut detained in transit by the Mobile Squad in Jhansi on January 17, 2022. The authorities issued a show-cause notice under Section 129 (3) of the CGST Act, alleging discrepancies, including missing bags and issues with the consignee's and consignor's addresses.

To avoid further business disruption, the appellant paid the demanded IGST of Rs. 7,20,440/- and secured the release of the goods on January 27, 2022. However, the authorities failed to issue a final adjudication order (in Form GST MOV-09), contending that proceedings were "deemed to be concluded" under Section 129 (5) of the Act upon payment. After repeated requests for an order went unanswered, the appellant approached the Allahabad High Court, which dismissed their plea, leading to the present appeal before the Supreme Court.

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Key Arguments

• Appellant's Contentions (M/s. ASP Traders Co.):
• Every show-cause notice must culminate in a reasoned final order to enable the affected party to avail statutory remedies like an appeal under Section 107 .
• The payment was made under protest due to "pressing business exigencies" and should not be treated as a voluntary admission of liability.
• Section 129 (5), which deems proceedings concluded upon payment, does not eliminate the mandatory requirement for the proper officer to pass an adjudication order as stipulated in Section 129 (3).

• The absence of a formal order renders the statutory right of appeal illusory and violates Article 265 of the Constitution, which prohibits the levy of tax without the authority of law.

• Respondents' Contentions (GST Department):

• The appellant's representative had orally withdrawn their objections and voluntarily deposited the tax and penalty.
• Section 129 (5) of the CGST Act explicitly states that upon payment, "all proceedings in respect of the notice... shall be deemed to be concluded."
• As the proceedings stood concluded by legislative mandate, no further order was necessary, and the High Court was right to deny a mandamus.

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Supreme Court's Analysis and Ruling

The Supreme Court fundamentally disagreed with the department's interpretation, emphasizing that procedural fairness and the right to appeal are cornerstones of tax administration.

On Mandatory Adjudication: The Court observed that the language of Section 129 (3) is categorical, stating the officer "shall issue a notice... and thereafter, pass an order ." It held that this requirement is mandatory, especially when objections have been filed.

> "The term 'conclusion' as used in Section 129 (5) merely signifies that no further proceedings for prosecution will be initiated. It does not absolve the responsibility of the proper officer to pass an order concluding the proceedings."

Payment Under Protest is Not Waiver: The bench gave significant weight to the practical realities faced by businesses. It noted that the GST payment portal automatically classifies payments via Form GST DRC-03 as 'voluntary' without providing a mechanism to register a protest.

> "In the absence of such an option, payments made under commercial compulsion or business necessity – such as for securing release of detained goods – may be erroneously construed as voluntary... Such procedural limitations cannot be allowed to defeat the rights of the taxpayer..."

The Court firmly established that payment made under such circumstances cannot be treated as an abandonment of the right to challenge the levy. It cited legal principles differentiating waiver and acquiescence, noting that under Article 265 of the Constitution, there can be "no acquiescence in tax."

Right to Appeal is Sacrosanct: The judgment highlighted that the right to appeal under Section 107 is predicated on the existence of a formal order. Depriving a taxpayer of a reasoned order effectively nullifies this statutory safeguard. Citing its own precedent in M/s. Kranti Associates (P) Ltd , the Court reiterated that recording reasons is a component of natural justice and ensures fairness, transparency, and accountability.

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Final Decision and Implications

The Supreme Court allowed the appeal and set aside the Allahabad High Court's order. It directed the GST officer (Respondent No. 3) to:

1. Pass a reasoned final order in Form GST MOV-09 within one month.
2. Provide the appellant an opportunity of being heard as required by Section 129 (4).
3. Upload the summary of the order in Form GST DRC-07.

This judgment provides critical clarity on the procedure under Section 129 of the CGST Act. It serves as a strong precedent against the practice of treating proceedings as closed merely upon payment of a demand, thereby protecting the taxpayer's invaluable right to challenge the legality of tax and penalty impositions through the appellate process.