The Supreme Court has held that Goods and Services Tax (GST) officers must pass a reasoned final order justifying a decision to detain goods under Section 129 of the Central GST Act, 2017, even if the taxpayer has already paid the demanded tax and penalty to secure an immediate release of such seized goods [ASP Traders Vs State of Uttar Pradesh].
A Bench of Justices JB Pardiwala and R Mahadevan explained that without such a reasoned final order under Section 129(3), the taxpayer is effectively deprived of appeal remedies.
"Every show cause notice must culminate in a final, reasoned order. While Section 129(5) of the CGST Act, 2017 provides that proceedings shall be deemed to be concluded upon payment of tax and penalty, this deeming fiction cannot be interpreted to imply that the assessee has agreed to waive or abandon the right to challenge the levy – a right that is protected by the very enactment itself. 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," the July 24 ruling said.
The case concerned M/s ASP Traders, a Karnataka-based areca nut dealer, which had sent certain goods for delivery to Delhi.
The consignment was intercepted in Jhansi and, upon suspecting certain discrepancies, a detention notice in Form GST MOV-07 was issued by the GST authorities under Section 129(3).
Although ASP Traders submitted objections, it paid ₹7.2 lakhs as tax and penalty to secure the release of the goods due to business exigencies.
However, no adjudication order was passed thereafter.
ASP Traders requested the GST authorities to pass a final order, so that it may challenge the penalty imposed thereafter. However, the GST authorities said that since the firm's representative had paid up the demanded tax and penalty, the proceedings stood concluded and there was no need to now pass any further order.
In this regard, they relied on Section 125(5) of the CGST Act, which says,
"On payment of amount referred in sub-section (1) (penalty), all proceedings in respect of the notice specified in sub-section (3) (detention notice or show cause notice) shall be deemed to be concluded."
This was challenged before the Allahabad High Court by ASP Traders. The High Court agreed with the GST authorities' view that no further order was necessary. This prompted ASP Traders to approach the Supreme Court with an appeal.
The Supreme Court disagreed with the High Court's decision.
Referring to Circular No. 41/15/2018-GST dated April 13, 2018, the top court held that the officer is required to pass an order in Form MOV-09 (order of demand of tax and penalty) and upload it on the GST portal along with the DRC-07 summary.
The top court also noted that in this case, ASP Traders had said that they had filed a reply objecting to the detention. The GST officers had claimed that the firm's representative had later orally withdrawn the reply to secure the release of the goods. However, there was no written record to prove any such withdrawal.
“Once objections are filed, adjudication is not optional. It becomes imperative to pass a speaking order to justify the demand of tax and penalty, to safeguard the right of appeal under Section 107 of the CGST Act,” the Court proceeded to hold.
The Court also took note of the GST portal’s limitation, which classifies all penalty payments made through Form DRC-03 as voluntary, and does not allow the taxpayer to record that a payment is being made under protest.
Therefore, it cannot always be assumed that the taxpayer paid a penalty voluntarily or has given up his right to challenge the tax demanded against detained goods, the Court opined.
“Such procedural limitations cannot be allowed to defeat the rights of the taxpayer, particularly where the detention of goods is ultimately found to be unlawful,” the Court said.
Citing the judgment in Kranti Associates v. Masood Ahmed Khan, the Bench reiterated that the failure to issue a reasoned order renders the appellate remedy under Section 107 of the Act illusory, and may violate Article 265 of the Constitution, which bars the collection of tax except by authority of law.
The Court proceeded to allow the appeal by ASP Traders and directed the Assistant Commissioner (Mobile Squad), Jhansi, to pass a final order under Section 129(3), after affording an opportunity of hearing to the firm under Section 129(4), and thereafter upload the summary in Form GST DRC-07 within one month.
The appellant (ASP Traders) was represented by Advocates Pawanshree Agrawal and Divyanshu Agrawal.
The GST department was represented by Advocate Bhakti Vardhan Singh.
[Read Judgment]