M/S Ghs Traders And Anr vs The Assistant Commissioner And Ors on 2 September, 2024

Judgment Summary: M/S GHS Traders And Anr vs The Assistant Commissioner And Ors

1. Outcome

The Writ Petition was partly allowed. The court set aside the impugned penalty order (Form GST MOV-09) and remitted the matter back to the Assistant Commissioner for fresh consideration.

As an interim measure, the Court directed the authorities to release the detained goods and vehicle upon the petitioner paying the applicable tax and a penalty equivalent to 100% of the tax payable, calculated on the market value of the goods as determined by the authorities. This payment is to be made without prejudice to the rights of either party in the final adjudication.

2. Core Issue

The central issue was the legality of the detention of goods and the subsequent penalty imposed under Section 129 of the CGST/KGST Act, 2017. Specifically, the dispute centered on:
1. Whether the petitioner (consignor) should be treated as the 'owner' for the purpose of levying a penalty under Section 129(1)(a) of the Act.
2. The appropriate valuation basis (invoice value vs. market value) for calculating the penalty, especially in a case of alleged undervaluation.
3. The procedural validity of the penalty order, which was passed on the same day the petitioner filed their reply.

3. Key Facts

1. M/S GHS Traders (the petitioner), a registered dealer in arecanut, dispatched a consignment of 24,500 kgs of arecanut from Shimoga to a buyer in Delhi.
2. The conveyance was intercepted in Bidar District by the authorities.
3. The goods and vehicle were detained on two primary grounds: (i) no e-way bill was produced initially, and (ii) the goods were allegedly undervalued in the invoice.
4. The authorities issued a detention order (Form GST MOV-06), a show-cause notice for penalty (Form GST MOV-07), and finally a penalty order (Form GST MOV-09) on 12.08.2024.
5. The petitioner submitted their reply to the show-cause notice on 12.08.2024, the same day the final penalty order was passed.
6. The penalty was imposed treating the petitioner as a third party, not the owner, resulting in a higher penalty.
7. The petitioner challenged these orders before the High Court.

4. Arguments

• Petitioner's Arguments:

  • The penalty was wrongly calculated by not treating the petitioner (the consignor) as the owner of the goods.
  • As per GST Circular No. GST-11/2018-19, the consignor or consignee should be deemed the owner for the purposes of Section 129.
  • Therefore, the penalty should be levied under Section 129(1)(a) of the Act, which is 100% of the tax payable.
  • The petitioner, without prejudice to their rights, expressed willingness to pay the penalty as per Section 129(1)(a) to secure the release of the goods and vehicle.

• Respondent's (Revenue's) Arguments:

  • The goods were significantly undervalued in the invoice compared to the prevailing market value.
  • If any penalty is to be calculated, it must be based on the tax leviable on the actual market value of the goods, not the suppressed invoice value, to prevent tax evasion.

5. Court’s Reasoning

1. Procedural Flaw: The Court noted that the final penalty order (MOV-09) was passed on the same day the petitioner filed their reply (12.08.2024). This indicated that the reply was not duly considered, constituting a violation of the principles of natural justice. This was a primary reason for setting aside the order and remanding the matter.
2. Petitioner's Status as Owner: The Court took cognizance of the petitioner's submission, supported by the GST circular and the precedent cited, that the consignor should be treated as the owner for penalty purposes under Section 129.
3. Balancing of Interests: To provide immediate relief to the petitioner and safeguard the interests of the revenue, the Court devised a balanced interim solution. It allowed for the release of the goods by directing the petitioner to pay the penalty under Section 129(1)(a), but crucially, accepted the respondent's argument that this calculation must be based on the higher market value determined by the authorities.
4. No Opinion on Merits: The court clarified that its directions for interim release were without prejudice to the final outcome and that it had not expressed any final opinion on the merits of the case, which were to be decided by the adjudicating authority upon remand.

6. Statutory References

• Constitution of India: Articles 226 and 227.
• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 70: Power to summon persons to give evidence and produce documents.
  • Section 129: Detention, seizure and release of goods and conveyances in transit.
  • Section 129(1): Specifies the conditions for detention and seizure.
  • Section 129(1)(a): Prescribes penalty for the owner of the goods (100% of the tax payable).
  • Section 129(3): Procedure for issuance of notice and order for penalty.
• Karnataka Goods and Services Tax Act, 2017 (KGST Act): Parallel provisions to the CGST Act, including Section 129.
• GST Forms: GST MOV-06 (Detention Order), GST MOV-07 (Show Cause Notice), GST MOV-09 (Final Penalty Order).

7. Precedents Cited

• Case Law: Chelaram S/o Dargaram G vs. The State of Karnataka and others (WP No.200582/2024, decided on 22.02.2024).
• Circular: Circular bearing No. GST-11/2018-19 dated 31.12.2018 (Clarifying that the consignor/consignee should be considered the owner for the purposes of Section 129).