WPMS/1014/2021 on 10 September, 2021

Judgment Summary: WPMS/1014/2021 - A.P. Refinery Pvt. Ltd. vs. State of Uttarakhand & Ors.

1. Outcome

The Writ Petition was partly allowed. The High Court:
* Quashed and set aside the confiscation orders dated 23.04.2021 passed under Section 130 of the CGST/SGST Act (in Form GST MOV-11).
* Directed the release of the detained vehicles and goods, subject to the petitioner furnishing a bond for the value of the goods and a bank guarantee for the amount of applicable tax, interest, and penalty.
* Clarified that this release is subject to the final outcome of the confiscation proceedings.
* Granted liberty to the GST department to proceed further in accordance with the law, but only after providing the petitioner with an opportunity of being heard.

2. Core Issue

The case revolved around two primary legal questions:
1. Constitutional Validity: Whether Section 129 of the CGST/SGST Act, 2017 and Rule 140 of the CGST/SGST Rules, 2017 are unconstitutional for being arbitrary and violative of Articles 14, 19(1)(g), and 300A of the Constitution of India.
2. Procedural Legality: Whether the confiscation order passed by the GST authorities under Section 130 of the Act was legally valid, specifically in the context of the mandatory requirement to provide an opportunity of being heard under Section 130(4).

3. Key Facts

• The petitioner, A.P. Refinery Pvt. Ltd., transported consignments of Rice Bran Oil from Punjab to Uttarakhand in multiple trucks.
• All necessary documents, including e-Invoices and e-Way bills, were generated. The e-Way bills were set to expire on 30.03.2021.
• The trucks were intercepted by GST officials in Uttarakhand on 31.03.2021, by which time the e-Way bills had expired.
• Despite physical verification revealing no discrepancy in the goods or quantity, the authorities detained the goods and conveyances under Section 129 of the Act due to the expired e-Way bills.
• A show-cause notice (Form GST MOV-07) was issued under Section 129(3). The petitioner alleged that their reply was not accepted by the authorities.
• As the petitioner did not pay the demanded tax and penalty within the stipulated period, the department initiated confiscation proceedings under Section 130 of the Act.
• A notice for confiscation (Form GST MOV-10) was issued on 17.04.2021.
• Subsequently, on 23.04.2021, the final confiscation orders (Form GST MOV-11) were passed, imposing tax, penalty, and fines in lieu of confiscation.
• The petitioner contended that these final orders were passed without affording them an opportunity of being heard.

4. Arguments

• Petitioner (A.P. Refinery Pvt. Ltd.):

  • Challenged the constitutional validity of Section 129, arguing it imposes arbitrary and unreasonable conditions, thereby hindering the right to trade and property.
  • Asserted that the final confiscation order under Section 130 was passed in gross violation of the principles of natural justice and the specific mandate of Section 130(4), as no hearing was provided.
  • Claimed that the department wrongfully escalated the matter to confiscation proceedings even though the petitioner was willing to comply with the procedural requirements for provisional release.

• Respondents (State GST Department & Union of India):

  • Defended the constitutional validity of Section 129, stating it is a necessary provision to curb tax evasion and is not arbitrary.
  • Argued that the writ petition was not maintainable due to the availability of an alternative and efficacious appellate remedy under Section 107 of the Act.
  • Contended that the procedure was duly followed; since the petitioner failed to pay the tax and penalty demanded under Section 129, the initiation of confiscation proceedings under Section 130 was legally justified.

5. Court’s Reasoning

• On Constitutional Validity:

  • The Court upheld the presumption of constitutionality of statutes. It reasoned that laws can be struck down only for lack of legislative competence or violation of fundamental rights.
  • It held that Section 129 creates a reasonable classification to prevent tax evasion during the transit of goods, which has a rational nexus with the objects of the GST legislation.
  • It reiterated that the right to trade under Article 19(1)(g) is not absolute and can be restricted by a valid law. Taxation is a sovereign power, and a tax law, if otherwise valid, does not constitute an unreasonable restriction. The challenge to the constitutionality was thus not accepted.

• On Violation of Natural Justice (Opportunity of Being Heard):

  • The Court's decision primarily turned on this point. It highlighted the explicit language of Section 130(4): "No order for confiscation of goods or conveyance or for imposition of penalty shall be issued without giving the person an opportunity of being heard."
  • The Court observed that the respondents "completely failed to show that the petitioner was indeed, given an opportunity of being heard before the passing the orders of the confiscation."
  • It concluded that passing the confiscation order without a hearing is a direct violation of a mandatory statutory provision. This procedural failure rendered the confiscation orders legally unsustainable.

• On Alternative Remedy:

  • While acknowledging the existence of an appellate remedy under Section 107, the Court proceeded to decide the matter on its merits. The violation of principles of natural justice is a well-established exception to the rule of exhausting alternative remedies, thereby making the writ petition maintainable.

6. Statutory References

• Constitution of India: Articles 14, 19(1)(g), 246A, 300A.
• Central/State Goods and Services Tax Act, 2017:
  • Section 129 (Detention, seizure, and release of goods and conveyances in transit)
  • Section 130 (Confiscation of goods or conveyances and levy of penalty), particularly sub-section (4).
  • Section 107 (Appeals to Appellate Authority).
• Central/State Goods and Services Tax Rules, 2017:
  • Rule 140 (Bond and security for release of seized goods).
• GST Forms: MOV-01, MOV-06, MOV-07, MOV-10, MOV-11.

7. Precedents Cited

• On Constitutional Validity:
  • State of A.P. vs. McDowell and Co., (1996) 3 SCC 709
  • Goa Glass Fiber Ltd. vs. State of Goa, (2010) 6 SCC 499
  • Budhan Chowdhry vs. State of Bihar, 1955 (1) SCR 1045
  • Ram Krishna Dalmia vs. Shri Justice S.R. Tendolkar, AIR 1958 SC 538
• On Taxation and Fundamental Rights:
  • Ramji Lal vs. I.T.O., AIR 1951 SC 97
  • State of West Bengal vs. Subodh Gopal Bose, AIR 1954 SC 92
  • Kailash Nath vs. State of U.P., AIR 1957 SC 790
• On Maintainability of Writ Petition:
  • Devendra Dwivedi vs. Union of India, WP (S) (Criminal) No. 272 of 2020 (Supreme Court)