Under earlier regime of Sales Tax and Vat we have experienced variety of practical problems regarding implementation of check-post provisions throughout the country. Since, the check-posts are abolished and e-way bill system is implemented under the GST law, we do expect not only quick and easy movement of goods but the Government also expects reduction in leakage of Revenue. With the object to restrain evasion of tax, the legislature has drafted the e-way bill provisions in a fashion that today it hurdles the genuine people. Moreover, under pressure of revenue collection, the officers on field invoke provisions of e-way bill to detain the goods and to collect tax and penalty coercively in every case without application of mind. Ultimately, the implementation of e-way bill provisions burden the judicial system and encourages corruption and arm twisting.
In this article I have discussed the power of the officers to invoke e-way bill provisions and the validity of these provisions.
Scope of Detention Under Section 129:
1.1 As per sub-section (1) of Section 129 of the CGST Act, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of the said Act or the rules made thereunder, all such goods, conveyance used for transporting such goods and documents relating to such goods and conveyance shall be liable to detention or seizure. After such detention or seizure of goods, vehicle and documents, they shall be released on payment of applicable tax and penalty or on payment of amount as specified in clause (a) or (b), as the case may be, or upon furnishing a security as specified in clause (c).
1.2 The GST authorities consider any lapse / negligence / mistake / failure, either on part of the consignor or consignee or transporter, as contravention of the provisions of the GST Law for invoking provisions of Section 129 to detain the goods, vehicles transporting them and the documents relating thereto (for short, ‘the goods’). Thus, the most burning issue is regarding the power to invoke provisions of Section 129.
1.3 In my view the expression ‘contravention of the provisions of this Act or the rules made thereunder’ used in Section 129(1) cannot be construed to include inadvertent mistake or curable defect/mistake or non-compliance which has no revenue consequences. There cannot be exhaustive list of such contravention for the purpose of detention of goods under Section 129. The action of detention can be taken only in cases where it is established that there is an intention or an attempt to evade tax in respect of the goods being transported. It is the duty of the proper officer to examine minutely the nature of contravention before taking action of detention. Thereafter, the proper officer has to take decision whether such goods are required to be detained or not. In my view in absence of an element of evasion of tax or an attempt to evade tax, it is not justifiable to invoke provisions of Section 129 for every contravention.
1.4 Vide Circular No. 64/38/2018-GST, dated 14.09.2018, issued by Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs, GST Policy Wing, it is clarified that in case a consignment of goods is accompanied with an invoice or any other specified document and also an e-way bill, proceedings under Section 129 may not be initiated in specified contraventions. This list of contravention is not exhaustive, but on the basis of situations specified in the Circular it is clarified that the proper officer cannot detain the goods for the specified contraventions. Thus, the action of issuance of circular itself shows that the intention of the Government is not to empower the officers to allow them to invoke provisions of Section 129 for every type of contravention.
1.5 As per Rule 138C of the CGST Rules read with Circular No. 41/15/2018-GST, dated 13.04.2018 as amended and modified from time to time, the proper officer has to issue an order for physical verification/inspection of the conveyance, goods and documents in FORM GST MOV – 02, requiring a person in charge of the conveyance to station the conveyance at the place mentioned in such order and allow the inspection. Thereafter, the proper officer shall make a summary report of inspection in Part – A of FORM GST EWB – 03 within 24 hours of MOV – 02 form and he has to upload it on common portal. The final report of inspection shall be recorded in Part – B of FORM GST EWB -03 within 3 days of such inspection and to be uploaded on common portal. It is clear that the proper officer who stops the vehicle must have substantive reasons for detaining the goods after physical verification of goods and documents. The action of detention is not justifiable merely on the basis of suspicion. The authorities have to record reasons in reports and orders to justify their action of detention, and thereafter, they can make demand of tax and penalty to release the detained goods.
1.6 Therefore, I am of the view that Section 129 of the CGST Act cannot be invoked for every contravention of the provisions of the Act or the Rules made thereunder. The nature of the contravention is the test to take action of detention of the goods.
2.1 As per Section 129(1)(a), the detained goods shall be released on payment of the applicable tax and penalty equal to 100% of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to 2% of the value of goods or Rupees 25,000/-, whichever is less, where the owner of the goods come forward for payment of such tax and penalty.
2.2 Thus, even exempted goods are subject to detention under Section 129 and they shall be released on payment of specified amount. Therefore, I discuss hereinbelow the constitutional validity of this provision qua the exempted goods.
2.3 On plain reading of Section 129(1)(a), it is clear that the legislature has used terms ‘on payment of applicable tax and penalty’ for the taxable goods and used term ‘on payment of amount’ for the exempted goods. Thus, there is a condition of payment of tax and penalty to get the taxable goods released. While the exempted goods can be released on payment of specified amount which is not the tax and the penalty per se. The amount payable as a condition for releasing the exempted goods is in nature of civil liability for the contravention for which the goods are detained.
2.4 As discussed above, the provisions of Section 129 to detain the goods cannot be invoked for every contravention. The contravention must be of substantial nature which would have the result of revenue leakage. Of course, when the goods are exempted, there cannot be evasion of tax. However, such exempted goods may be a raw-material for manufacturing taxable goods and they are being transported without any documents and found to be unaccounted in books of account of the assessee. Then in that case such contravention can be considered as of substantial nature and is subject to detention under Section 129. In such circumstances, a condition of payment of specified amount to get the exempted goods released is justifiable. The legislature has not stated that the exempted goods shall be released on payment of penalty, but, the amount payable as condition for releasing the exempted goods is nothing but in nature of penalty. In my view such condition is to ensure compliance with the provisions of the Act and the Rules made thereunder and to check evasion of tax.
In case of Lalji Moolji Transport Company vs. State of Rajasthan, Manu/RH/716/2002, the Rajasthan High Court has held that :
“The requirement of law is meant to be strictly construed, particularly in areas of evasion of tax. We cannot lose sight of the fact that often there are attempts to avoid statutory obligation or requirement of oblique reason. An undue indulgence and leniency in favour of the tax-evaders on technical or misplaced sympathetic grounds leads to serious consequence’s affecting the revenue, and as such, development and security of the State. We are not oblivious of the fact that the penalty provisions cannot be used as a revenue – yielding provision. The object to the penalty provision is to ensure compliance in the larger public interest.”
2.5 It is well settled law that the legislature while providing for levy of impost, has power to provide for incidental matters, including measures for prevention of evasion of tax. Therefore, the provisions which are intended to prevent the evasion of tax payable under the Act are within the legislative competence and no illegality can be attributed to such provisions. Cases referred are: –
(i) State of Rajasthan vs. D. P. Metal, (2002) 1 SCC 279;
(ii) Tripura Goods Transport Association vs. Commissioner of Taxes, (1999) 2 SCC 253;
(iii) CTO vs. Swastik Roadways and Anr., (2004) 3 SCC 640; and
(iv) State of West Bengal vs. E.I.T.A., (2003) 5 SCC 239.
2.6 In the above premises, the provisions of Section 129 of the CGST Act are with respect to check evasion of tax, and they are incidental or ancillary to the power given under Article 246A of the Constitution to levy tax on supply of goods. Therefore, provisions of Section 129(1)(a) empowers the authorities to demand the specified amount to release the detained goods is within the legislative power, but, the authorities cannot invoke such power as a matter of course particularly in case of exempted goods. In my view, the officers have very narrow access to this provision when the goods are exempted. In other words, the nature of contravention has to be examined with very narrow scope while exercising the powers to detain the exempted goods. It is apposite to note that definition of exempt supply includes non-taxable supply also.
3.1 As per Section 129(1)(a) of the CGST Act, if, the owner of the goods come forward to get the goods released, he has to pay penalty equal to 100% of the tax payable on the goods detained. In case, any person other than the owner of the detained goods come forward to get the goods released, then such person has to make payment of penalty equal to 50% of the value of the goods reduced by the tax amount paid thereon.
3.2 Thus, the quantum of penalty, for the contravention for which the goods are detained, is specified on the basis of the persons who come forward to get them released. The language of the statute is simple and in no manner it does specify the circumstances under which such classification is applicable. This classification in the Statute is merely on the basis of the person who come forward to get the goods released irrespective of nature of contravention and circumstances under what the person other than the owner has come forwarded to get the goods released.
3.3 It is held in case of State of West Bengal vs. E.I.T.A., (2003) 5 SCC 239 that in field of taxation, no legislation can be declared illegal, much less unconstitutional on the ground of being unreasonableness or harsh on the anvil of Article 14 of the Constitution, except, of course it fails to clear the test of arbitrariness and discrimination which would render it violative of Article 14 of the Constitution.
3.4 If, a transporter come forward to get the goods released on behalf of the consignor as the goods were detained because of transporter’s mistake, he has to make payment of penalty which is much higher than the owner/consignor would be liable to pay. In my view the said provision which results in classification of the persons coming forward to get the goods released is not based on any intelligible differentia because in no manner the said provision specify the circumstances under which higher penalty would be payable if the person other than the owner comes forward. In other words, higher penalty would be payable in all cases irrespective of nature of contravention, if the transporter or any other person other than the owner comes forward to get the goods released. The provision results into unequal amount of penalty on two different parties for the same incidence of contravention. The classification results from the said provision does not have any nexus with the object it seeks to achieve. Therefore, the said provision is discriminatory in nature in my view because it prescribes a different penalty merely on the basis of the person coming forward to get the goods released.
3.5 The afore stated view is supported by the judgment of the Supreme Court given in case of Shree Bhagwati Steel Rolling Mills vs. CCE, (2016) 3 SCC 643.
“33. On the facts before the Gujarat High Court, there were three civil applications each of which challenged the constitutional validity of the aforesaid Rules insofar as they prescribed the imposition of a penalty equal to the amount of duty outstanding without any discretion to reduce the same depending upon the time taken to deposit the duty. The Gujarat High Court struck down the aforesaid Rules on the basis that not only were they ultra vires the Act, but they were arbitrary and unreasonable and therefore violative of Articles 14 and 19(1)(g) of the Constitution.
35. However, insofar as the reasoning of the High Court is concerned on the aspects stated hereinabove, we find that on all three counts it is unexceptionable. First and foremost, a delay of even one day would straightaway, without more, attract a penalty of an equivalent amount of duty, which may be in crores of rupees. It is clear that as has been held by this Court, penalty imposable under the aforesaid three Rules is inflexible and mandatory in nature. The High Court is, therefore, correct in saying that an assessee who pays the delayed amount of duty after 100 days is to be on the same footing as an assessee who pays the duty only after one day’s delay and that therefore such rule treats unequals as equals and would, therefore, violate Article 14 of the Constitution of India. It is also correct in saying that there may be circumstances of force majeure which may prevent a bona fide assessee from paying the duty in time, and on certain given factual circumstances, despite there being no fault on the part of the assessee in making the deposit of duty in time, a mandatory penalty of an equivalent amount of duty would be compulsorily leviable and recoverable from such assessee. This would be extremely arbitrary and violative of Article 14 for this reason as well. Further, we agree with the High Court in stating that this would also be violative of the appellant’s fundamental rights under Article 19(1)(g) and would not be saved by Article 19(6), being an unreasonable restriction on the right to carry on trade or business. Clearly the levy of penalty in these cases of a mandatory nature for even one day’s delay, which may be beyond the control of the assessee, would be arbitrary and excessive. In such circumstances, this Court has held in Mohd. Faruk v. State of M.P.
[Mohd. Faruk v. State of M.P., (1969) 1 SCC 853 : (1970) 1 SCR 156] : (SCC p. 857, para 10)
“10. … The Court must in considering the validity of the impugned law imposing a prohibition on the carrying on of a business or profession, attempt an evaluation of its direct and immediate impact upon the fundamental rights of the citizens affected thereby and the larger public interest sought to be ensured in the light of the object sought to be achieved, the necessity to restrict the citizen’s freedom, the inherent pernicious nature of the act prohibited or its capacity or tendency to be harmful to the general public, the possibility of achieving the object by imposing a less drastic restraint, and in the absence of exceptional situations such as the prevalence of a state of emergency—national or local—or the necessity to maintain essential supplies, or the necessity to stop activities inherently dangerous, the existence of a machinery to satisfy the administrative authority that no case for imposing the restriction is made out or that a less drastic restriction may ensure the object intended to be achieved.”
35. The direct and immediate impact upon the fundamental right of the citizen is that he is exposed to a huge liability by way of penalty for reasons which may in given circumstances be beyond his control and/or for delay which may be minimal. The possibility of achieving the object of deterrence in such cases can be achieved by imposing a less drastic restraint. In point of fact when we contrast these provisions with Section 37 of the Act, it becomes clear how arbitrary and excessive they are.
3.6 Therefore, in my view the provisions of Section 129(1)(b) to the extent it imposes penalty equal to fifty percent of the value of goods reduced by tax amount paid thereon is violative of Article 14 and 19(1)(g) of the Constitution.
Today, if, e-way bill provisions are made applicable by the officers after examining each and every case closely, the judicial burden can be reduced substantially and the Government can reduce corruption and arm twisting practice.