M/S. Karnataka Traders vs. State Of Gujarat
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M/s. Karnataka Traders, a registered dealer, and the owner of a truck filed a writ petition challenging a confiscation notice issued by the Tax Commissioner (Enforcement) under Section 130 of the CGST Act. The consignment of Arecanut was intercepted on November 20, 2021. The driver produced an E-way bill and Tax Invoice. Physical verification revealed no discrepancies in the description or quantity of goods. However, the confiscation notice cited two grounds: (i) the vehicle was travelling in a direction different from its destination, suggesting an intention to evade tax, and (ii) the value of goods shown as Rs. 286/- was too low compared to its market value of Rs. 330/-. The petitioners sought quashing of the notice and release of goods and vehicle without security.
Held
The Court held that there cannot be mechanical detention of a consignment in transit solely on the basis of the two reasons cited by the respondent. Regarding the first ground, the Court found that merely choosing a different direction for delivery does not automatically infer an intention to evade tax, unless there is cogent material to indicate an attempt to dispose of goods indirectly. Without such material, a change of route by itself is insufficient. Concerning the second ground of undervaluation, the Court noted that no material was placed on record to substantiate this claim. Furthermore, it is a settled legal position, as held by this Court and other High Courts, that undervaluation by itself is not a ground for seizure of goods in transit, let alone confiscation. The Court quashed the confiscation proceedings and directed the release of the vehicle and goods.
Key Issues
1. Whether the interception and proposed confiscation of goods and vehicle are sustainable solely on the ground that the vehicle was travelling in a direction different from its destination, without further evidence of intent to evade tax, under Section 130 of the CGST Act? 2. Whether undervaluation of goods, as alleged, can be a sole ground for confiscation of goods and vehicle under Section 130 of the CGST Act? Petitioner's Arguments: - The petitioner argued that mechanical detention of a consignment is impermissible merely because the driver opted for a different route, relying on *Podaran Foods India Pvt. Ltd. vs. State of Kerala*. - They further contended that undervaluation of goods in transit cannot be a ground for detention and seizure, as it requires separate proceedings, citing *K.P. Sugandh Ltd. vs. State of Chhattisgarh*. - All objections were placed before the authorities but not considered. Revenue's Arguments: - The State argued that the route chosen by the petitioner indicated an intention to evade tax, as the vehicle was travelling in a direction different from its destination.
Sections Cited
Section 130, Section 68(1)
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
ORAL ORDER (PER : HONOURABLE MS. JUSTICE NISHA M. THAKORE) 1 Rule returnable forthwith. Learned A.G.P. Mr. Utkarsh Sharma waives service of notice of rule for and on behalf of the respondents. 2 The challenge in the present writ application is to the confiscation notice dated 4th December 2021 issued by the Tax Commissioner (Enforcement) Division – 1, Ahmedabad, in exercise of powers conferred under Section 130 of the Central Goods and Services Tax Act, 2017 (for short, “the CGST Act”) read with the relevant provisions of the Integrated Goods and Services Tax Act, 2017 (for short, “the IGST Act”). The petitioner has also prayed for direction of issuance of a writ of mandamus to forthwith release the goods and vehicle without demanding any security. C/SCA/19549/2021 ORDER DATED: 06/01/2022 3 The relevant facts which emerges from the record are reproduced as under: 4 The petitioner No.1 is a seller of the goods (Arecanut) and a registered dealer under the GST. It is the case of the petitioner No.1 that the goods were to be sold by the petitioner No.1 to the buyer who was having the office premises in Ahmedabad. It is undisputed that the petitioner No.1 is a duly registered dealer under the GST Act. So far as the petitioner No.2 is concerned, he claims to be the owner of the Truck bearing registration No.KA 18 C 2681 on which the instant goods were to be transported. 5 The consignment was intercepted by the respondent No.3 on 20th November 2021 at around 11:40 AM at Changodar Road, Navapura. The statement of the driver / person in charge of the vehicle was recorded on 20th November 2021. The necessary documents i.e. E-way bill and Tax Invoice were produced before the respondent No.3 under Section 68(1) of the CGST Act. However, the respondent No.3 had issued Form GST MOV – 02 to conduct physical verification / inspection of the conveyance, goods and documents and upon examination of the same, the respondent No.3 had prepared report in Form GST MOV – 04. No discrepancy was noted by the respondent No.3 with regard to the description of goods as per invoice and conveyance nor any anomaly was found with regard to quantity as per invoice and physical verification undertaken by the respondent No.3. 6 The respondent No.3 noticed two discrepancies in the impugned notice Form GST MOV – 10, which reads as under: “(i) Vehicle was intercepted while it was travelling to the different C/SCA/19549/2021 ORDER DATED: 06/01/2022 direction than the direction of destination or way to the destination. So it is clear that the goods was not moving to the place destined for.
Hence it appears that the goods is being transported with intention to evade tax. (ii) The value of goods being transported is shown Rs.286/- which is to low compared to its Real Market Value i.e. 330/-.” 7 Being aggrieved by the aforesaid action of the respondent No.3, the petitioners are here before this Court with the present writ application. 8 Considering the submissions made by the learned advocate appearing for the petitioners, this Court has issued notice vide order dated 22nd December 2021. The same reads thus:
“1. Petitioner is before this Court seeking to challenge the action of the respondent authority by way of the following reliefs:
“43. In view f the above, the Petitioner most humbly prays that: It is, therefore, most respectfully prayed that this Hon’ble Court may graciously be pleased to issue a Writ, Order or Direction in the nature of: (a) Certiorari quashing the MOV-10 (Confiscation notice dated 04.12.21 (Annexure-A to the Writ Petition); (b) Mandamus directing the Respondent no.3 to forthwith release the goods and vehicle without demanding any security; (c) Pending notice, admission and final hearing of this petition, this Hon’ble Court may be pleased to direct the learned Respondent Authorities to forthwith release goods with vehicle no.KA18 C 2681 detained/seized in purported exercise of powers under Section 129 and Section 130 of the GST Acts; (d) Issue any other writ, Order or Direction in favour of the petitioner which this Hon’ble Court deems fit in the facts and circumstances of the C/SCA/19549/2021 ORDER DATED: 06/01/2022 case; (e) Award cost of the petition to the petitioner;”
According to the petitioner, there are two grounds on which the Post or E-mode is also permitted.” 9 In response to the notice issued by this Court, learned A.G.P. Mr. Utkarsh Sharma has appeared on behalf of the State – authorities. 10 Learned advocate Mr. Samir Gupta assisted by learned advocate Mr. Monal S. Chaglani has appeared for the petitioners and has submitted that two grounds on which the department proposes to confiscate the goods and vehicle referred to above are not tenable at all in law. The attention of this Court is drawn to the decision rendered by the High Court of Judicature of Chhattisgarh in the case of K. P. Sugandh Ltd vs. State of Chhattisgarh reported in 2020(38) GSTL 317 C/SCA/19549/2021 ORDER DATED: 06/01/2022 (Chhattisgarh) and it is submitted that undervaluation of seized goods in transit cannot be a ground to confiscate the goods and vehicle. The learned advocate has further submitted that similarly, the second ground raised by the respondent No.3 – authority is also not sustainable in the eye of law. The learned advocate has referred to and relied upon the observations made in para 10 of the said judgement. The same reproduced as under: “Merely because the manufacturer sells his products to its customer or dealer at a price lower than the MRP, as such cannot be a ground on which the product or the vehicle could be seized or detained. If at all if this, according to the respondents, is contrary to the law, the authorities are supposed to draw an appropriate proceeding under the law. If at all what the State counsel has submitted is to be accepted, even then it would be only a case of an alleged sale of a product at a lower costs than the MRP. The Inspecting Authorities for the alleged discrepancy could have only intimated the Assessing Authority for initiating appropriate proceedings. What is more relevant to take note of is the fact that the details in the invoice bill as well as in the e-way bill matched the products found in the vehicle at the time of inspection except for the price of sale.” 11 destination. Hence, it was submitted not to entertain this writ C/SCA/19549/2021 ORDER DATED: 06/01/2022 application. 13 On careful consideration of the facts and circumstances of the case and the submissions made by the respective advocates for the parties, we find the force in the contention of the learned advocate appearing for the petitioners that there cannot be any mechanical detention of a consignment in transit solely on the basis of the two reasons as stated by the respondent No.3 in the impugned notice. We find that merely the direction preferred by the petitioners for delivery of consignment to the place destined for, an inference cannot be drawn with regard to the intention of the petitioners to evade tax. So far as the second ground with regard to the goods being transported to be undervalue is concerned, no material has been placed on record. Even otherwise, as held by this Court as well as other High Courts, it is a settled legal position that undervaluation cannot be a ground for seizure of goods in transit by the inspecting authority. In the instant case, there is no such indication. 14 In the result, the present writ application succeeds and is hereby allowed. The confiscation proceedings initiated by the respondents are hereby quashed and set aside. The vehicle as well as the goods shall be released at the earliest and handed over to the writ applicants. 15 We clarify that we have quashed the entire confiscation proceedings keeping in mind two things: first, mere change of route without anything more would not necessarily be sufficient to draw an inference that the intention was to evade tax. Sometime, change of route may assume importance provided there is cogent material with the department to indicate that an attempt was sought to be made to dispose of the goods indirectly at a particular place. If such is the case, C/SCA/19549/2021 ORDER DATED: 06/01/2022 then probably, the authority may be justified in initiating appropriate proceedings, but mere change of route of the vehicle by itself is not sufficient. In the same manner, mere undervaluation of the goods also by itself is not sufficient to detain the goods and vehicle far from being liable to confiscation. 16 Rule is made absolute to the aforesaid extent. Direct service is permitted. (J. B. PARDIWALA, J) (NISHA M. THAKORE,J) CHANDRESH
Reproduced from the public record of the Gujarat High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.