Global Knitfab Through Authorised Person, Account Manager, Bhagwan Poosh Raj Agarwal vs. State Tax Officer (1)

Held

The Court held that while authorities can invoke Section 130 of the CGST Act at the threshold of detention and seizure, they must make out a very strong case. Mere suspicion is not sufficient. The authorities need to record their reasons in writing for invoking Section 130, and these reasons should be reviewed by a superior authority. The formation of opinion by the authority must reflect an intense application of mind, based on material evidence, and not be a mere pretence. The notice for confiscation must disclose the materials upon which the belief is formed. The Court referenced the Supreme Court's decision in Sheonath Singh's case, stating that while the sufficiency of reasons cannot be investigated, the court can examine the materials to determine if an honest and reasonable person could base their belief upon them. The Court disposed of the writ application, making the rule absolute to the extent that the petitioner could make good its case that the show cause notice deserved to be discharged.

Facts

The petitioner, Global Knitfab, filed a writ application challenging the detention of its goods and vehicle. The Gujarat High Court, by an interim order dated October 22, 2019, directed the release of the conveyance and goods upon the petitioner depositing Rs. 76,468. The petitioner complied with this order and got the goods and vehicle released. The proceedings were at the stage of a show cause notice under Section 130 of the CGST Act. The Court noted that the petitioner had availed the benefit of the interim order and got the release of the goods and vehicle.

Key Issues

1. Whether the authorities can invoke Section 130 of the CGST Act at the threshold (i.e., at the stage of detention and seizure) without sufficient grounds or application of mind? The petitioner argued that authorities often directly invoke Section 130, leading to confiscation notices at the outset, rendering Section 129 of the Act insignificant. They contended that Section 129 provides for release on payment of tax and penalty, and Section 130 should not be invoked without a clear intent to evade tax. The petitioner relied on the court's observations in the case of Synergy Fertichem Pvt. Ltd. v. State of Gujarat, particularly paragraphs 99 to 104, which discuss the proper application of Section 129 versus Section 130. The revenue did not present specific arguments on this point in the provided text, but the court's discussion implies the revenue's practice of invoking Section 130 directly.