Jainam Cables (INDIA) Private Limited vs. Union Of INDIA

Facts

The petitioner, Jainam Cables (India) Private Limited, filed a writ application challenging a show-cause notice dated May 28, 2019, issued by respondent no. 3. The petitioner is engaged in manufacturing and trading nonferrous metals and is registered under the CGST Act. The petitioner had an order for supply of goods worth Rs. 4,72,590/-, which were intercepted and seized along with the vehicle while in transit. The tax liabilities and penalty, according to the e-Way Bill, amounted to Rs. 1,44,180/. The petitioner sought to quash the show-cause notice, stay its operation, and direct the release of the vehicle and goods. The Court, by an interim order dated June 12, 2019, directed the release of the vehicle and goods upon the petitioner depositing Rs. 1,44,180/-, which was done. The proceedings are currently at the show-cause notice stage under Section 130 of the CGST Act.

Held

The Court held that while Section 130 of the CGST Act can be invoked at the stage of detention and seizure, the authorities must make out a very strong case for it. 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. There must be material on which the authority can form a good faith belief that confiscation is necessary. 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 materials to find if an honest and reasonable person could base their belief upon them. The formation of the opinion for confiscation must reflect intense application of mind, as not every contravention warrants confiscation. The Court noted that the petitioner was permitted to point out the recent pronouncement in Synergy Fertichem Pvt. Ltd. V/s. State of Gujarat and the observations made therein regarding the application of Section 129 versus Section 130. The writ application was disposed of with the rule made absolute to the extent of the applicant being able to make good their case that the show-cause notice deserves to be discharged.

Key Issues

1. Whether the authorities were justified in straightway invoking Section 130 of the CGST Act for confiscation of goods and conveyance, instead of proceeding under Section 129 of the Act, considering the nature of the contravention and the intent to evade tax? The petitioner argued that the authorities prematurely invoked Section 130 of the CGST Act. They contended that Section 129 provides for the release of goods and conveyance upon payment of applicable tax and penalty, and that Section 130, which deals with confiscation, should only be invoked when there is a clear intent to evade tax, which requires a higher degree of proof. The petitioner relied on the principle that trivial contraventions should not lead to confiscation and that the authorities must have material to form a bona fide belief of tax evasion before initiating confiscation proceedings. The revenue or State did not explicitly record arguments in the provided text, but their action of issuing a show-cause notice under Section 130 implies they believed the circumstances warranted confiscation.