M/S Khaitan Foods INDIA PVT. LTD. vs. State Of U.P. And 2 Others

Facts

The petitioner, Khaitan Foods India Pvt. Ltd., is aggrieved by an order dated 08.10.2024 rectifying an earlier order dated 06.10.2024 passed under Section 129(3) of the GST Act, 2017. The initial detention of goods occurred on 29.08.2024 due to a perceived mismatch in quantity. The petitioner explained the discrepancy, citing the perishable nature of the goods. Despite this, an order in MOV-06 was issued on 01.10.2024, followed by a show-cause notice under Section 129(1)(a). The petitioner deposited the penalty amount of Rs. 22,37,220/- through DRC-03 on 05.10.2024, explicitly stating it was paid 'under protest and without prejudice to our legal right to appeal'. Subsequently, an order under Section 129(3) was passed on 06.10.2024 confirming the penalty. The goods were released on 08.10.2024, after which the respondent passed a rectification order (DRC-08) treating the payment as voluntary and making the demand 'NIL'. This rectification order is the primary subject of the present writ petition.

Held

The Court held that the rectification order dated 08.10.2024 passed by the respondents was wholly unjustified and illegal. The Court reasoned that the petitioner had made the payment of the penalty amount of Rs. 22,37,220/- through DRC-03 with a clear and explicit endorsement stating that the payment was made 'under protest and without prejudice to our legal right to appeal'. This endorsement unequivocally indicated that the payment was not voluntary. The Court found that the mere fact that the payment was made through DRC-03, which deals with voluntary payments, did not negate the specific protest made by the petitioner. The Court further held that by passing the rectification order and declaring the demand as 'NIL', the respondents had effectively deprived the petitioner of its statutory right to file an appeal against the order dated 06.10.2024. This action was considered to be an impediment to seeking statutory redressal. The Court quashed and set aside the rectification order dated 08.10.2024. As a consequence of being deprived of the right to appeal, the Court directed that the period from 08.10.2024 until the date of the present order be excluded for computing the period of limitation for the petitioner to file an appeal against the order dated 06.10.2024 passed under Section 129(3) of the Act. The ratio decidendi is that a payment made under protest, even if through a mechanism for voluntary payment, cannot be treated as voluntary to deny the right of appeal, and rectification orders cannot be used to extinguish statutory appeal rights.

Key Issues

1. Whether the respondents were justified in passing the rectification order dated 08.10.2024 under Section 161 of the GST Act, 2017, thereby treating the payment made by the petitioner as voluntary, despite the explicit endorsement of payment 'under protest' on DRC-03? 2. Whether the rectification order, by declaring the demand as 'NIL', has illegally deprived the petitioner of its statutory right to file an appeal against the order dated 06.10.2024, thereby violating the principles of natural justice and the right to seek redressal? Petitioner's arguments: The petitioner contended that the rectification order was unjustified and illegal because the payment was made under protest, as clearly indicated on the DRC-03 challan. They argued that the conditions precedent for exercising power under Section 161 were absent. Furthermore, the rectification order, by making the demand 'NIL', prevented the petitioner from filing an appeal against the order dated 06.10.2024, thus taking away their right to appeal. The petitioner also sought extension of limitation for filing an appeal against the order dated 06.10.2024, as the period of limitation had expired due to the subsequent rectification. Respondent's arguments: The respondent supported the impugned order, arguing that the petitioner was transporting goods with a quantity mismatch, justifying action under Section 129(1)(a). They contended that the penalty amount was deposited through DRC-03, which is for voluntary payments, and therefore, no order under Section 129(3) was necessary. Consequently, the rectification order under Section 161 was appropriate, and the petition deserved dismissal.