Arihant Trading Company vs. State Of Gujarat

Facts

The petitioners, Dhanlaxmi Metals, filed writ petitions challenging orders denying provisional release of seized goods and conveyances. The goods were seized despite being accompanied by valid tax invoices and e-way bills. Subsequently, show cause notices under Section 130 of the GST Act were issued for alleged irregularities in upstream vendors' transactions. The petitioners sought provisional release under Section 67(6) or Section 129(2) of the GST Act, but their applications were rejected on the ground that such release is not possible once proceedings under Section 130 are initiated. The petitions were heard on the limited issue of whether authorities can exercise powers under Section 67(6) or Section 129(2) for provisional release during pendency of confiscation proceedings.

Held

The Court held that the authorities were not justified in denying provisional release of goods and conveyances. It reasoned that once goods are seized, they are to be treated as seized under Section 67(2) of the GST Act, irrespective of whether the seizure occurred during transit or at the taxable person's premises. The Court found that Section 129 of the GST Act would not operate once a show cause notice under Section 130 is issued. Therefore, the provisions of Section 67(6) of the GST Act, which mandate provisional release upon furnishing security or paying applicable tax, interest, and penalty, would apply. The Court emphasized the mandatory nature of Section 67(6) due to the use of the word "shall." The ratio decidendi is that seizure of goods, regardless of location, triggers the mandatory provisional release provisions under Section 67(6) if the conditions are met, even when confiscation proceedings under Section 130 are initiated. The Court directed the provisional release of goods and conveyances upon execution of a bond and payment of tax, interest, and penalty within three weeks.

Key Issues

1. Whether the authorities can exercise powers under Section 67(6) and/or Section 129(2) of the GST Act for provisional release of goods and conveyances during the pendency of confiscation proceedings under Section 130 of the GST Act, particularly when the goods are seized in transit. The petitioner argued that Section 130 of the GST Act, dealing with confiscation, does not inherently provide for seizure. They contended that seizure is governed by Section 67(2) (for goods liable to confiscation) and Section 129(1) (for goods in contravention of provisions during transit). Both these sections, along with Section 67(6) and Section 129(2) (as it existed), provide mechanisms for provisional release. The petitioner asserted that if goods are seized, provisional release is permissible under Section 67(6) upon furnishing security or paying tax, interest, and penalty, and that the denial of release based on the location of seizure (transit vs. premises) is discriminatory and illogical. They relied on cases like Weston Components Ltd. v. Commissioner of Customs and Commissioner of Customs v. Finesse Creation Inc. The respondent State argued that provisional release is not possible once proceedings under Section 130 are initiated. The judgment does not explicitly record the State's arguments beyond this point.