Hayan Trading Co. vs. Union Of INDIA

Held

The Court held that the issuance of a show cause notice under Section 130 of the CGST Act, 2017, at the threshold of detention and seizure, is permissible only when there is a strong case and sufficient material to believe that the contravention was with a definite intent to evade tax. Merely on suspicion, authorities are not justified in straightway invoking Section 130. The Court emphasized that Section 129 provides for release on payment of tax and penalty, and Section 130, which deals with confiscation, is an aggravated form of action with penal character, intended to deter tax evasion. The Court referred to its pronouncement in Synergy Fertichem Pvt. Ltd. Vs. State of Gujarat, highlighting that authorities must apply their mind and have material to form a good faith belief for confiscation. The Court noted that the notice for confiscation must disclose the materials upon which the belief is formed, and while the sufficiency of reasons may not be justiciable, the materials must be such that an honest and reasonable person could base their belief upon them. The Court directed that it is open for the writ applicant to point out these aspects in their reply to the show cause notice.

Facts

The petitioner, Havan Trading Co., filed a writ application challenging an order of detention dated August 31, 2019, and a show cause notice dated September 4, 2019, both issued by Respondent No. 2. The petitioner sought to quash these orders, direct the release of detained goods and conveyance, and the return of an amount of Rs. 22,54,205/- allegedly extorted under pressure. A coordinate bench of the High Court, on September 19, 2019, directed the release of the goods and conveyance upon payment of the tax in terms of the impugned notice. The petitioner availed this interim relief and got the goods and vehicle released. The proceedings were at the stage of a show cause notice under Section 130 of the Central Goods and Services Tax Act, 2017.

Key Issues

1. Whether the issuance of a show cause notice under Section 130 of the CGST Act, 2017, at the initial stage of detention and seizure of goods and conveyance, without sufficient application of mind and justifiable grounds to believe that there was an intent to evade tax, is permissible? (Section 130, Section 129, Section 135 of CGST Act, 2017). Petitioner's Contention: The petitioner argued, by relying on the judgment in Synergy Fertichem Pvt. Ltd. Vs. State of Gujarat, that authorities should not straightway invoke Section 130 of the Act at the inception of detention and seizure. They contended that Section 129 provides for release on payment of tax and penalty, and Section 130 should only be invoked when there is a clear intent to evade tax, supported by material evidence. Revenue's Contention: The judgment does not record specific arguments from the revenue regarding the issues raised by the petitioner. However, the revenue issued the show cause notice under Section 130, implying a belief that the circumstances warranted such action.