Kanchan Metal vs. State Of Gujarat

Facts

The petitioner, Kanchan Metal, engaged in the trading of metal scrap, filed a writ application challenging a detention order and a confiscation notice dated July 31, 2019, issued by Respondent No. 2. The petitioner sought the release of Truck No. GJ-03-BT-8301 and the goods therein. An interim order dated August 7, 2019, directed the release of the truck and goods upon payment of tax and penalty, amounting to Rs. 3,81,852, which the petitioner paid. The proceedings were at the stage of a show-cause notice under Section 130 of the GST Act, 2017.

Held

The Court held that authorities should not straightway invoke Section 130 of the GST Act for confiscation at the initial stage of detention and seizure without proper application of mind and justifiable grounds. Section 129, which allows for release upon payment of tax and penalty, should be considered first. Invoking Section 130 prematurely renders Section 129 otiose. For confiscation under Section 130, there must be a clear intent to evade tax, and mere contravention, especially if trivial, may not suffice. The authorities must have material to form a belief in good faith that confiscation is necessary, and this belief should be based on an intense application of mind, not mere suspicion. The judgment referred to the case of Synergy Fertichem Pvt. Ltd. V/s. State of Gujarat and observations in paragraphs 99 to 104 of that decision. The Court directed that it is now for the applicant to make good his case that the show cause notice deserves to be discharged. The writ application was disposed of with the rule made absolute to the extent of the directions given.

Key Issues

1. Whether the authorities were justified in directly invoking Section 130 of the GST Act, 2017, for confiscation at the initial stage of detention and seizure, thereby rendering Section 129 of the Act insignificant? Petitioner's contention: The petitioner argued that the authorities prematurely invoked Section 130 by issuing a confiscation notice immediately after detention, without properly considering Section 129 which provides for release upon payment of tax and penalty. They relied on the principle that confiscation is a penal action requiring a clear intent to evade tax, not merely a trivial contravention. Revenue's contention: The judgment does not record specific arguments from the revenue regarding this issue. However, the issuance of the confiscation notice implies their stance that the circumstances warranted such action.