A. EXORDIUM
1. Detention/Seizure/Confiscation
Not
allowing access to the owner of the goods by a legal order/notice is called
detention. However, the ownership of goods still lies with the owner. It is
issued when it is suspected that the goods are liable to confiscation.
In
Law, a seizure is the forcible taking of property by a government law
enforcement official from a person who is suspected of violating, or is known
to have violated, the law.
Confiscation
of the goods is the ultimate act after proper adjudication. Once confiscation
takes place, the ownership as well as the possession goes out of the hands of
the original owner and into the hands of the Government
Authority.
2. Bank Guarantee
A bank
guarantee is a type of financial backstop offered by a lending institution. The
bank guarantee means that the lender will ensure that the liabilities of a
debtor will be met. In other words, if the debtor fails to settle a debt, the
bank will cover it. A bank guarantee enables the customer, or debtor, to
acquire goods, buy equipment or draw down a loan.
Generally,
there are various types of bank guarantees:
Financial Guarantee – These
guarantees are generally issued in lieu of security deposits. Some contracts
may require a financial commitment from the buyer such as a security deposit.
In such cases, instead of depositing the money, the buyer can provide the
seller with a financial bank guarantee using which the seller can be
compensated in case of any loss.
Performance Guarantee – These
guarantees are issued for the performance of a contract or an obligation.
Unconditional bank guarantee - In an
unconditional bank guarantee, the bank/guarantor has to pay the guarantee
amount to the beneficiary in whose favor the bank guarantee has been issued on
demand, irrespective of any pending disputes.
Conditional bank guarantee- In a
conditional bank guarantee, the bank/guarantor has to pay the guarantee amount
to the beneficiary in whose favor bank guarantee has been issued on demand,
only after the specific conditions for invocation in the contract are
fulfilled.
Now
let’s confer it in the light of GST with the recapitulation of a few legal
principals.
A.
/
DISCUSSION
ON S ECTION 67 READ WITH R ULE 140
|
/ |
1.
In GST
Law, the seizure procedures are
quite stringent, As per S ection 67(1)
of the C GST Act,
2017 (hereinafter
referred
to as ‘Act’), Wherein it is provided that ‘Inspection’ can be carried out by an
officer of CGST/SGST only upon a written authorization given by an officer of
the rank of Joint Commissioner or above.
2.
Further, S ection 67(2)
of the Act provides that either pursuant to an inspection carried
out under S ection 67(1)
or otherwise, has reasons to believe that any goods liable to confiscation or
any documents or books or things, which in his opinion shall be useful for or
relevant to any proceedings under this Act, are secreted in any place, he may
authorize in writing any other officer of central tax to search and seize or
may himself search and seize such goods, documents or
books or things. Now, In the case of ‘Paresh Nathalal Chauhan v. the State of
Gujarat’ – 2019 (10) T MI 1184, the
GUJARAT HIGH COURT held that S ection 67(2)
does not
empower the officer to record statements of family members through
force or coercion or to record their conversations in their mobile phones. It
is not permissible for the authorized officer to use coercive measures against
family members to find out whereabouts of
1 05 of the C ustoms
Act. In view of
the said judgment, even if the authority has reason to believe that the goods
liable
to be confiscated are likely to be secreted, the authority will have the power
to pass an order of prohibition pursuant to the order of seizure.
3.
It is important to note that, before
initiating such procedures, the officer must have ‘the reason to believe’ that if
such person has:-
i. Suppressed
any transaction relating to the supply of goods or services or both have acted
in contravention of the Acts or Rules with the intention to evade tax.
ii. Indulging
in contravention of any of the provisions of this Act or the rules made
thereunder to evade tax.
iii. Transporting
or keeping goods which escaped payment of tax or manipulating accounts or
stocks which may cause evasion of tax.
iv. In the
suppression of transaction, if there is a prima facie case of contravention of
the Acts or Rules with the intention to evade tax, goods have been transported,
accounts or stocks related to such goods have been
maintained
in such manner so as to cause evasion of tax or escapement of payment of tax
liability consciously.
4.
Reasonable grounds necessarily postulate
that they must be germane to the formation of the belief regarding escaped
assessment if the grounds are of an extraneous character, the same would not
warrant initiation of proceedings under the above section. If, however, the
grounds are relevant and have a nexus with the formation of belief regarding
escaped assessment, the assessing authority would be clothed with jurisdiction.
5.
This means that the belief must be of a
reasonable and prudent man. It must be based on some relevant material, and not
based on suspicion, gossip, or rumor.
6.
It is settled law that mere failure to
declare does not amount to willful suppression. There must be some positive
action from the side of the assessee to find willful suppression.
7.
The cases
such as S heo Nath Singh v. Appellate Assistant Commissioner of Income-tax,
Calcutta 1971 (8)
T MI 6 -
SUPREME COURT and C hhugamal
Rajpal v. S.P. Chaliha 1971 (1) TMI 9 - SUPREME COURT. Such
cases
arose under the Income-tax law, but the material provisions being in pari
materia, they have been applied to
T MI 85 -
ALLAHABAD HIGH COURT. Judging from these principles, the letter received by the
Sales Tax Officer was one which would create a mere suspicion on
which he may have started an inquiry. It could not form the basis of a
reasonable belief required by S ection 21
to initiate the proceedings. It is worthwhile noticing that similar
/
information
existed at the time of the original assessment but no action was taken thereon.
The character of the information is the same, it could not on the second
occasion instil a reasonable belief in the Sales Tax Officer, without further
inquiry, that turnover has escaped assessment.
8.
In furtherance of the above, S ection 67(6)
states that seized goods shall be released on a provisional basis. The conditions
prescribed are Execution of bond in such
manner as prescribed and Furnishing of security, quantum of which is as
prescribed.
Or,
such provisional release of seized goods may be made on payment of applicable
tax, interest, and penalty.
ule 140
of the C
GST Rules,
2017 (hereinafter referred to as ‘Rules’) provides the measures of
providing
Bond/bank
Guarantee and instances when a particular bank guarantee can be encashed. The
bare text is produced herein below for your perusal:-
R ule 140.
(1) The seized goods may be released on a provisional basis upon execution of a
bond for the
value of the
goods in F ORM GST
INS-04 and furnishing of a security in the form of a bank guarantee equivalent
to the amount of applicable tax, interest, and penalty payable.
Explanation.- For
the purposes of the rules under the provisions of this Chapter, the “applicable
tax” shall
include
central tax and State tax or central tax and the Union territory tax, as the
case may be and the cess,
if any, payable
under the G oods and
Services Tax (Compensation to States) Act, 2017 (15 of 2017).
(2) In
case the person to whom the goods were released provisionally fails to produce
the goods at the appointed date and place indicated by the proper officer, the
security shall be encashed and adjusted against the tax, interest, and penalty
and fine, if any, payable in respect of such goods.
10.
Such execution of a bond for the value
of the goods will be furnished in the F ORM GST
INS-04 and furnishing of a security in the form of a bank guarantee
equivalent to the amount of applicable tax, interest, and penalty payable.
B. DETAILED DISCUSSIONS ON S ECTION 129
AND S ECTION 130
1.
Further, as per S ection 68
of the C
GST Act, 2017
read with S ection 129
of C
GST Act, 2017
read with R
ule 138B
of
C GST Rules,
2017 gives the right to the respective officer to intercept the
vehicle and check the documents relating to goods being carried in the vehicle.
2.
S ection 68(3)
states that where any conveyance is intercepted by the proper officer at any
place, he may require the person in charge of the said conveyance to produce
the documents prescribed under the said sub-section and devices for
verification, and the said person shall be liable to produce the documents and
devices and also allow the inspection of goods.
3.
R ule 138B (1)
states that the Commissioner or an officer empowered by him may authorize the
proper officer to
intercept
any conveyance to verify the e-way bill in physical or electronic form for all
inter-State and intra-State movement of goods.
4.
Further, S ection 129
of the C entral Goods
and Service Tax, 2017 starts with a non-obstante clause
C OURT, the
Supreme Court, held as follows:
/
“It
is well-known that a non-obstante clause is a legislative device which is
usually employed to give overriding effect to certain provision over some
contrary provision that may be found either in the same
enactment
or some other enactment, that is to say, to avoid the operation and effect of
all contrary provisions.”
5.
On reading the Section carefully it is
to be noted that S ection 129
provides the person contravening the provisions of the act to pay tax/penalty
initially as on the basis of quantum provided in S ection 129(1)(a)/129(1)(b).
Hence if the assessee pays such amount then contravention should end.
6.
S ection 129(2)
is connected with S ection 67(6)
in order to streamline the procedure to release the seized goods/Conveyances.
7.
Further, S ection 130
of the G ST Acts
can be invoked in the 5 circumstances as envisaged under the said provision
which is
pertaining to ‘evasion of tax’.
8.
Procedure for interception of
conveyances for inspection of goods in movement, and detention, release, and
confiscation
of such goods and conveyances has been clarified vide C
ircular No.
41/15/2018-GST dated 13th
Kindly
have a look on below-mentioned points carved in by said circular:-
i.
As per the circular, the service of
notice is required to be served upon the person-in-charge of the conveyance.
ii. The
officer can directly invoke S ection 130
and issue notice for the confiscation of goods and conveyance if he is of the
opinion that goods are being carried for evasion of tax.
9.
Thereafter, the government itself has
clarified by C ircular No.
64/38/2018-GST dated 14.9.2018 that in case of
technical
errors in the documents accompanying the goods, provisions of S ection 129 of
the G ST Acts
may not be
resorted
to but instead goods may be released on payment of nominal penalty under S ection 125
of the G ST Acts.
10.
S ection 129
allows detention of goods and subsequent release thereof on payment of
applicable tax and penalty equal to 100% of tax payable on such goods if there
is a contravention of the provisions of the GST Acts and the Rules made
thereunder. Thus the provision is also as such applicable when tax is payable
on the transaction.
11.
It is worthwhile to note that, whether
the doctrine of mens rea will be seen while applying S ection 129?
Non-compliance
of law under genuine belief or without a guilty mind should not generally
invoke penalties. Hence all contravention, intentional or unintentional,
knowingly or unknowingly, be it minor or major will be covered to
initiate
proceeding of detention of goods and conveyance under S ection 129.
12.
Hence, at this juncture, the first thing
the authorities need to look into the nature of the contravention of the provisions
of the Act or the Rules.
13.
The second step in the process for the
authorities to examine, whether such contravention of the provisions of the Act
or the Rules was with an intent to evade the payment of tax. S ection 135
provides for the presumption of culpable mental state but such presumption is
available to the department only in the cases of prosecution and not for the
purpose of S ection 130 of
the A ct.
14.
Even if some document such as e-way bill
is missing at the time of verification, this would at the most only create a rebuttable
presumption that there was the intention to evade payment of tax. If the
taxable person is able to
establish
that there was no intention of evading payment of tax then the provisions of S ection 130
of the G should
not be permissible.
15.
/
The
major distinction between S ection 129
and S ection 130
is that the provisions of S ection 129
can only be
invoked
when goods are in transit whereas S ection 130
can be invoked at any stage, much after the goods have
reached their destination or even
during assessment proceedings subject to fulfilling its conditions. Further, while
S ection 129 covers
transporter as well, whereas S ection 130
primarily covers the owner of goods.
16.
For any violation of the provisions of
the Act or rules made thereunder while goods are in transit, straightway,
proceedings under s ection 130
cannot be initiated as has been done by the Revenue. It is only after
exhausting this remedy of S ection 129
that recourse can be had to S ection
130. Considering such provisions, it is emphasized again that the
adjudicating authorities/interceptor wing who have detained the goods under S ection 129
to give notice for payment of tax and penalty under S ection 129(1)
and it is only if the owner or transporter fails to pay such tax and penalty
within 14 days of the detention or seizure that the learned authorities shall
initiate confiscation
proceeding
under S ection 130
of the G ST Acts.
17.
Direct invocation of S ection 130
will manifest S ection 129(6)
redundant. Though this view has not been appreciated by the Hon’ble
High Court of Gujarat in the case of S ynergy Fertichem Private limited V. State
of Gujarat [2019 (12) TMI 1213 - GUJARAT HIGH COURT] wherein the court cited that:-
S ections 129
and 1 30
respectively of the Act are mutually exclusive and independent of each other.
If the amount of tax and penalty, as determined under S ection 129 of
the Act for the purpose of the release of the goods and the conveyance, is not
deposited within the statutory time period, then the consequence of the same
would be forfeiture of the goods and the vehicle with the Government. This does
not necessarily imply that the confiscation proceedings can be initiated only
in the event of the failure on the part of the owner of the goods or the
conveyance in depositing the amount towards the tax and liability determined
under S ection 129
of the Act. For the purpose of S ection 129(6)
of the Act, it would not be necessary for the department to
establish any intention to evade payment of tax. If the tax and penalty, as
determined under S ection 129,
is not deposited within the statutory time period, then the goods and the
conveyance shall be liable to be put to auction and the sale proceeds shall be
deposited with the Government.
18.
However, the Court gave a remark that,
The legislature
should once again, look into both the provisions, i.e, S ections 129
and 1 30
of the Act, and amend the sections accordingly so as to remove certain
inconsistencies in the two provisions. Let this aspect be looked into by the
State Government in accordance with the law. Now, If there is any
inappropriateness in s ections 129
and 1 30
of Act then why should not position favorable to the assessee, be followed as
already decided by the
apex court in
the case of C OMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR
A ND COMPANY &
ORS. [2018 (7) TMI 1826 - SUPREME COURT]
19.
The Hon’ble
High Court of Kerala in the case of T HE ASSISTANT STATE TAX OFFICER, ERNAKULAM
AND S TATE TAX OFFICER
(INTELLIGENCE) O/O. INSPECTING ASST. COMMISSIONER (INT.) , VERSUS M/S.
I NDUS TOWERS
LIMITED [2018 (7) TMI 1181 - KERALA HIGH COURT], had held that the provision S ection 129
entitles the officers to levy tax and penalty even on a transaction which is
not otherwise taxable and there is no need for any the existence of Mens rea or
the intention to evade tax before levying penalty.
20.
However, in the above-said case, since
there was no challenge to the constitutional validity of S ection 129(1),
the division bench did not look into the reasonableness of the provisions in
the light of the constitutional provisions.
C. CONCEPT OF AUTREFOIS CONVICT
1.
/
Autrefois
means once or formerly. Accordingly, autrefois acquit and convict means
formerly or once acquitted or convicted. Both terms relate to the concept of
double jeopardy. Double jeopardy prosecution or punishment for the person twice
for the same offense.
A rticle 20(2)
of C onstitution
2.
A rticle 20(2)
of the C onstitution
of India states that no person shall be prosecuted and punished for
the same
offense
more than once. This is a remedy against the conviction of a person twice for
the same offense.
3.
The constitutional right guaranteed by A rticle 20(2)
against prosecution is often successfully invoked only where the prior
proceedings on which reliance is placed must be of a criminal nature instituted
or continued before a Court of
law or
a Judicial Tribunal in accordance with the procedure prescribed in the statute which
creates the offense and regulates the procedure.
4.
There is no punishment within the
meaning of A rticle 20(2)
unless it’s preceded by prosecution within the sense
explained
above. In the case of M AQBOOL HUSSAIN VERSUS STATE OF BOMBAY [1953 (4) TMI 19
-
S UPREME COURT],
it was held that the rule of double jeopardy will apply only when the prior
conviction was given by a similar authority or a judicial authority.
The punishment given by any other authority such customs authority will not be
taken into consideration by the court while deciding the same case.
5.
Thus, you cannot be tried and punished
for the same crime twice. When a person has been assessed to tax and penalty
under s ection 129
and also the same was paid by him, then the same person how can be assessed to fine
in lieu of confiscation of goods and conveyance under s ection 130 of
Act.
D.
WHEN ENCASHMENT OF THE ‘BANK GUARANTEE’ COMES INTO PICTURE
1.
As per R
ule 140(2)
of the R
ules, which
provides the provision for encashment of the bank guarantee in a
specific
situation, the bare perusal is hereunder as:-
(2)
In case the person to whom the goods were released provisionally fails to
produce the goods at the appointed date and place indicated by the proper
officer, the security shall be encashed and adjusted against the tax, interest,
and penalty and fine, if any, payable in respect of such goods.
It is
very strange to see the taxpayer, who got the release of the consignment on
furnishing bank guarantee towards tax and penalty under s ection 129 has
to produce the goods seized, whatever it may be, before the adjudicating
authority on a decided date, failing which the security furnished is liable to
be encashed by the authorities. Now, such a requirement is unreasonable,
arbitrary, and travels beyond the legislative competence
2.
Further, an Excerpt of C ircular No.
41/15/2018-GST dated 13th April 2018 is produced stating
procedural
obligation for Bank Guarantee:-
Where the owner
of the goods, or the person authorized by him, or any person other than the
owner of the goods comes
forward to get the goods and the conveyance released by furnishing security
under c lause (c) of
s ub-section (1)
of section 129 of the C GST Act, the goods and
the conveyance shall be released, by an order in
F ORM GST
MOV-05, after obtaining a bond in F ORM GST
MOV-08 along with a security i n the form of bank guarantee equal to
the amount payable under c lause (a)
or clause (b) of sub-section (1) of section 129 of the
C GST Act. The
finalization of the proceedings under s ection 129
of the C GST Act
shall be taken up on priority
by the
officer concerned and the security provided may be adjusted against the demand
arising from such proceedings’.
3.
Now, in case
of M /S Safa Mill Stores Versus The Assistant State Tax Officer, Karukutty, The
State
T ax Officer,
Karukutty, And The Deputy Commissioner (Appeals) State Goods And Service Taxes,
/
T ax Complex,
Kochi. [2018 (10) TMI 1519 - KERALA HIGH COURT] Wherein Kerala High Court
pronounced by restraining the authorities from invoking the bank guarantee till
the petitioner exhausts the statutory remedy or till the appeal gets barred by
limitation.
4.
In a landmark
judgment by the Apex Court in case of M ahindra and Mahindra Ltd. v. Union of India
1 992 (4) TMI
42 - BOMBAY HIGH COURT, wherein the court held that no coercive action shall be
taken till the expiry of appeal period against the said order is over.
5.
The Bombay
High Court in the case of C astrol India Ltd.v. Union of India [2006 (12) TMI 6
- BOMBAY
H IGH COURT] agreed
on the petitioner’s contention that:-
‘’The
petitioner has a remedy of filing an appeal under S ection 35
of the C entral
Excise Act, 1944 which it can
file
within 60 days and also apply for a stay of the impugned order in original. S ection 35F
provides that a party against whom such duty is levied can apply for an order
not to insist on this deposit on the ground of undue hardship. Mr. Patil
submits that this remedy will become infructuous if the bank guarantee is
allowed to be encashed in the meantime. He has drawn our attention to the
Excise Manual published by the Central Board of Excise & Customs and
particularly instructions contained in Rule 1.3 of part 3 thereof which is on
the recovery of duty. It provides that if a stay application is filed by the
assessee against the order in original, no coercive action shall be taken to
realize the dues till the disposal of the stay application. If the bank
guarantee is encashed even before filing of the stay application, there will be
no occasion for the petitioner to file any such stay application. It appears
that the Officer has moved rather too fast and that led the petitioner to file
this petition. The petitioner, therefore, has prayed in this petition that this
communication/order dated 29th
November 2006
issued by the respondent No. 3 be quashed and set aside.”
10. In
case, the Revenue is allowed to adopt coercive measures and/or if the assessee
is required to pay tax determined immediately, it would lead to injustice to an
assessee, as his opportunity to obtain a stay from the appellate authority
would stand foreclosed. Moreover, the inherent right of an appellate authority
to stay the
V ersus UNION
OF INDIA - 1992 (4) TMI 42 - BOMABY HIGH COURT had directed the Revenue to
return the amounts recovered by encashing the bank guarantee of the
assessee as it was done before the expiry of three months to file an appeal.
CONCLUSION
w hatever
wide is conferred by statute on public functionaries, the same is subject to
the inherent limitation that it must be
e xercised
in just, fair and reasonable manner, bonafide and in good faith; otherwise it
would be arbitrary. In such a case
t he
test of reasonableness is stricter. Therefore the authors have their view that
the provision related to the encashment of the “Bank Guarantee/Security” should
be followed with utmost reasonableness and within the parameters of the power
as envisaged by the legal statute and any contrary action exercised to the
purpose for which it was authorized will be deemed with malafide intention and
the same is bad in law.
Further,
many High Court Writs are pending in respect of challenging the constitutional
validity for said section. The government must act upon the resolution of the
fracas that arose due to inconsistencies and ambiguities in said Sections and
practical aspects of the same.
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