In a recent case, the Kerala High Court held that there is no provision in Section 130 of the Goods and Sevice Tax Act ( GST ), 2017 which prohibits interim release of goods seized pending adjudication of show cause notice under the said section. The court directed the GST authority to release the seized gold Jewellery.
Shish Jewels Private Limited,the petitioner, is engaged in the wholesale trade of gold, precious metals and ornaments made therefrom to various jewellery shops in different States and is a registered dealer under the provisions of the Goods and Services Tax Act ( GST Act ). Since common issues arise for consideration in these writ petitions, they are disposed of by this common judgment. The status of parties and the documents referred to in this judgment will be as obtaining in W.P.(C) No.40450 of 2023.
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The principal place of business of the petitioner is at Gujarat. The petitioner obtained registration under the GST Act in Kerala and is preparing to start business at Thrissur. According to the petitioner, as part of business, the petitioner deputes Marketing Executives as carriers to exhibit its goods to dealers in different States. If the dealers approve the exhibited goods, the petitioner supplies the required ornaments and tax invoice. In the case of diamond gold jewellery unlike gold jewellery, the petitioner has also to obtain a certificate from the laboratory certifying the purity of the precious stones.
Only upon receipt of the laboratory certificate, the petitioner proceeds to sell the approved diamond gold jewellery along with the certificate and tax invoice. Te petitioner issues delivery challans in the name of its Marketing Executives in accordance with Rule 55(1) (c) of the Central/State Goods and Services Tax Rules, 2017 (GST Rules, 2017).
While so, the petitioner issued delivery challans dated 25.05.2023 respectively for 1044.074 and 3287.716 grams of net weight diamond gold jewellery in the name of Mr. Anson Andachan, one of the petitioner’s Marketing Executives, to exhibit and solicit orders from the dealers in Kerala. The petitioner states that, pursuant to the
aforesaid authorization, Mr. Anson Andachan approached the 2nd respondent, M/s. Dubai Gold and Diamonds, Malappuram, on 26.05.2023 to exhibit the diamond gold jewellery mentioned in the delivery challans.
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However, at that time, the 4th respondent, the Intelligence Officer, State Goods and Services Tax Department, Ernakulam along with other officials of the Department entered the premises of the 2nd respondent, conducted search and upon finding certain discrepancies in the stock of the 2nd respondent, proceeded to seize the entire ornaments including that of the petitioner under Section 67 of GST Act.
The petitioner stated that the jewellery seized from the petitioner’s Marketing Executive amounts to 607.39 grams and 3188.27 grams, of 22KT Diamond gold jewellery. The 4th respondent issued combined seizure order in respect of the goods of the 2nd respondent and the petitioner. Contending that the 4th respondent and his officials have no right to seize the ornaments of the petitioner which were accompanied by valid delivery challans as prescribed under GST Rules, 2017 from the premises of the 2nd respondent.
An interim order issued for the writ petition filed.Immediately after that a show cause notice was issued by the 1st respondent Intelligence Officer under Section 130 of the SGST Act. The petitioner sent letters to the 1st respondent requesting for release of the goods seized, along with duly executed bond for the value of the goods and a challan evidencing payment of the amount equivalent to the penalty quantified in the show cause notice in lieu of bank guarantee. The 1st respondent rejected the request stating that Section 130 of the SGST Act does not provide for provisional release of goods seized.
It was alleged that the order was issued without providing the petitioner an opportunity of being heard. It was submitted that Section 130 proceedings are yet to be finalized by the 1st respondent and the petitioner has been cooperating with the proceedings. It was contended that, in the meantime, the Department has no authority to retain the seized goods in its custody without any valid reason and as per Section 67(6) of the GST Act, the seized goods shall be released, on a provisional basis, upon execution of a bond and furnishing of a security. The petitioner refers to Rule 140(1) of the GST Rules, 2017 and contended that the seized goods have to be released on a provisional basis upon execution of a bond and furnishing of a security in the form of a bank guarantee equivalent to the amount of applicable tax, interest and penalty payable.
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The petitioner states that the goods seized are stock-intrade goods brought to the dealer for approval before sale and were accompanied by delivery challans and have been accounted for in the books. There is no reason for continued seizure of the goods. It is contended that there is no contravention of the GST Act and Rules by the petitioner and there is no reason for invocation of Section 130 proceedings when no intention to evade tax emerges in the case. It is contended that the deprivation of the goods has severely affected the petitioner’s business and has infringed the fundamental rights of the petitioner guaranteed under Article 14 of the Constitution of India.
It was found that the request for provisional release of the goods was made by the petitioner only on 05.07.2023 i.e., after the commencement of confiscation proceedings on 20.06.2023 by issuing show cause notice. It is further stated that Section 130 does not contemplate provisional release of goods which are proposed to be confiscated and the 1st respondent has no authority to release the goods pending adjudication and until the culmination of adjudication, the party from whom the goods were seized cannot claim release of such goods and that legal proceedings cannot be whittled down on grounds of expediency.
Accordingly, it is contended that the petitioner has no legal right to claim provisional release of the goods pending adjudication under Section 130. It is further stated that the petitioner has participated in the adjudication and availed its right to cross examine on 12.01.2024 and personal hearing was held on 08.02.2024 and objection was filed on 09.02.2024 and what remains is to pass final orders in the matter and therefore, provisional release of the goods at the final stage of the proceedings would serve no purpose in law.
Section 67 of the Central Goods andServices Tax Act, 2017 deals with the power of the proper officer to inspect, search and seizure. Section 67(6) provides that the goods seized under subSection (2) shall be released, on provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable as the case may be.
In Golden Traders case, it was categorically held that there is no provision in Section 130 of the GST Act which prohibits the interim release of goods seized pending adjudication of show cause notice under Section 130.
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The provisional release does not in fact result in loss of absolute custody by the Department over the goods seized, as the Department will still have constructive custody. The object of the provision is only to secure the value of the goods that are liable for confiscation and not to confiscate the goods as such. Therefore, even if goods are ordered to be released pending adjudication, no prejudice is caused to the Department, as the revenue is protected by the owner making payment in lieu of confiscation.
A single bench of Justice Murali Purushothaman observed that the reason stated that there is no provision under Section 130 of the GST Act to order provisional release of goods pending adjudication of notice under Section 130 cannot be sustained and set aside the order.
Further directed the 1st respondent to release the goods seized to the petitioner pending adjudication of show cause notice on the petitioner depositing a sum of Rs.2,93,71,666/- (Rupees two cores ninety three lakhs seventy one thousand six hundred and sixty six only), being the penalty and fine quantified in lieu of confiscation of goods and on execution of bond for the value of goods.
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