A Navigation through the Interplay Between Sections 129 and 130 of the GST Act, 2017

The Goods and Services Tax ( GST ) Act, 2017 in India has undergone significant changes, particularly in the interplay between Sections 129 and 130.

These sections deal with the detention, seizure, release, confiscation and penalty related to goods and conveyances in transit. A comprehensive look at these Sections, with the most recent amendments from the Finance Act, 2021 and their impact on businesses and taxpayers has been discussed herein.

Section 129: Detention, Seizure and Release of Goods and Conveyances in Transit

Section 129 of the GST Act, 2017 primarily focuses on the provisions relating to the detention, seizure and release of goods and conveyances in transit. This section also provides for the penalty which shall be payable for the release of such goods. This Section empowers tax authorities to take action in case of any contravention of the GST Act or related Rules during the transportation or storage of goods. The key provisions of Section 129 are as follows:

Detention and Seizure: If any person is found transporting or storing goods in violation of GST provisions, their goods and conveyance can be detained or seized.

Penalty Payment: To secure the release of the goods and conveyance, the owner has two options:

1. Payment by the Owner: Payment of a penalty equal to 200% of the tax payable on the goods and, in case of exempted goods, on payment of an amount equal to 2% of the value of goods or 25,000 rupees, whichever is less, if the owner comes forward voluntarily for payment of such penalty.

• Non-Compliance by the Owner: Payment of a penalty equal to 50% of the value of the goods or 200% of the tax payable on the goods, whichever is higher, and in case of exempted goods, on payment of an amount equal to 5% of the value of goods or 25,000 rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty.

Option to furnish Security: The owner can also furnish security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed.

Notice and Opportunity: Goods and conveyances cannot be detained or seized without serving an order of detention or seizure to the person transporting the goods. The person has the right to be heard before any penalty is determined. No penalty shall be determined under sub-section (3) without giving the person concerned a reasonable opportunity of being heard.

Time Limit: The proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).

Proceedings under Section 129 must be concluded within a stipulated time frame. Failure to pay the penalty within 15 days from the date of receipt of the copy of the order passed under sub-section (3) may lead to the sale or disposal of the goods to recover the penalty payable.

Release: There is a provision that allows the release of the conveyance on payment by the transporter. The conveyance shall be released on payment by the transporter of penalty under sub-section (3) or one lakh rupees, whichever is less. In case of perishable or hazardous goods, the proper officer has the discretion to reduce the fifteen day period.

Section 130: Confiscation of Goods or Conveyances and levy of Penalty

Section 130 of the GST Act, 2017 deals with the confiscation of goods or conveyances and the imposition of penalties. It comes into play when there is a clear intent to evade payment of tax ( mens rea ) and specific circumstances listed in the Section are met.

The key provisions of Section 130 include:

Grounds for Confiscation: Goods and conveyances can be confiscated if:

1. Goods are supplied or received in contravention of any of the provisions of the GST Act or the Rules made thereunder with the intent to evade payment of tax.
2. Goods liable for tax are not properly accounted.
3. Goods liable for tax are supplied without proper registration or without having applied for registration.
4. There is a contravention of any of the provisions of the GST Act or the rules made thereunder with the intent to evade payment of tax.
5. A conveyance is used for the carriage of goods in contravention of the provisions of this Act or the rules made thereunder.

Confiscation and levy of Penalty: In case any of the above grounds are detected by the adjudicating authority, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under Section 122.

Option to pay a fine in lieu of confiscation: The officer adjudicating confiscation provides an option to the owner of goods or conveyance to pay a fine equal to the tax payable on the goods being transported thereon instead of the confiscation of the conveyance. Such fine amount should not exceed the market value of the goods confiscated, reduced by the tax chargeable.

Further, the aggregate of such fine and penalty leviable shall not be less than the penalty equal to hundred per cent of the tax payable on such goods.

Where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon.

Opportunity of being heard: No order for confiscation of goods or conveyance or imposition of penalty shall be issued without giving the person an opportunity of being heard.

Ownership Transfer: Confiscated goods or conveyances become the property of the government.

Possession: The proper officer adjudging confiscation holds possession of confiscated items and the police shall assist him in taking and holding such possession.

Disposal: After ensuring that confiscated goods or conveyances are not required for any other proceedings under this Act, they can be disposed of by the proper officer, after giving reasonable time not exceeding three months to pay a fine in lieu of confiscation and sale proceeds are deposited with the government.

Amendments and Impact of Finance Act, 2021

The Government has introduced amendments to Sections 129 and 130 of the CGST Act, 2017 through clauses 108 and 109 of the Finance Act 2021.

The Finance Act, 2021 introduced significant changes to Sections 129 and 130 of the GST Act, 2017. Notably, the “Non-Obstante” clause was removed from Section 130 while retained in Section 129. The amendment came into effect from January 1, 2022, establishing that Section 129 now overrides Section 130 from that date onwards.

Delinking Sections 129 and 130

The amendments intended to delink the proceedings under Section 129 ( related to detention, seizure and release ) from Section 130 ( related to confiscation and penalty ). This separation was introduced to simplify interpretation and implementation. The Memorandum explaining the provisions of the Finance Bill, 2021 highlighted this intention.

However, after the amendments came into effect on January 1, 2022, there were debates and differing opinions on whether the removal of the “Non-Obstante” clause from Section 130 meant that authorities could no longer invoke its provisions. Some believed that Sections 129 and 130 had become independent, allowing authorities to exercise power under either provision.

This confusion led to legal disputes and discussions on the redundancy of certain sub-clauses in Section 130, as it appeared that Section 129 now had overriding authority.

Legislative Intent

Confiscation should not occur before or with detention and seizure. Therefore, before invoking Section 130, authorities must invoke and follow Section 129 entirely. Since Section 129 is the only provision for the detention and seizure of goods in transit, these actions must be carried out under Section 129(1) of the GST Act. Failure to follow Section 129 in its entirety is deemed to be without jurisdiction.

Section 129 of the Act is a specific provision dealing with goods in transit. It stipulates that penalties related to goods in transit should be levied under Section 129. The presence of the “Non-Obstante” clause in Section 129 signifies legislative intent to prevent the application of other provisions of the Act to goods in transit. As such the legal maxim “generalia specialibus non derogant” should apply.

Section 130 explicitly mentions “intention to evade the payment of taxes”, i.e., the element of mens rea should be present, a matter that requires a full-fledged adjudication and examination/cross-examination of evidence, constituting a judicial process. Authorities should not presume this intention during transportation merely because an E-way bill is missing or there are certain discrepancies in the invoice.

Judicial Interpretation and Implications

Courts, in their interpretations, have considered the legislative intent behind the amendments and their practical implications. Notably, the Andhra Pradesh High Court in Matrix Traders Vs Deputy Assistant Commissioner and the Gujarat High Court in M/s. Shanti Metal Industries vs. State of Gujarat upheld the view that Section 129, with its “Non-Obstante” clause intact, prevails over Section 130. They emphasised that the legislative intent was to prevent the application of other provisions concerning goods in transit when Section 129 is applicable.

These rulings reinforced the idea that Section 129 should be the primary provision for dealing with goods in transit and penalty should be determined under this Section when applicable. This interpretation aligns with the practical purpose of Section 129, which aims to secure the release of detained goods with a simple penalty payment.

Anomalies and Practical Challenges

In practical terms, cases involving the movement of goods without valid documents, typically lead authorities to consider the application of either Section 129 or Section 130 of the CGST Act.

The GST authorities, in most cases, straight away apply Section 130 of the CGST Act, 2017 and the aggrieved party contends that even if the violation of GST provisions is warranted, then again, only Section 129 of CGST Act shall apply instead of Section 130 stressing on the absence of mens rea, that is the intention to evade the payment of tax.

Despite these interpretations, there have been concerns regarding the practical implementation of Sections 129 and 130. One major issue is the frequent detention and seizure of goods for minor procedural lapses without considering the intent to evade tax. This has led to a high number of disputes and penalties for taxpayers, causing financial strain.

The Circular No.64/38/2018-GST issued by the Central Board of Indirect Taxes and Customs ( CBIC ) provides relief by specifying situations where Section 129 proceedings should not be initiated, such as spelling errors or minor document discrepancies. It’s the gravity of the offence and the element of mens rea that should decide whether the department should invoke Section 129 or 130 of the CGST Act. However, ensuring consistent and fair enforcement in practice remains a challenge.

Conclusion

The interplay between Sections 129 and 130 of the GST Act, 2017 has been a subject of debate and legal scrutiny. The amendments introduced by the Finance Act, 2021 aimed to simplify the relationship between these Sections, but practical challenges and differences in interpretation persist.

While the intention behind these amendments was to smoothen the process and prevent unnecessary disputes, it is essential to strike a balance between enforcing tax compliance and ensuring that penalties are proportionate to the violations. The recent Court rulings have provided some clarity, emphasising that Section 129 should be the primary provision for addressing goods in transit.

In conclusion, the navigation through the interplay between Sections 129 and 130 of the GST Act, 2017 remains a dynamic aspect of India’s taxation landscape, with ongoing discussions and potential future amendments to address practical challenges and anomalies.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates