The High Court of Andhra Pradesh has ruled against the detention of goods in transit by tax authorities solely on the basis of suspicions regarding the credentials of the seller. The court emphasised the importance of adhering to proper legal procedures and ensuring that the taxpayers are given a fair opportunity to establish the legitimacy of their contentions.
The petitioners, M/s. Arhaan Ferrous and Non-Ferrous Solutions Pvt. Ltd. and T. Srinivasulu had filed writ petitions challenging the detention of their goods and vehicles by the Deputy Assistant Commissioner of State Tax (ST).
The petitioners, represented by V. Siddharth Reddy argued that their goods and vehicles were detained while in transit, even though they had valid invoices and documents.
The petitioners had purchased iron scrap from M/s. K S Enterprises, the seller, and subsequently sold it to M/s. Radha Smelters Private Limited in Telangana. They had engaged the services of a transport company to move the goods from Vijayawada to Sankarampet, Medak District.
The vehicles of the petitioner were intercepted by the tax authorities while in transit, alleging that the seller, M/s. K S Enterprises had no place of business in Vijayawada.
The revenue issued notices proposing to confiscate the goods and vehicles and initiated proceedings against the petitioner based on suspicions regarding the seller’s Goods and Services Tax (GST) credentials.
The petitioners contended that this action was unjust and not in accordance with the due procedure prescribed under the Andhra Pradesh Goods and Services Tax (APGST) Act, 2017.
The 1st respondent, representing the revenue, argued that the detention of goods and vehicles was justified because the seller, M/s. K S Enterprises had no place of business in Vijayawada and the consignment lacked the necessary purchase details. The tax authorities had also suspended the seller’s GST registration.
The bench observed that detention and confiscation are distinct procedures under the law. Detention is intended to stop the movement of goods temporarily, while confiscation involves the divestment of the owner’s title to the goods.
The court also highlighted the independent nature and existence of Sections 129 and 130 of the GST Act and clarified that they operate in different contexts. Section 129 deals with the detention, seizure and release of goods and conveyances in transit, while Section 130 pertains to the confiscation of goods or conveyances and the levy of tax, penalty and fines.
The court also clarified that the burden to prove the genuineness of the transaction between the petitioners and the seller, M/s. K S Enterprises falls on the petitioners. They are required to establish that they were bona fide purchasers for valuable consideration and were unaware of any issues with the seller’s credentials.
The division bench comprising Justice U. Durga Prasad Rao and Justice Venkata Jyothirmai Pratapa concluded that the tax authorities could not confiscate the goods of the petitioners solely based on proceedings initiated against the seller, M/s. K S Enterprises. Instead, the authorities should have initiated separate proceedings against the petitioners under Section 129 of the Act, allowing them to present evidence and establish the legitimacy of their transactions.
The bench ordered the tax authorities to release the detained goods to the petitioners, provided they follow due procedure under the GST Act, including initiating proceedings against the petitioners under Section 129. The court also directed the release of the vehicles upon the petitioners executing personal security bonds for their value.
The bench highlighted the importance of adhering to proper legal procedures and ensuring that taxpayers are given a fair opportunity to establish their innocence, even in cases where doubts exist regarding the credentials of other parties involved in a transaction.
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