Detention of Goods under GST justifiable for Mere infraction of Procedural Rules: Kerala HC Overrules Single Bench’s Decision [Read Judgment]

A division bench of the Kerala High Court has overruled the decision of the Single bench in M/S Indus Towers Limited Vs. The Assistant State Tax Officer, and held that the power of detention contemplated under Section 129 of the SGST Act can be exercised on the ground of non-compliance of Rule 55 and 138 of the Kerala GST Act, 2017.

The petitioner-Company engaged in the establishment and maintenance of towers for telecom service providers transported batteries under the strength of Tax Invoice. The Department officials detained the vehicle of the petitioner by invoking section 129 of the Act finding that the petitioner has not fulfilled the requirements of Rule 55 and 138 of the State GST Rules.

The petitioner approached the High Court for relief wherein Justice P.B Suresh Kumar allowed the same and clarified that goods cannot be detained merely for infraction of Rule 138(2) of the State SGST Rules when there is no taxable supply when goods are transported on delivery challans so long as the authenticity of the delivery challan is not doubted.

After analyzing the provisions of section 7 of the Act, the Single Judge found that when a taxable person transports the goods procured by them for own use to the site where the goods are to be consumed, the transaction would not involve any consideration. Such transactions would fall within the ambit of Schedule 1 and would not fall within the scope of taxable supply.

The detention of goods on the ground of non-compliance of Rule 55 and 138 of the SGST Act is not justified, the Court said.

On appeal, the division bench comprising Justice K Vinod Chandran and Justice Ashok Menon reversed the order and held that “when a delivery challan is issued under Rule 55, it is a mandate under sub-rule (3) of Rule 55 that there should be a declaration as specified in Rule 138. The fact that there was no such declaration uploaded in the site as an intimation to the Department of the transport of such goods raises a reasonable presumption of the attempt to evade tax, against the respondents herein. We cannot agree with the learned Single Judge that merely because there was no suspicion raised against the delivery challan there is an admission of non-taxability of the goods transported.”

Quashing the order, the bench held that “the finding that the transaction would not fall within the scope of taxable supply under the statute, cannot be sustained for reason of there being no declaration made under Rule 138. The resultant finding that mere infraction of the procedural rules cannot result in detention of goods though they may result in the imposition of penalty cannot also be sustained. If the conditions under the Act and Rules are not complied with, definitely Section 129 operates and confiscation would be attracted. The respondents are entitled to an adjudication, but they would have to prove that in fact there was a declaration made under Rule 138 before the transport commenced. If they do prove that aspect, they would be absolved of the liability; otherwise, they would definitely be required to satisfy the tax and penalty as available under Section 129.”