GST Authorities Must Draw Samples Before Concluding Goods Misrepresented: Allahabad HC Quashes Detention Order [Read Order]

The GST (Goods and Services Tax) authorities must draw samples before concluding the goods were misrepresented, ruled the Allahabad High Court quashing the detention order. The court noted that the authorities failed to prove the intention to evade tax in order to apply Section 129(3) of the Central GST Act, 2017.

The case came up when M/S Shivaji Udhyog, an edible oil manufacturer, moved R.B. Oil from Gwalior (MP) to Bihar. The shipment was stopped in Auraiya, U.P., on the suspicion that the goods were mustard oil rather than R.B. Oil as stated in the supporting documents.

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Even though the goods had valid e-way bills and invoices, the authorities stopped the goods, issued a penalty order under Section 129(3) and accused them of misdeclaration without having laboratory tests or taking samples.

“Surprisingly, no samples were drawn or any test report was obtained for taking a different view. The authorities cannot be said to be expert for treating the goods differently as declared without any basis. The seizing authority, if was of the opinion that the goods in question were not R.B. Oil as declared in the accompanying documents, it ought to have drawn sample and got an expert report. Without expert report, the authority ought not to have seized the goods”, observed the bench with regards to the allegation that the goods were mustard oil rather than R.B. Oil as stated in the documents.

The petitioner submitted that both the buyer and seller were registered dealers, and there was no tax evasion intention. It was also submitted that mandatory procedures, like notice in Forms MOV-07 and MOV-09, sampling under Sections 153 and 154 of the GST Act, and expert verification prior to deciding that the goods were misrepresented, were not followed by the authorities.

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Justice Piyush Agarwal held that for proceedings under Section 129(3) of GST law, intent to avoid tax is a precondition. No such intent was noted by the authorities in this case. The court also noted that without taking samples or getting an expert report, the authorities could not have formed a conclusion that the goods were other than declared in the documents. The failure to take these steps made the detention order procedurally defective.

The court obsrevd that “For invoking the proceedings under section 129(3) of the GST Act, there must be an intention to evade payment of tax, which is a mandatory requirement, but while issuing notice or passing the orders of detention, seizure or demand of penalty and tax, no such intention of the petitioner was recorded and therefore, the entire proceedings against the petitioner are vitiated.”

To Read the full text of the Order CLICK HERE

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