When Goods Are Detained for Alleged Undervaluation: The Legal Context and Importance of a Reply Under GST [Find Draft Reply Here]

Several judicial decisions have reinforced that undervaluation is not a ground for detention.

Allegations of “undervaluation” continue to trigger the detention of goods under the Goods and Services Tax (GST) regime despite the statutory framework making it clear that valuation disputes are not grounds for obstructing the movement of consignments.

An issue often arises during transit interceptions when officers question the invoice value, even though the transporter is carrying a valid tax invoice and a duly generated e-way bill. In such situations, taxpayers can secure their goods and face the authorities legally through a well-structured, legally grounded reply.

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Once an e-way bill is generated, the movement of goods is lawful. However, in practice, officers frequently question the invoice value and allege that the goods are being transported below “market value.” Such allegations do not fall within the scope of Section 129, which applies only when goods are transported in contravention of the Act or the Rules relating to transit documentation.

Rule 138A requires only two documents during movement - the first being the tax invoice and the second being the e-way bill. In an instance where both are valid, undervaluation cannot trigger detention.

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Typically, once goods are stopped, officers issue a detention notice in FORM GST MOV-06 and a show cause notice in FORM GST MOV-07 proposing tax and penalty. Section 129(3) of the CGST Act, 2017 requires the proper officer to issue a speaking order in FORM GST MOV-09 within seven days of detention.

Courts have consistently held that failure to issue MOV-09 within this mandatory period renders the detention unsustainable. Taxpayers therefore rely on this statutory safeguard as one of the strongest grounds for release of goods, especially where MOV-09 is issued after inordinate delay.

The Kerala High Court in Alfa Group Vs. The Assistant State Tax Officer & Ors. (2019 TAXSCAN (HC) 114) held that selling goods below MRP is not a contravention and that transit detention cannot be used to examine valuation or classification disputes.

The Chhattisgarh High Court in K.P. Sugandh Ltd Vs State of Chhattisgarh & Ors. (2020 TAXSCAN (HC) 283) similarly ruled that undervaluation cannot trigger Section 129 proceedings and directed release of goods solely on the basis of invoice and e-way bill.

The Kerala GST Department has also issued a circular dated 06.04.2022 instructing officers not to detain goods merely because the invoice value is lower than perceived market value, and to take valuation concerns to the jurisdictional officer through proper assessment procedures instead.

Considering these matters, a comprehensive reply which establishes that all documents mandated under Rule 138A were carried and that the detention is based solely on undervaluation, along with other statutory requirements is of paramount importance to secure the release of the goods, or otherwise aids in securing a favorable position in the adjudication process.

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