Facts of the Case

The petitioner, Durai Kannan, proprietor of Sree Selva Ganapathy Milk Products, approached the Kerala High Court being aggrieved by the detention of certain goods belonging to him in proceedings initiated under Section 129 of the Central Goods and Services Tax Act/State Goods and Services Tax Act (CGST/SGST Act).

According to the petitioner, the detention proceedings were wholly unwarranted and without jurisdiction. The petitioner contended that the goods were accompanied by all necessary documents and were being transported in full compliance with the applicable GST laws.

The record of the case further shows that the transaction involved an interstate sale of low-cost plastic toys against 18% IGST. The appendix to the judgment refers, inter alia, to a tax invoice dated 5 April 2021, a consolidated e-way bill, a lorry receipt, Form GST MOV-04 physical verification report, Form MOV-06 detention-related document, and Form MOV-07 demanding IGST and penalty on the estimated value. The petitioner had also submitted a reply against the MOV-07 notice and relied upon a supplier’s self-declaration.

When the writ petition came up before the High Court on 18 May 2021, an interim order was passed directing the first respondent to provisionally release the goods in terms of Section 129 of the CGST/SGST Act.

However, according to the petitioner, on the very same day, i.e. 18 May 2021, the first respondent passed a final order under Section 129 without affording the petitioner an opportunity of being heard.

Issues Involved

  • Whether a final order under Section 129 of the CGST/SGST Act could validly be passed without affording the affected person an opportunity of being heard.
  • Whether the impugned final order was liable to be set aside for violation of the principles of natural justice.
  • Whether the matter should be remanded to the competent authority for fresh consideration in accordance with law.
  • Whether the petitioner could secure reconsideration of the proceedings upon remitting the amount payable for provisional release in terms of Form MOV-07, under protest.
  • What was the effect of the respondents’ contention that proceedings had thereafter continued under Section 130 of the CGST/SGST Act, considering the statutory scheme prior to amendment.

Petitioner’s Arguments

The petitioner argued that the detention proceedings were totally unwarranted and without jurisdiction.

It was specifically contended that:

  • The goods were accompanied by all necessary statutory documents.
  • Transportation was undertaken in full compliance with GST law.
  • The detention of goods was therefore illegal.
  • The High Court had, on 18 May 2021, directed provisional release of the goods in accordance with Section 129.
  • Despite this, the first respondent passed the final order under Section 129 on the same date.
  • The final order was passed without granting the petitioner an effective opportunity of being heard.
  • Such action violated the principles of natural justice.

In reply to the respondents’ submissions, the petitioner further expressed willingness to pay, under protest, the amount payable for provisional release of the goods in terms of Section 129, provided an opportunity was granted to contest the matter afresh before the first respondent.

Respondent’s Arguments

The learned Senior Government Pleader relied upon the counter affidavit filed before the High Court.

The respondents contended that:

  • An opportunity had been granted to the petitioner.
  • The petitioner did not appear before the first respondent despite such opportunity.
  • Consequently, the first respondent proceeded to issue the final order under Section 129.
  • Considering the statutory scheme of Sections 129 and 130 of the CGST/SGST Act prior to amendment, the proceedings were thereafter continued under Section 130.
  • In view of the averments contained in paragraph 4 of the counter affidavit, the petitioner could not validly complain of violation of the principles of natural justice.

Court Order / Findings

The Kerala High Court considered the submissions advanced by the petitioner as well as the learned Senior Government Pleader appearing for the respondents.

The Court placed decisive emphasis on the fact that the final order under Section 129 of the CGST/SGST Act had been issued without affording the petitioner an opportunity of being heard.

Accordingly, the High Court held that:

  • Ext.P10 final order was liable to be set aside.
  • The matter was required to be remitted to the first respondent for fresh consideration in accordance with law.
  • The petitioner was directed to remit the amounts payable in terms of Form MOV-07, under protest, within one week from the date of judgment.
  • Upon such remittance, the first respondent was required to reconsider the matter.
  • The authority was directed to consider all contentions raised by the petitioner.
  • The petitioner was required to be afforded a proper opportunity of being heard before fresh consideration and decision.

The writ petition was accordingly disposed of.

Important Clarification

This judgment is significant because the High Court’s interference was founded on a specific procedural defect: the final order under Section 129 was issued without affording the petitioner an opportunity of being heard.

The ruling should therefore not be read as a blanket declaration that every detention proceeding under Section 129 is invalid merely because the taxpayer disputes the detention. The material principle emerging from the judgment is that where a final adverse order is passed without a meaningful opportunity of hearing, the order may be vulnerable to challenge for breach of natural justice.

The Court did not finally adjudicate the underlying factual merits of the detention dispute. Instead, it set aside Ext.P10 and remanded the matter for fresh consideration in accordance with law.

A further important aspect is that the petitioner’s payment of the amount specified in Form MOV-07 was directed to be made under protest. Thus, compliance with the payment direction did not, by itself, amount to abandonment of the petitioner’s substantive contentions before the adjudicating authority.

The judgment also records the respondents’ submission concerning continuation of proceedings under Section 130 under the pre-amendment statutory scheme. However, the operative relief granted by the Court was centered on setting aside the Section 129 final order and directing fresh consideration after hearing the petitioner.

Sections Involved

  • Section 129 of the Central Goods and Services Tax Act, 2017 – Detention, seizure and release of goods and conveyances in transit.
  • Section 129 of the State Goods and Services Tax Act – Corresponding provision governing detention, seizure and release of goods and conveyances in transit.
  • Section 130 of the Central Goods and Services Tax Act, 2017 – Confiscation of goods or conveyances and levy of penalty.
  • Section 130 of the State Goods and Services Tax Act – Corresponding confiscation provision.
  • Form GST MOV-04 – Physical verification report referred to in the case record.
  • Form GST MOV-06 – Document issued during the detention proceedings as reflected in the case appendix.
  • Form GST MOV-07 – Notice/demand document referred to in the proceedings; the petitioner was directed to remit the payable amount under protest.
  • Principles of Natural Justice – Requirement of a fair and effective opportunity of hearing before passing an adverse final order.

Link to download the order-https://mytaxexpert.co.in/uploads/1783159044_880compressed.pdf

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