Facts of the Case

M/s Steelmax Alloys Ltd. was subjected to an order under Section 129 of the CGST/SGST Act.

During the pendency of the proceedings, the goods and conveyance were released after the petitioner:

  • Furnished a bank guarantee; and
  • Executed a bond.

The record of the case included a commercial invoice dated 04.07.2020 and an e-way bill dated 04.07.2020 accompanying the goods.

The proceedings also involved Form GST MOV-06 and Form GST MOV-02 dated 04.07.2020 issued by the concerned authority.

The petitioner furnished a bank guarantee dated 04.07.2020 against the demand and also furnished a security bond dated 04.07.2020.

Thereafter, an adjudication order dated 29.01.2021 was passed by the first respondent.

The petitioner challenged the matter through the first appellate remedy. However, the first appeal was rejected by appellate order dated 14.07.2022.

Following rejection of the first appeal, the petitioner’s further statutory remedy lay in approaching the GST Appellate Tribunal under Section 112 of the CGST/SGST Act.

However, the GST Appellate Tribunal had not been constituted.

Because the Tribunal was unavailable, the petitioner apprehended that the bank guarantee furnished for release of the goods and conveyance could be invoked before the petitioner was afforded an opportunity to approach the Tribunal through a second appeal after its constitution.

The petitioner therefore approached the Kerala High Court seeking a direction that invocation of the bank guarantee be kept in abeyance until an effective opportunity became available to pursue the appellate remedy before the Tribunal.

Issues Involved

  1. Whether the bank guarantee furnished by the petitioner as a condition for interim release of goods and conveyance could be invoked when the statutory appellate remedy under Section 112 of the CGST/SGST Act could not effectively be exercised due to non-constitution of the GST Appellate Tribunal.
  2. Whether the petitioner was entitled to interim protection against invocation of the bank guarantee until the GST Appellate Tribunal was constituted.
  3. Whether rejection of the first appeal should result in immediate exposure of the bank guarantee to invocation despite the practical unavailability of the second appellate forum.
  4. Whether protection of the bank guarantee should be conditional upon the petitioner keeping the guarantee alive.
  5. For what period should protection continue after constitution of the GST Appellate Tribunal.
  6. Whether the petitioner should thereafter be governed by any interim or final order passed by the Tribunal.

Petitioner’s Arguments

·         The petitioner submitted that it had suffered an order under Section 129 of the CGST/SGST Act.

·         It was contended that the goods and conveyance had been released pending proceedings only after the petitioner furnished a bank guarantee and executed a bond.

·         The petitioner further submitted that its first appeal had been rejected.

·         According to the petitioner, the next statutory remedy was to approach the GST Appellate Tribunal under Section 112 of the CGST/SGST Act.

·         However, since the Tribunal had not been constituted, the petitioner was unable to effectively pursue the second appellate remedy.

·         The petitioner apprehended that, during this period, the respondents might invoke the bank guarantee.

·         Accordingly, the petitioner prayed that invocation of the bank guarantee be kept in abeyance until the petitioner was given an opportunity to approach the GST Appellate Tribunal with a second appeal as and when the Tribunal was constituted.

·         The substance of the petitioner’s grievance was that the unavailability of the statutory appellate forum should not result in invocation of the bank guarantee before the petitioner had a practical opportunity to exercise the remedy contemplated under Section 112.

Respondents’ Arguments

·         The learned Senior Government Pleader was heard on behalf of the State respondents.

·         The judgment does not record any detailed separate counter-arguments or elaborate legal submissions advanced by the respondents.

·         Therefore, no additional respondent contention should be attributed beyond what is expressly reflected in the judgment.

Court’s Findings

The Kerala High Court considered the facts and circumstances of the case.

The Court specifically took into consideration the fact that the Goods and Services Tax Appellate Tribunal had not been constituted.

Having regard to this circumstance, the High Court found it appropriate to protect the bank guarantee furnished by the petitioner as a condition for interim release of the goods and conveyance pending adjudication.

The Court directed the respondents to ensure that the bank guarantee was not invoked.

However, this protection was expressly made conditional upon the petitioner keeping the bank guarantee alive.

The High Court further prescribed the duration of the protection. The order was directed to remain in force for a period of two months from the date on which the GST Appellate Tribunal was constituted.

After expiry of that period, the petitioner would be governed by any interim or final order issued by the Tribunal.

Court Order

The Kerala High Court disposed of the writ petition with the following directions:

  1. The respondents were directed to ensure that the bank guarantee furnished by the petitioner as a condition for interim release of the goods and conveyance pending adjudication was not invoked.
  2. The protection against invocation was conditional upon the petitioner keeping the bank guarantee alive.
  3. The High Court’s protective order would remain in force for a period of two months from the date on which the GST Appellate Tribunal was constituted.
  4. Thereafter, the petitioner would be governed by any order, interim or final, issued by the Tribunal.

Important Clarification

The High Court did not set aside the Section 129 order on merits.

The Court also did not set aside the first appellate order rejecting the petitioner’s appeal.

Further, the High Court did not finally adjudicate whether the underlying detention, adjudication, tax demand, penalty or other consequences under Section 129 were legally sustainable.

The relief granted was specifically directed toward protection of the bank guarantee because the petitioner’s statutory remedy before the GST Appellate Tribunal under Section 112 could not effectively be pursued while the Tribunal remained unconstituted.

Therefore, the judgment should not be understood as granting unconditional or permanent protection against invocation of the bank guarantee.

The protection was subject to a clear condition: the petitioner was required to keep the bank guarantee alive.

The protection was also time-bound. It was to remain effective only until two months from the date of constitution of the GST Appellate Tribunal.

Thereafter, the petitioner’s position would be governed by any interim or final order passed by the Tribunal.

This distinction is legally important because the High Court preserved the petitioner’s opportunity to avail the statutory appellate remedy without itself deciding the underlying Section 129 dispute on merits.

Sections and Legal Provisions Involved

·         Section 129 of the CGST/SGST Act

·         Section 112 of the CGST/SGST Act

·         Relevant Constitutional Writ Jurisdiction

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783408559_1198compressed.pdf

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