Facts of the Case

M/s AMCO Batteries Limited, a limited company engaged in the manufacture of two-wheeler and four-wheeler batteries, had its registered office at Chennai and a factory/warehouse at Maraimalai Nagar, Kancheepuram District. The batteries supplied by the petitioner carried a fixed warranty period, and under its warranty policy, defective batteries were replaced free of charge during the warranty period.

The disputed consignment comprised batteries intended as replacements for defective batteries supplied to dealers in Kerala. According to the petitioner, the delivery challan specifically described the nature of the transaction as “Warranty FOC”, indicating a free-of-cost warranty replacement. However, by mistake, the E-way bill described the movement as “outward supply.”

The goods were being transported from Chennai to Kerala through Madurai. The consignment was intercepted at Madurai on 19.10.2022. The authorities found that the consignment was allegedly not supported by valid invoices and appropriate GST documents and consequently initiated proceedings under Section 129 of the TNGST Act.

A show cause notice was issued on 22.10.2022. The petitioner submitted its reply on 26.10.2022. After affording a personal hearing, the impugned order was passed on 02.11.2022, imposing a penalty equivalent to 200% of the alleged tax due, amounting to ₹5,71,200.

Issues Involved

The principal issues arising before the High Court were:

  1. Whether goods moved as free-of-cost warranty replacements could be subjected to detention and penalty merely because the E-way bill mistakenly described the movement as “outward supply” and the authorities considered the supporting GST documents inadequate.
  2. Whether the order passed under Section 129 was legally sustainable when the petitioner contended that it had been passed beyond the statutory period prescribed under Section 129(3) of the TNGST Act.
  3. Whether imposition of a 200% penalty could stand when the impugned order was prima facie alleged to be contrary to the limitation requirement under Section 129(3).
  4. Whether, as an interim and equitable arrangement, the detained consignment could be released on payment of an amount equivalent to 100% tax rather than the 200% penalty imposed.
  5. Whether the amount so paid could be adjusted towards the 25% pre-deposit for filing an appeal.

Petitioner’s Arguments

The petitioner contended that the goods were not being transported as an ordinary taxable outward sale. They represented replacement batteries supplied free of charge under the company’s warranty policy.

It was specifically submitted that:

  • the petitioner manufactured two-wheeler and four-wheeler batteries;
  • the supplies were covered by a fixed warranty period;
  • defective batteries were replaced free of charge during the warranty period;
  • the delivery challan clearly recorded the nature of the transaction as “Warranty FOC”;
  • the reference to “outward supply” in the E-way bill occurred only by mistake;
  • the goods were intended for dealers in Kerala and were moving from Chennai through Madurai.

The petitioner further raised a specific limitation objection under Section 129(3) of the TNGST Act. It argued that the order ought to have been passed within seven days from 26.10.2022, whereas the impugned order dated 02.11.2022 was stated to be beyond the period prescribed under Section 129(3). On this basis, the petitioner submitted that the proceedings were barred by limitation and therefore bad in law.

For securing release of the consignment, the petitioner expressed willingness to pay an amount equivalent to 100% of the tax as penalty, but only for the limited purpose of release. It further requested that such payment be adjusted towards the 25% pre-deposit required for filing an appeal.

Respondents’ Arguments

The learned Government Advocate appearing for the State authorities submitted that Section 129 proceedings serve as an anti-evasion measure.

The respondents maintained that the seizure was occasioned by the absence of appropriate supporting documents, including valid invoices. According to the authorities, the consignment was not supported by the requisite GST documentation.

At the same time, the State submitted that, as an interim arrangement, the petitioner could be directed to pay an amount equivalent to one-time tax, notwithstanding that Section 129(1) contemplated release on payment of a penalty equal to 200%, because the impugned order itself appeared prima facie contrary to the limitation prescribed under Section 129(3).

The learned Government Advocate also consented to the petitioner’s request that the amount paid for release be adjusted towards the 25% pre-deposit in the event an appeal was filed.

Court Order / Findings

The Madras High Court disposed of the writ petition by recording the arrangement and issuing specific directions.

The Court directed that:

  • the respondents shall release the consignment forthwith upon the petitioner paying 100% tax;
  • if the petitioner files an appeal, the 100% tax amount paid shall be adjusted towards the 25% pre-deposit for filing the appeal;
  • the Registry shall return the original copy of the impugned order to the petitioner after retaining a photocopy;
  • no order as to costs was made;
  • the connected miscellaneous petitions were closed.

Importantly, the operative paragraph appearing on page 3 of the uploaded order is expressly marked as corrected pursuant to the Court’s order dated 09.02.2023 in W.P.(MD) No.25322 of 2022. Therefore, the corrected directions are material while reporting the final operative outcome.

Important Clarification

This order should be reported with precision. The High Court did not record a final adjudication on the merits declaring that every free-of-cost warranty replacement movement is outside Section 129 or that every E-way bill description error automatically invalidates detention proceedings.

The material significance of the order is narrower and case-specific:

  • the petitioner asserted that the goods were warranty replacements and relied upon the delivery challan mentioning “Warranty FOC”;
  • the E-way bill mistakenly mentioned “outward supply”;
  • a specific challenge was raised regarding the statutory time limit under Section 129(3);
  • the order records that the impugned order was prima facie contrary to the limitation prescribed under Section 129(3);
  • the dispute was ultimately resolved through directions for release upon payment of 100% tax, preserving the petitioner’s right to pursue an appeal;
  • the payment was permitted to be adjusted towards the 25% appeal pre-deposit.

Accordingly, the order is particularly relevant in matters involving GST detention of warranty replacement goods, documentary mismatch in E-way bills, Section 129 limitation objections, release of detained consignments, and adjustment of amounts paid towards appellate pre-deposit.

Sections / Legal Provisions Involved

Section 129 of the Tamil Nadu Goods and Services Tax Act, 2017 – Detention, seizure and release of goods and conveyances in transit.

Section 129(1) of the TNGST Act – Relevant to the statutory mechanism for release of detained or seized goods and conveyances upon payment of the prescribed penalty.

Section 129(3) of the TNGST Act – Central to the petitioner’s limitation challenge concerning the time within which the statutory order was required to be passed.

Article 226 of the Constitution of India – Jurisdiction invoked for issuance of a writ of certiorari to challenge the impugned adjudication order.

Link to download the order - https://mytaxexpert.co.in/uploads/1783332248_1131compressed.pdf

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