Facts of the Case

The petitioner, New Modern Industries, the owner of certain goods, approached the Karnataka High Court under Articles 226 and 227 of the Constitution challenging an order dated 03.03.2022 (Annexure F) issued by the first respondent, the Commercial Tax Officer (Enforcement)-37, for physical verification/inspection of a conveyance bearing No. KA 32A 2003, issued in FORM GST MOV-2. The petitioner sought a mandamus directing release of the goods vehicle in transit. During the pendency of the writ petition, an order under Section 129(3) of the Central Goods and Services Tax Act, 2017 was passed on 17.03.2022, and the conveyance was released against a surety bond and a bank guarantee furnished by the petitioner for 100% of the penalty determined.

Issues Involved

  1. Whether the petitioner, having obtained release of the goods vehicle against a surety bond and bank guarantee covering 100% of the penalty under a subsequent Section 129(3) order, could be compelled to continue furnishing security at that level.
  2. Whether the correct pre-deposit for availing the appellate remedy under Section 107 of the CGST Act against a Section 129(3) order is 25% of the penalty under the proviso to Section 107, rather than 100%.

Petitioner's Arguments

  • Counsel for the petitioner submitted that in light of the subsequent Section 129(3) order dated 17.03.2022 and release of the conveyance against a 100% surety bond and bank guarantee, the writ petition itself could be disposed of.
  • It was contended that the petitioner's remedy against the Section 129(3) order lay in an appeal under Section 107 of the CGST Act, and that under the proviso to Section 107, such an appeal could be availed upon deposit of only 25% of the penalty.
  • The petitioner accordingly sought disposal of the petition with appropriate directions regarding the security already furnished.

Respondent's Arguments

  • The Additional Government Advocate, appearing for the respondents, did not dispute the sequence of subsequent events narrated by the petitioner's counsel, namely the issuance of the Section 129(3) order and release of the vehicle against the 100% surety/bank guarantee.
  • The respondents' counsel joined in submitting that, in view of these subsequent developments, the petition could be disposed of, without pressing any independent contest on the quantum of pre-deposit required for the Section 107 appeal.

Court Order/Findings

  • The Court noted that once the petitioner obtained release of the vehicle against a surety bond and bank guarantee for 100% of the penalty, and an order under Section 129(3) of the CGST Act existed, the petitioner, if aggrieved, had to avail the remedy permitted under Section 107 of the CGST Act.
  • If the law requires deposit of only 25% of the penalty to avail such remedy, the petitioner could not be fastened with the responsibility of paying 100%.
  • The writ petition was disposed of with liberty to the petitioner to avail the remedy under Section 107 upon deposit of 25% of the penalty, with the petitioner entitled to return of the surety bond and bank guarantee already furnished.
  • On the petitioner filing the appeal with the requisite deposit and furnishing details of the appeal and deposit to the first respondent, the first respondent was directed to return the bank guarantee/surety bond within ten working days of receiving such information.
  • All contentions of the parties were left open.

Important Clarification

  • Where a taxpayer intends to appeal a Section 129(3) CGST Act order under Section 107, the pre-deposit obligation is governed by the proviso to Section 107, which caps the requirement at 25% of the disputed penalty.
  • Revenue authorities cannot insist on retention of security furnished at a higher percentage (such as 100%) once the taxpayer is willing to comply with the statutory 25% pre-deposit and pursue the appellate remedy.
  • Excess security taken for release of detained goods and conveyances must be returned in a time-bound manner once the correct statutory deposit is made and appeal particulars are furnished.

Sections Involved

  • Section 129(3), CGST Act, 2017 — empowers the proper officer to pass an order determining tax and penalty payable for detained goods and conveyances.
  • Section 107, CGST Act, 2017 (and its proviso) — provides the appellate remedy against orders such as those under Section 129(3), subject to a reduced pre-deposit of 25% of the penalty in such cases.
  • Articles 226 and 227, Constitution of India — invoked for the writ jurisdiction of the High Court.

Decision – In Favour of

Disposed of with directions, in favour of the Assessee — the Court held that only 25% of the penalty need be deposited to avail the Section 107 appeal and directed return of the surety bond/bank guarantee furnished for the balance, while leaving all contentions on merits open.

Related Case Laws

No related case laws are available on this site at present for cross-reference on this specific point.

Case Details

  • Court: High Court of Karnataka at Bengaluru
  • Case No.: Writ Petition No.5275/2022 (T-RES)
  • Coram: Hon'ble Mr. Justice B.M. Shyam Prasad
  • Date of Order: 25.03.2022
  • Petitioner's Counsel: Sri K.M. Shivayogiswamy, Advocate
  • Respondents' Counsel: Sri K. Hemakumar, Additional Government Advocate

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