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Facts of the Case

Qfroz Trades Pvt. Ltd., an exporter of sea food, transported frozen shrimp from Adoor to Cochin Port for export to China. The consignment was detained en route at Panangad on the ground that no e-way bill accompanied the goods and that the letter of undertaking was not endorsed on the tax invoice as required under Rule 46 of the CGST Rules. The 2nd respondent passed an order under Section 129(3) of the CGST Act demanding tax and penalty totalling Rs. 8,68,736/-, and shortly thereafter issued a notice in Form GST MOV-10 proposing confiscation of the goods and vehicle under Section 130.

Issues Involved

  1. Whether the penalty demanded under Section 129 for transporting exempted/export goods without an accompanying e-way bill was correctly computed as a percentage of tax value rather than the flat amount prescribed for exempted goods.
  2. Whether confiscation proceedings under Section 130 could be initiated in the circumstances, given the nature of the alleged violation.
  3. Whether the petitioner was denied a fair opportunity to challenge the Section 129 order before confiscation proceedings were initiated.

Petitioner's Arguments

  • The petitioner argued that since the goods were meant for export, Section 129(1)(a) permitted release on payment of only 2% of the value of the goods or Rs. 25,000, whichever is less, as applicable to exempted goods, not the higher amount computed by the department.
  • It was submitted that confiscation under Section 130 could only follow wilful non-payment of penalty, and since no such default occurred, invoking Section 130 was unwarranted.
  • It was contended that the e-way bill's absence was due to a technical glitch caused by a Covid-related lockdown, and the confiscation notice under Section 130 was issued without giving any opportunity to challenge the earlier Section 129 order.

Respondent's Arguments

  • The department contended that Section 129 is a comprehensive code for detention, seizure and release, distinct from Section 130's confiscation regime, and that the goods (frozen shrimp, HSN 030617) were taxable at 5% and not "exempt supply" under Section 2(47), so the higher penalty computation was justified.
  • It was submitted that only the invoice, and not the mandatory e-way bill, was produced at interception, and that since the petitioner did not comply with the Section 129 order, escalation to Section 130 confiscation proceedings was warranted.

Court Order / Findings

  • The Court noted the commodity was frozen shrimp meant for export, and that the sole default was the missing e-way bill and unendorsed letter of undertaking — facts undisputed by the respondents.
  • The Court held that even accepting the department's case, the petitioner would be liable to pay only Rs. 25,000 as penalty under Section 129(1)(a) for exempted/export goods transported without due supporting documents, not the higher sum computed by treating the goods as fully taxable for penalty purposes.
  • The impugned Section 129 order and the Section 130 confiscation notice were set aside, with the demand limited to Rs. 25,000, on payment of which all proceedings against the petitioner were directed to stand dropped.

Important Clarification

  • Where goods detained in transit are intended for export and their exempted/concessional character is not genuinely in dispute, the penalty payable under Section 129(1)(a) for a documentation lapse (missing e-way bill) is capped at the lower amount applicable to exempted goods, not computed as if the goods were fully taxable.
  • Escalation to Section 130 confiscation proceedings is not automatically warranted merely because a Section 129 penalty order has not yet been complied with, particularly where the underlying violation is a documentation lapse rather than an attempt to evade tax.

Sections Involved

  • Section 129, CGST Act, 2017 – governs detention, seizure and release of goods and conveyances in transit.
  • Section 130, CGST Act, 2017 – governs confiscation of goods or conveyance and levy of penalty.
  • Rule 138A and Rule 46, CGST Rules, 2017 – prescribe e-way bill and invoice/LUT documentation requirements.

Decision – In Favour of

The decision is in favour of the assessee. Both the Section 129 detention order and the Section 130 confiscation notice were set aside, with the petitioner's liability capped at Rs. 25,000, on payment of which all proceedings stood dropped.

Case Details

Court: High Court of Kerala at Ernakulam
Case No.: WP(C) No. 12503/2021
CNR / Citation: Not available in judgment text
Coram: Hon'ble Mrs. Justice Anu Sivaraman
Date of Order: 24 August 2023

Link to Download the Order

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