Facts of the Case

M/s. Arhaan Ferrous and Non-Ferrous Solutions Pvt. Ltd., a registered dealer in iron scrap holding GST No.37AATCA9148B1ZD, purchased iron scrap from the 4th respondent, M/s. K.S. Enterprises, Kurnool, under invoices dated 12.06.2023, and resold the goods to M/s. Radha Smelters Private Limited, Telangana, engaging vehicles owned by the co-petitioners for transport. While the goods were in transit at Auto Nagar, Vijayawada, the 1st respondent detained the vehicles and goods on the ground that the seller (4th respondent) had no place of business at the declared address, and issued confiscation notices in Form GST MOV-10 dated 14.06.2023 under Section 130 of the CGST/APGST Act, without issuing any independent notice to the petitioners.

Issues Involved

  1. Whether the 1st respondent was legally justified in detaining the goods and vehicles of the petitioners and initiating confiscation proceedings against them under Section 130, without initiating any independent proceedings against the petitioners under Section 129.

Petitioner's Arguments

  • The petitioners purchased the goods from the 4th respondent under valid invoices and e-way bills after verifying the seller's GST registration on the official portal, and were transporting the goods lawfully when intercepted.
  • The procedure under the CGST/APGST Act was not followed, as no notices in Forms GST MOV-02 to MOV-09 were issued before straight away issuing the confiscation notice in Form GST MOV-10.
  • Since no notice was issued in the petitioners' own name, the confiscation proceedings initiated against the 4th respondent could not be extended to the petitioners; if the department doubted the petitioners' bona fides, it ought to have proceeded under Section 129 against them directly, relying on M/s Rajeev Traders v. Union of India (Karnataka HC, Dharwad Bench).

Respondent's Arguments

  • Enquiry by the Joint Commissioner (ST), Kurnool revealed the 4th respondent had no genuine place of business and was a fictitious/non-existing entity, and its registration was suspended on 13.06.2023.
  • Since the very existence and business activities of the seller were doubtful, confiscation proceedings under Section 130 could be launched directly against the seller, and the buyer-petitioner bore the burden of proving the genuineness of the purchase transaction.
  • The petitioners' documents (invoice, e-way bill) were examined but found insufficient to dispel doubts about the origin of the goods.

Court Order / Findings

  • Relying on M/s Rajeev Traders (Karnataka HC) and Synergy Fertichem Pvt Ltd v. State of Gujarat, the Court held Sections 129 and 130 of the CGST/APGST Act operate independently: Section 129 addresses detention to recover tax and penalty during transit, while Section 130 addresses confiscation divesting ownership for contravention of the Act.
  • A proper officer cannot confiscate the goods of a buyer-in-transit merely because confiscation proceedings under Section 130 were initiated against the seller on account of the seller's doubtful credentials; absent independent proceedings under Section 129 against the buyer, the buyer's goods cannot be roped into the seller's confiscation case.
  • The petitioner, having purchased from a seller of doubtful existence, was held to bear the onus of establishing the bona fides of the purchase, but only in properly initiated Section 129 proceedings against him.
  • The writ petitions were disposed of granting liberty to the 1st respondent to initiate Section 129 proceedings against the petitioners within two weeks, with interim release of goods on 25% value deposit and personal bond, and release of vehicles on security bonds.

Important Clarification

  • Detention under Section 129 and confiscation under Section 130 of the CGST Act are mutually exclusive and independent remedies; a bona fide purchaser-in-transit cannot be subjected to confiscation proceedings initiated against a different, allegedly fictitious seller without the department separately invoking Section 129 against the purchaser and affording an opportunity of hearing.

Sections Involved

  • Section 129, CGST/APGST Act, 2017 - detention, seizure and release of goods and conveyances in transit.
  • Section 130, CGST/APGST Act, 2017 - confiscation of goods or conveyances and levy of tax, penalty and fine.
  • Section 68, CGST/APGST Act, 2017 - inspection of goods in movement.

Decision – In Favour of

The writ petitions were disposed of partly in favour of the Assessee -- confiscation under Section 130 against the petitioners was disapproved, goods and vehicles released on interim terms, but liberty was granted to the department to initiate fresh, independent Section 129 proceedings against the petitioners.

Case Details

Court: High Court of Andhra Pradesh at Amaravati
Case No.: Writ Petition Nos.15481, 15482, 15486 and 15487 of 2023
Coram: Justice U. Durga Prasad Rao and Justice Venkata Jyothirmai Pratapa
Date of Order: 03.08.2023

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