In a detailed judgment rendered on Tuesday, the Kerala High Court expounded the modalities of detention of vehicles and seizure of goods in transit under the GST laws (Podaran Foods v. State of Kerala).
A single-judge Bench of Justice AK Jayasankaran Nambiar stated that he was making a detailed pronouncement on detention and seizure of good since people are resorting to filing writ petitions in the High Court challenging detention orders when the scheme of the Act clearly provides an effective alternate remedy.
“I also believe that an enunciation of the scope and ambit of the statutory provision would help clarify the doubts arising in the minds of proper officers, who are entrusted with the task of overseeing the transportation of taxable goods with a view to check the evasion of tax, as regards the procedure to be followed while going about their assigned duties”, the Court said.
It emphasized that the detention and seizure of goods and vehicles is a reasonable restriction on the exercise of free trade and movement, but it would nevertheless have to be exercised strictly only in order to prevent possible tax evasion.
The Court went on to underscore the need for a strict construction of detention laws, adding that this was necessary for “what is at stake is a constitutional right, fundamental or otherwise, of a citizen”.
Two essentials for transporting goods
After these preliminaries, the Court drew from GST legislation to state that there are two essentials that should be present when goods are being transported – an invoice presented by the supplier of goods specifying details about the goods as well as the tax paid thereupon and an e-way bill.
When can good be seized
A tax official on suspicion of a transaction involving possible evasion in tax, is empowered to seize the goods or detain the vehicle upon an order to that effect, following which he can issue notice upon the consignee.
Only after a proper application of mind, based on the material available can an order of detention be issued, the Court said.
A detention of goods at the check post cannot be resorted to in cases where there is a bona fide dispute regarding the very existence of a sale and eligibility to tax.
“It was observed that in cases where an inspecting authority entertains a suspicion as regards attempt to evade tax, but the records he seizes truly reflects a transaction, and the assesses’ explanation accords with his past conduct, then detention cannot be the answer and the inspecting authority can only alert the assessing authority concerned for examining the issue in assessment proceedings,” the Court explained.
At the same time, if the situations envisaged in the legislation for detention are met, the goods should be seized or detained without any laxity, the Court said.
“If a proper officer who is entrusted with the task of detaining goods, finds that they have been transported in contravention of the rules, he does not have the discretion to condone the procedural lapse or relax its rigour in particular cases. He must interpret the Rule strictly keeping in mind the statutory scheme that aims to curb tax evasion. In as much as the adjudication that is expected of him is a summary one, he can do no more than determine whether or not on a literal reading of the statutory provisions, together with the circulars issued from time to time, there has been a breach occasioned thereof,” the Court further elaborated.
Options to the consignee
At this, the Court said, the consignee can choose to make the stipulated payments as per the notice, after which the notice would be concretised in the form of another order and the proceedings closed.
If consignee chooses to challenge the detention/seizure, he can furnish a security in the form of a bank guarantee covering the prescribed sum and get his goods/vehicle released provisionally and then make his representation.
Opportunity to be heard, bar on approaching High Court
Only after the consignee is given an opportunity to be heard and his objections considered can the concerned authority issue an order, the Court made clear. If aggrieved, the consignee can approach the relevant authority under the legislation in appeal, but cannot approach the High Court at this stage, the Court said.
Where the matter is contested, the objections raised would have to be considered and the order reasoned, the Court added.
The Court was emphatic in its statement that the High Court could not be approached in a writ petition at any of these stages.
“It will not be open to the person concerned to prefer any statutory appeal or writ petition against the said order,” Justice Nambiar underscored.
Invocation of bank guarantee
Further, the Court also suggested that bank guarantee not be invoked for a period of three months from the date of service of the adjudicating order since this would safeguard the interests of the persons as well as the revenue.
The officials holding the bank guarantees would also have to refrain from invoking them considering that the order could be appealed against, the Court advised.
Mis-description of goods
Another aspect the Court discussed in its judgment was whether or not a mis-description of goods in any of the documents accompanying a consignment could render it liable to be detained.
The Court went on to hold that unless the mis-description was so blatant “such that ordinary persons with reasonable skills of cognition and comprehension” cannot perceive the two goods (the actual goods and the description) as the same, such mis-description by itself would not justify the detention of goods. Any question as to description can only be resolved in an assessment proceeding, the Court reasoned.