Can’t Deviate From Text Of GST Provisions, Rules And Forms In GST: Allahabad High Court Quashes Penalty

The Allahabad High Court has held that the Goods and Service Tax Act, 2017 is a complete code in itself and there can be no deviation from the text of the Act, Rules and Forms.

A bench comprising of Justice Piyush Agrawal held,

“The GST Act is a complete Code in itself. Various provisions, Rules and Forms are prescribed as well as various steps are also to be followed in an appropriate circumstances to be taken by the assessees as well as by the State authority. There is no room for deviation from it. The provision and the Rules are to be complied with strictly. In another words the action/working of the officers of State authority should be transparent.”

The Court has held that the GST Act does not provide for the issuance of any supplementary show cause notice. Further, once the statement of the driver has been recorded in MOV-1, any statement made thereafter shall be inadmissible.

Further, the Court reiterated that the assessing authority cannot adduce additional evidence before the appellate authority under Rule 112 of the GST Rules. Since the procedure followed by the assessing authority was beyond the provisions of the GST Act and the Rules thereunder, the Court set aside the order passed by the Authority under Section 129(3) of the Act as well as the order of the first appellate authority upholding the levy of penalty.

Factual Background

The petitioner was a registered dealer under the GST Act. In the normal course of business, Supara (Areca Nuts) goods were being transported from Gurgaon, Haryana to Robertsganj, U.P. when they were intercepted, statement of the driver was recorded on MOV 01. Subsequently, physical verification of goods was carried out and MOV 06 was issued detaining the goods. In a supplementary notice issued under Section 129(3) of the GST Act it was stated that the product being transported was not Areca Nut/Betul Nut but processed Betul Nut. Thereafter, MOV 09 was issued and the petitioner was required to deposit Rs. 70,09,200/-. Against the said order an appeal was preferred and which was dismissed.

Counsel for the petitioner contended that all necessary documents were present with the goods and no discrepancies were found. Under Rule 112 of the GST Rules, the Department cannot be permitted to lead additional evidence at the appellate stage. Any statement given by the driver by subsequently, i.e., after recording his statement in MOV-01, would be inadmissible, it was argued.

Further, it was argued that at the time of the transaction, both parties were registered dealers, therefore goods cannot be seized. The enhancement of the penalty could not be made. The order should have been passed under section 129(1)(a) of the Act as the purchaser of the goods. Lastly, it was contended that there is a provision which empowers the authority to issue supplementary notice after MOV 07. Thus, the order imposing penalty and the order of the first appellate authority were bad in law.

Per Contra, the Counsel for State alleged that the petitioner is a part of a ‘syndicate’ involved in tax evasion. Additional evidence was adduced before the first appellate authority based on the detailed inquiry conducted by the Department. It was further contended that since the seller and purchaser were fictitious, an order under Section 129(1)(b) was passed. The state further relied on the statement of the driver that the goods were to be off-loaded at Ghaziabad and not Robertsganj.

High Court Verdict:

The Court held that once the statement of the driver had been recorded in MOV-01, any subsequent statement could not be recorded by any stretch of the imagination and not permissible in the eye of law without any cojent matrial on record, which shows that perverse action has been taken against the petitioner.

Relying on the decision of the Allahabad High Court in M/s Sleevco Traders through Its Proprietor Shri Alok Gupta vs. Additional Commissioner Grade-2 (Appeal) Fifth, Commercial Tax and another, against which Special Leave Petition was dismissed by the Supreme Court, the Court held

“In the case in hand during the validity of the first e-waybill the subsequent e-waybill was generated and submitted before the detention authority, i.e. before the expiry of earlier e-way bill, therefore the seizure cannot be justified.”

Further, the Court observed that no material was brought on record to show that the goods being transported were different from those mentioned in the documents accompanying the same. Since no expert opinion was taken or any laboratory examination was done, and on physical verification no discrepancy was found, the Court held that the assessing authority was not justified in passing the impugned orders.

The Court reiterated the principle laid down in Anandeshwar Traders vs. State of U.P. wherein the Allahabad High Court had held that additional evidence cannot be led by the State Department at the appellate stage.

“Once the mandate has been given by this Court on 18.1.2021 about non accepting of the additional evidence at the behest of the Revenue the impugned order cannot be sustained. The Apex Court in the Mohinder Singh Gill (supra) has held that fresh reason existing outside the order passed cannot be accepted. In view of the aforesaid law laid down by the Apex Court as well as this Court the first appellate authority is vitiated and is liable to be set aside.”

Lastly, the Court held that once the owner of the goods comes forward, a penalty of 200% of the tax payable can be imposed under Section 129(1)(a) of the GST Act. In the present case, the penalty amount was 200% of the value of the goods which was unsustainable.

Accordingly, the Court set aside the orders passed against the petitioner and directed that any amount deposited by the petitioner be refunded to him.

Case Title:- M/S Khan Enterprises v. Additional Commissioner And Another 2023 LiveLaw (AB) 309 [WRIT TAX No. - 857 of 2021]

Case Citation: 2023 LiveLaw (AB) 309

Counsel for Petitioner:- Aditya Pandey

Counsel for Respondent:- Rishi Kumar

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