The Supreme Court of India made a landmark judgment pertaining to highly important points of the Goods and Services Tax (GST) legislation with regards to detention and release of the goods in transit. This case has also underlined the significance of adequate legal proceedings together with the basic right of taxpayer to appeal to a higher forum even after the payment of the tax payable along with the penalty. The court elaborated the notion that payment of some amount will not automatically end the case particularly when such payment has been made under protest or with business compulsions. This determination supports the aspect of issuing formal and cause-based orders to the authorities to allow fairness and fairness in the adjudication of taxes.
Case History
The following case was that of M/s ASP Traders which was a dealer in Red Arecanut. They had consigned dry Arecanut worth more than Rs. 51 lakh which was being transported to Delhi along with the consignment of dry Arecanut truck. The transit changed the vehicle and seven bags of the consignment were lost. In Jhansi, Uttar Pradesh, On January 17, 2022, the car was intercepted by the Mobile Squad. After inspection a section 129(3) notice was issued under the Central Goods and Services Tax (CGST) Act 2017 with reasons given as to the non-availability of the bags etc. and on the basis that the consignee was nonexistent.
M/s ASP Traders has given a comprehensive reply rejecting the allegations. But they did it under dire business expenses where they had to pay the bullet to the demanded tax and penalty Rs. 7,20,440/- through a certain GST form (DRC-03) which got their goods released. The products were then set free. Although it was paid and released, the Mobile Squad failed to give out a conclusive order under Section 129(3). This formal order was sought by M/s ASP Traders many times so that they could appeal against the levy but the authorities asserted that because the money had been paid the case had become finalized. This prompted M/s ASP Traders to seek redress in the High Court, which unfortunately denied them of their petition indicating that there was no need to request any other order further since the proceedings had been held to be satisfied by law against the payment to the same. Hurt by this M/s ASP Traders prayed to the Supreme Court.
The Playing Legal Provisions
The detail of this conflict is the explanation of Section 129 or the CGST Act, 2017 and Rule 142 in the CGST Rules, 2017. Section 129 covers goods and conveyances (vehicles) detention, seizure and release whilst in transit.
To be precise, Section 129(3) outlines the following by a proper officer who has already detained goods, to issue a notice that specifies the tax and penalty payable and then pass an order to make an order of payment of tax and penalty. In section 129(4), it is provided that no tax or penalty can be determined without an opportunity being granted to the person to be heard. The section in dispute was Section 129 (5) and that section goes on to conclude that on paying any fee as mentioned in Section 129(1), all proceedings relating to the notice as mentioned in Section 129(3) shall be the deemed concluded.
Also, there are procedural details in Rule 142(3) and 142 (5) of the CGST Rules. Rule 142(3) states that the proper officer will give an order with form GST DRC-05 that will convey the end of proceedings when dues are paid. Rule 142(5) provides that summary of final order as also the one made under Section 129 shall be uploaded electronically in FORM GST DRC-07.
In particular, a Circular No. 41/15/2018-GST issued by the Central Board of Indirect Taxes and Customs (CBIC) was a serious piece of evidence. The procedure of interception and detention is described in this circular that is binding on the department. Under it, the release of goods and conveyance, which the officer is referred to, is for release with payment of tax and penalty, which is his duty, and will be done with the issue of an order in FORM GST MOV-05. In addition, the order in form GST MOV-09 will be uploaded on the common portal and the demand accruing out of the proceeding shall be entered in the electronic liability register and payment of such liability made shall be credited to the above mentioned electronic liability register.” It also makes it clear that in the event of the objections being filed, there must be a speaking order in FORM GST MOV-09, quantifying the amount of tax and penalty to be paid.
The Deepest Controversy
The main issue that the Supreme Court was to answer was whether issuance of formal final order by the tax officer after a taxpayer has paid demanded tax and penalty after the issuance of notice under Section 129(3) is still legal. Acting on the tax authorities, they argued that Section 129 (5) reads clearly that proceedings will be deemed as concluded when the payment has been made and a subsequent order is not necessary. They also added that the oral withdrawal of their objection was taken by the appellant and that the payment was made voluntarily.
M/s ASP Traders on the other hand argued that a show cause notice should always lead to the final order which is reasoned. It was provided that their payment was not voluntary but was done under protest as they were in urgent need of business and that they wanted to exercise their statutory right of appealing. They underlined the fact that Section 129(5) does not indicate absence of any prosecution proceeding but merely means that no new prosecution proceeding shall be initiated but it does not wipe away the duty to pass a formal order at least when a reply is filed contesting the allegations. They also referred to the CBIC circular that prescribes generation of MOV-09 order and uploading the summary of that order in DRC-07.
The opinion of the High Court
The application of the appellant was dismissed at the high court. It concurred the interpretation made by the tax authorities on Section 129(5) that as the appellant had deposited the amount then the proceedings had been concluded under the legislative mandate. High Court thus did not see reasons to instruct the authorities to have one under Section 129(3) thereby denying the appellant the right of appeal.
Analysis and Ruling by Supreme Court
The Supreme Court has acted with a lot of care with regard to the facts and the rule of law. It observed that the discharge order (MOV-05) merely confirmed that goods were released after payment had been made without referring to information on withdrawal of objections and the termination of proceedings. The Court was referring to a well-known law rule, there is no show cause notice that should not reach a point of a final and reasoned order.
The Supreme Court made it clear that the fiction and presumption contained in Section 129(5) (when it comes to considering proceedings as over after making payment) do not imply that the taxpayer who has made payments has forfeited his right of challenging the taxa had levied. Such deeming provision does not mean anything more than that no further
He or she will be prosecuted. It does not absolve the officer of duty to give a formal order to end the proceedings and the demand spelt out in it so as to enable the tax payer to appeal.
The Court reached the conclusion that the payment of M/s ASP Traders could not be termed voluntary, when it was being made under protest owing to business compulsions more so with this firm having already recorded objections. The Court also said that the GST payment portal lacks the capacity that would allow it to note that a payment is made under protest whereby such payments will be erroneously regarded as being made voluntarily.
Importantly, it was pointed out by the Supreme Court that the words of Section 129 (3) – shall issue a notice… and thereafter, pass an order mean that a reasoned order must necessarily be passed, even in the absence of any payment, especially in cases where objections are filed. The Court emphasized that refusal to grant a formal order will render the statutory right to appeal under Section 107 of the CGST Act worthless and also it would be against Article 265 of the Constitution of India that no tax can be levied or collected without law.
The High Court therefore may go on and set aside their order. It advised the tax authorities to make a reasoned final order under Section 129(3) in Form GST MOV-09 upon granting an opportunity to a matter to be heard. One month is also required in uploading the summary of this order in Form GST DRC-07. This will enable M/s ASP Traders to seek the due course of the law against the order.
The Role of a Speaking Order
The adjudication is critical since it protects the right of a taxpayer to appeal and creates a fair procedure. The speaking order is an order which expressly identifies the reasons on which the decision was made so that the side facing the tax charge may know what the decision is founded on and hence be able to engage it very efficiently in the event that he or she believes it to be wrong. Without such an order, the taxpayer is then without a document upon which he can base any appeal and any statutory right of appeal will then be altogether notional.
The Court pointed out that a payment, even when made under protest, duress or otherwise does not imply that the taxpayer is accepting illegality of demand. The tax officials should still be justified in carrying out their investigations by properly reasoning and issuing a reasoned order. Such decision strengthens the fact that procedural deficiency on the part of the department cannot supersede the basic rights of taxpayers.
The verdict given by the Supreme court in M/s ASP Traders v. The case of State of Uttar Pradesh & Ors. is a landmark judgment which makes it clear in releasing and determining it mandatory to give the reasoned final order in cases of GST detention and release even in situations where the demanded tax and penalty has been deposited by the individual. It clarifies that the deemed concluded section 129(5) of the CGST act does not take away the right of appeal by a tax payer. This ruling supports the natural justice and procedure fairness in the tax scheme administration, whereby, the taxpayers are allowed to take any available legal action to counter any possibly illegal claim.
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