LI Network
Published on: October 11, 2023 at 13:41 IST
The Allahabad High Court has clarified that the authorities must establish the intention to evade tax before initiating proceedings under Sections 129 and 130 of the Central Goods and Service Tax Act, 2017 (CGST Act). Without a clear finding regarding the intention to evade tax, such proceedings can, at most, be initiated under Section 122 of the Act.
Addressing the provisions of Section 129 and Section 130 of the CGST Act, Justice Piyush Agrawal remarked that these sections revolve around a common issue, providing procedures available to the proper officer when they find goods in violation of the Act. Rule 138 of the Rules framed under the CGST Act is part of these procedures.
The court emphasized that, through a purposive interpretation of these sections, it is evident that the legislation deems the intent to evade tax as an essential precondition for initiating proceedings under Sections 129 and 130 of the CGST Act.
The case that prompted this ruling involved a petitioner whose goods were intercepted and detained near Kanpur. The petitioner argued that they were unaware of the cancellation of e-way bills by the purchasing dealer. Dissatisfied with this explanation, the authorities imposed a penalty under Section 129 of the Act.
The petitioner’s counsel contended that the goods were accompanied by genuine documents and that the petitioner had no knowledge of the cancellation of e-way bills by the purchasing dealer.
Furthermore, they asserted that no observation regarding the intention to evade tax was recorded against the petitioner, suggesting that any penalty should have been imposed under Section 122(ix) of the CGST Act, not Section 129(3).
In contrast, the authorities argued that the petitioner had not presented any valid e-way bill for the proceedings. They asserted that the non-obstante clause in Section 129 of the CGST Act takes precedence over all other provisions, justifying the proceedings under this section.
The Court clarified that Section 130 must be considered in conjunction with Section 129 for proceedings under the latter. It is imperative that the intention to evade tax, as required by Section 130, be established before imposing a penalty under Section 129.
The Court stated, “Section 129 of the CGST Act must be read with section 130 of the said Act, which mandate the intention to evade payment of tax. Once the authorities have not observed that there was intent to evade payment of tax, proceedings under section 129 of the CGST Act ought not to have been initiated, but it could be done under section 122 of the CGST Act in the facts & circumstances of the present case.”
The Court, while quashing the penalty orders, referenced the case of M/s Gobind Tobacco Manufacturing Company & Another Vs. State of U.P. & Others, where a division bench of the Allahabad High Court imposed significant costs on the Department for an abuse of its powers.
This judgment sets a significant precedent by reaffirming that the intention to evade tax is a critical factor in determining the appropriate legal provisions for imposing penalties under the CGST Act.
Case Title: M/S Shyam Sel And Power Limited vs. State Of U.P. And 2 Others