The Kerala High Court (Ernakulam Bench) has ruled that mere initiation of confiscation proceedings under Section 130 of the CGST Act does not, by itself, grant statutory authority to the tax officers to retain possession of the goods and conveyance. However, following the amendments introduced by the Finance Act, 2021, the Court explained that Section 130(2) of the CGST Act, 2017 does not permit the provisional release of goods or conveyances pending the final adjudication of confiscation proceedings.
The option to pay a fine in lieu of confiscation is available to the owner only after a final order of confiscation has been passed by the adjudicating authority, added the Court.
At the same time, the Court clarified that the power to detain goods in transit is governed exclusively by Section 129, which mandates the issuance of a formal “order of detention”. If the authorities fail to issue such an order, their continued possession of the goods becomes illegal and violates the owner’s right to property under Article 300A of the Constitution, entitling the owner to the release of the goods.
A Single Judge Bench of Justice Ziyad Rahman A.A. noted the crucial amendments to Sections 129 and 130 of the CGST Act, effective from January 01, 2022, to observe that the amendments deleted Section 129(2), which had previously made the provisional release mechanism of Section 67(6) applicable to detention and seizure. Further, Section 130(3) was omitted, and the non-obstante clause at the beginning of Section 130 was removed, altering the relationship between Sections 129 and 130.
In light of these amendments, the Bench observed that the scheme of the Act had undergone a drastic change, and the power for provisional release, which was previously available, was consciously taken away from the purview of Section 130 proceedings. The Bench found that Section 130(2) provides an option to pay a fine in lieu of confiscation, and Section 130(7) provides a time limit of three months to pay this fine after the confiscation order is passed. A combined reading suggests that the release contemplated is post-adjudication, not a provisional measure pending proceedings.
While Section 67(6) expressly provides for provisional release, Section 130 conspicuously does not, and this legislative choice indicates an intent to exclude provisional release from Section 130 proceedings, added the Bench.
The Bench emphasized the constitutional protection of property under Article 300A, stating that no person can be deprived of their property ‘save by authority of law’, and any interference with this right must be backed by a specific statutory provision. The Bench examined the statutory framework and found that the power to detain goods in transit is specifically provided under Section 129 of the CGST Act, which requires the service of an “order of detention”. Section 130, which deals with confiscation, does not contain any independent power to detain goods pending the final order.
While rejecting respondents’ reliance on the prohibitory direction in Form GST MOV-02, the Bench observed that MOV-02 is issued for the purpose of inspection, which must be completed within a specific timeline as per Circular No. 41/15/2018-GST. Once the inspection is completed (evidenced by the issuance of Form MOV-04), the prohibitory effect of MOV-02 ceases, and the authorities cannot continue to hold the goods without a formal detention order under Section 129.
The Bench clarified that while proceedings under Section 130 can be initiated directly, this does not grant an inherent power to retain the goods. The physical possession of goods is not a pre-requisite for initiating confiscation proceedings, and Section 130(6) empowers the officer to ‘take and hold possession of the things confiscated’, which implies that possession is to be taken after a confiscation order is passed.
Therefore, the Bench concluded that for the authorities to legally retain possession of goods while confiscation proceedings under Section 130 are ongoing, they must have first validly detained the goods by issuing a formal order of detention under Section 129. In the absence of such an order, the continued possession of the goods is illegal.
Briefly, the petitioner, a registered taxpayer dealing in scrap materials, was transporting copper scrap under a valid invoice and E-way bill. During transit, the Assistant State Tax Officer, detained the goods and vehicle, ordering a physical verification on the grounds that the genuineness of the goods required scrutiny. Subsequently, the authorities issued Form MOV-1, MOV-2, and MOV-4.
Thereafter, the petitioner was issued a show-cause notice in Form GST MOV-10, proposing the confiscation of the goods and conveyance under Section 130 of the CGST Act. The notice alleged several discrepancies and proposed a fine of Rs. 18.92 Lakh in lieu of confiscation. In response, the petitioner highlighted procedural non-compliance and sought provisional release of the vehicle after paying the entire proposed fine.
Later, the petitioner filed a writ challenging the legality of the MOV-10 notice and the continued detention of the goods and conveyance, arguing that such detention was unconstitutional despite the payment of the fine proposed in lieu of confiscation. This was opposed by the respondents, contending that all statutory procedures under Section 130 and the relevant circulars were complied with and that they were entitled to retain the goods based on the prohibitory order in Form GST MOV-02.
Appearances:
Advocates Jikku Seban George, Deepti Susan George, Shruthi Balakrishnan, and Cyriac Tom, for the Petitioner
Advocate Mohammed Rafiq, for the Respondent
