Supreme Court says GST officials must issue a written reasoned order when goods are seized, even if tax and penalty are paid. Taxpayer’s right to appeal cannot be taken away just because payment is made.‘
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NEW DELHI: The Supreme Court of India clearly said that GST officers must give a proper written order when goods are stopped and seized under Section 129 of the Central GST Act, 2017, even if the taxpayer has already paid the tax and penalty to quickly get the goods released.
A bench of Justices JB Pardiwala and R Mahadevan said that without a proper written and reasoned order, the taxpayer loses the right to appeal, which is an important legal right.
“Every show cause notice must culminate in a final, reasoned order. While Section 129(5) of the CGST Act, 2017 provides that proceedings shall be deemed to be concluded upon payment of tax and penalty, this deeming fiction cannot be interpreted to imply that the assessee has agreed to waive or abandon the right to challenge the levy – a right that is protected by the very enactment itself. The term ‘conclusion’ as used in Section 129(5) merely signifies that no further proceedings for prosecution will be initiated. It does not absolve the responsibility of the proper officer to pass an order concluding the proceedings.”
This case was about M/s ASP Traders, a business from Karnataka dealing in areca nuts. They were sending goods to Delhi, but the goods were stopped in Jhansi by GST officers, who issued a detention notice (Form GST MOV-07), saying they found some irregularities.
Even though ASP Traders gave written objections, they still paid Rs 7.2 lakh as tax and penalty to quickly get their goods released, because it was urgent for their business.
But after paying, no final order was passed by the officers. ASP Traders asked for a proper final order, so that they could challenge the penalty, but the officers said there was no need for such an order now, because the payment had been made. They said under Section 129(5) of CGST Act, once payment is done, the matter is considered closed.
They relied on this line:
“On payment of amount referred in sub-section (1) (penalty), all proceedings in respect of the notice specified in sub-section (3) (detention notice or show cause notice) shall be deemed to be concluded.”
ASP Traders then went to the Allahabad High Court, but the High Court agreed with the GST department. So, ASP Traders appealed in the Supreme Court.
The Supreme Court did not agree with the High Court. It said that just because someone pays the tax and penalty doesn’t mean the officer can skip passing a final order.
The Court referred to GST Circular No. 41/15/2018-GST dated April 13, 2018, which clearly says the officer must give an order using Form MOV-09 and upload it along with the summary (Form DRC-07) on the GST portal.
The Court also said that in this case, ASP Traders had filed objections. The GST officers later said that the company’s representative withdrew the objections orally, but there was no written proof of this.
“Once objections are filed, adjudication is not optional. It becomes imperative to pass a speaking order to justify the demand of tax and penalty, to safeguard the right of appeal under Section 107 of the CGST Act,”
The Court also noticed that the GST portal has a limitation. If a taxpayer pays a penalty through Form DRC-03, it is automatically treated as voluntary, and there is no option to mention that the payment was made under protest.
Because of this, the Court said it’s wrong to assume that a taxpayer has agreed to the penalty just because they paid it.
“Such procedural limitations cannot be allowed to defeat the rights of the taxpayer, particularly where the detention of goods is ultimately found to be unlawful,”
The Court also reminded about a previous case Kranti Associates v. Masood Ahmed Khan, where it was said that not giving a reasoned order takes away the right to appeal and could go against Article 265 of the Constitution, which says tax can only be collected if the law allows it.
Finally, the Supreme Court allowed the appeal of ASP Traders and ordered the Assistant Commissioner (Mobile Squad), Jhansi to:
- Give a final reasoned order under Section 129(3),
- First give ASP Traders a chance to explain their side under Section 129(4),
- Upload the summary of the order using Form DRC-07, all within one month.
- ASP Traders was represented by Advocates Pawanshree Agrawal and Divyanshu Agrawal
- GST department was represented by Advocate Bhakti Vardhan Singh.
CASE TITLE:
ASP Traders Vs State of Uttar Pradesh
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