GST: HC Slams Authorities for Wrongly Detaining Goods from bonfide purchaser

The first petitioner, a registered GST trader in iron scrap, purchased goods from the fourth respondent, M/s. K.S. Enterprises, and sold them onward to M/s. Radha Smelters Pvt. Ltd., Telangana. While the goods were in transit from Vijayawada to Sankarampet, Medak, on June 12, 2023, the first respondent, i.e., Deputy Assistant Commissioner – I (ST), intercepted and detained the vehicles and goods. Notices in Form GST MOV-01 and MOV-10 were issued, not against the petitioners but against the fourth respondent (seller), alleging that the seller was a non-existent/fake dealer with a suspended GST registration. The petitioners challenged these notices, contending that they were the owners of the goods in transit and that proceedings should have been initiated against them under Section 129 of the CGST/APGST Act, 2017, rather than wrongly invoking Section 130 against the seller.

The High Court examined whether the authority was justified in detaining the goods without initiating proceedings against the petitioners and whether confiscation under Section 130 could be directly proposed against the seller, bypassing the purchaser in possession of the goods.

Issue Raised: Whether the GST authority can proceed under Section 130 against a seller while detaining goods in the possession of a bona fide purchaser, instead of invoking Section 129 against the person in charge of the goods in transit.

HC’s Ruling: The High Court disposed of the batch of writ petitions by setting aside the approach of the GST authority, holding that it was incorrect to implicate the bona fide purchaser and transporter in proceedings initiated against the seller under Section 130 of the CGST/APGST Act, 2017. The Court clarified that since the goods were intercepted and detained while in transit, the appropriate course was to initiate proceedings under Section 129 against the petitioners. It was observed that while the first petitioner carries the responsibility of establishing the genuineness of the transaction with the suspect seller, the authority must proceed independently under Section 129 and provide the petitioners with due opportunity to present their case.

Therefore, the Court issued the the hereinafter given directions. The first respondent shall initiate proceedings against the petitioners under Section 129 of the CGST/APGST Act, 2017, within two weeks and conduct an enquiry after affording them a fair hearing. The detained goods shall be released forthwith in favour of the first petitioner upon his deposit of 25% of their value and execution of a personal bond for the balance. The vehicles shall also be released in favour of the respective second petitioners upon their furnishing personal security bonds equivalent to the value of the vehicles.

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