Petitioner challenging action under section 74 of the CGST Act, 2017 directed to furnish bank guarantee

Petitioner challenging action under section 74 of the CGST Act, 2017 directed to furnish security in the form of bank guarantee in terms of Section 67 (6) of the Act and Rule 140 of the Rules for release of the seized goods in terms of the interim relief granted to the Petitioner

Maruti Castings vs. Union of India & Ors(Rajasthan High Court); S.B. Civil Writ Petition No. 6019/2021; 14.09.2021

Applications were filed seeking vacation of interim order passed by a coordinate bench of the Raj. HC, Jaipur stating as follows:

“Learned counsel for the petitioner submits that a sum of Rs.50 lac has been recovered under duress from the petitioner without even issuing show cause notice treating it as under Section 74 of the CGST Act, 2017. Learned counsel submits that the goods which have been seized are all duly accounted for and the same could not have been seized. The entire seizure is illegal. Learned counsel submits that he is ready to submit surety bond instead of asking for a Bank guarantee. Issue notice of the writ petition as well as stay application, returnable within eight weeks. In the meanwhile, the goods lying with the respondent/s shall be released subject to submitting a surety bond of the equivalent amount of the value of the goods by the petitioner. The petitioner shall not be insisted for submitting the Bank guarantee.”

Respondent’s contention:

The directions of the Court that the petitioner shall not be insisted for submitting the Bank guarantee were contrary to the provisions of Section 67(6) of the Central Goods & Services Tax Act, 2017 (‘the Act’) read with Rule 140 of the Central Goods & Services Tax Rules, 2017 (‘the Rules’). Provisions of Section 67 (6) envisage release of goods on provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, as may be prescribed, and as per Rule 140 of the Rules, the seized goods may be released on a provisional basis upon execution of a bond for the value of the goods and furnishing of a security in the form of a bank guarantee equivalent to the amount of applicable tax, interest & penalty payable.

Observations:

• The action of the authorities, apparently, was two fold (i) on account of allegations of one M/s Krishna Enterprises being a bogus firm and supplying fake invoices without supplying the raw material physically and (ii) on account of inspection carried out by the authorities at the principal place of business and additional places of business of the petitioner firm.
• It is claimed by the respondents, based on the ‘Panchnama’ dated 31/3/2021 that physical stocks available at the principal place of business/additional places of business did not match with the books of the petitioner during the course of inspection.
• The Petitioner made various submissions seeking to explain the circumstances in which there was a mismatch between the two and seeking to emphasize that the provisions of Section 35(6) read with Section 73 or 74 only could have been invoked in the given circumstances.
• Having heard the learned counsel for the parties, it was observed that prima facie it cannot be said that in case of a registered person action only under Section 35(6) read with Section 73 or 74 of the Act can be taken and that Section 67 of the Act cannot be invoked, if the circumstances as indicated therein exist.
• It was further observed that the contention of the Petitioner that as the goods liable to be confiscated or documents or books or things were not secreted, the provisions cannot be invoked, is premature at this stage. The word ‘secreted’ is not defined under the Act, however, the same can be understood to mean anything which is concealed and in those circumstances even if the documents are not kept at the designated places where the same ought to be kept in terms of the Act and the Rules, and in case circumstances exist where the absence of the documents is with an intention to conceal them from the officers, the same can be termed as secreted, therefore, as observed hereinbefore, the plea raised in this regard, based on the circumstances which have come on record, is essentially premature.
• Consequently, at this stage, prima facie it cannot be said that the seizure is illegal for the purpose of coming to the conclusion that provisions of Section 67 (6) of the Act would have no application.
• Relying on judgments in the cases of State of U.P. & Ors. vs. Kay Pan Fragrance Pvt. Ltd. : (2020) 5 SCC 811, M/s. Maa Karni Traders & Anr. vs. Union of India & Ors. : I.A.(Civil)/977/2021 in WP (C) 1003/2021 passed by Gauhati High Court on 10/6/2021, JVG Super Cargo Service Ltd. vs. State Tax Officer : S.B.Civil Writ Petition No.2540/2020, decided on 29/6/2020, it was held by the Bench that qua the nature of interim order passed by the High Court therein, the Court required that the assessee must take recourse to the mechanism provided under the Act and the Rules for release on provisional basis upon execution of bond and furnishing of a security in such manner and of such quantum as has been prescribed and it was ordered that the orders passed by the High Court which are contrary to the statutory provisions shall not be given effect to by the authorities.
• Admittedly, the petitioner himself applied under Section 67(6) of the Act seeking release of the seized goods vide Annex.10, based on which the order dated 11/5/2021 (Annex.15) was issued and as such passing of the order 11/5/2021 by the respondents also cannot be faulted.

Held:

The application filed by the respondents under Article 226(3) of the Constitution is allowed. The order dated 21/5/2021 is modified to the extent that besides the surety bond of the equivalent amount of value of goods by the petitioner, it would be required of the petitioner to furnish security in the form of bank guarantee in terms of Section 67 (6) of the Act and Rule 140 of the Rules for release of the seized goods.