E-way bill procedural infractions, penalties imposable and way forward
With the introduction of GST, the Government removed entry barriers at State borders to smoothen the movement of goods. At the same time, the Government apprehended and intended to plug any plausible tax evasion. Consequently, the Government introduced e-way bill system for movement of goods. For this purpose, Section 129 was also enacted under the Central Goods and Services Tax Act, 2017 (‘CGST Act’) and corresponding rules were framed thereunder.
This update intends to discuss the procedure presently adopted by the department for verification of goods during transit including dealing with procedural infractions in e-way bill compliances, its legal sanctity and the way forward that a taxpayer may consider adopting.
A. Penalties imposable for contravention of provisions of the GST Law during the movement of goods
* Section 129 of the CGST Act provides for detention, seizure and release of goods and conveyances in transit and is applicable on such transactions that are in contravention with the GST law.
* Section 129 empowers detention of conveyance, which may be released on payment of inter-alia 100 percent of tax amount and equivalent penalty. Notably, Section 129 contemplates provisional release of goods on furnishing of a bond and security equivalent to the amount payable.
* The CBIC has issued Circular No. 41/15/2018-GST dated April 13, 2018 (‘April 2018 Circular’), prescribing procedures to be followed in such proceedings and various orders that need to be issued to detain or seize the goods.
It is imperative that statutory documents viz., invoice / bill of supply / delivery challan / bill of entry and a
valid e-way bill needs to be mandatorily carried and penalty needs to be levied where these documents
are absent. However, the issue arises where all the documents are present albeit any procedural infirmity
in e-way bill etc. Such cases are not the ones encompassing tax evasion.
Practically, the department is initiating same proceedings in case of every violation, be it a minor one or major one. The taxpayers end up paying taxes and penalties under Section 129 of the CGST Act without much resistance due to dire need of getting the goods released.
* CBIC has also issued Circular No. 64/38/2018-GST dated September 14, 2018 (‘September 2018 Circular’) which provides for minor penalty of Rs. 1,000 in the following cases:
o The conveyance is accompanied by invoice or delivery challan and e-way bill, and
o There is a minor mistake in e-way bill like spelling mistakes in the name of the consignor or the consignee, minor error in the pin-code without increasing validity, error in one or two digits of the document number mentioned in the e-way bill etc.
At a ground level, the department is completely ignoring September 2018 Circular and still imposing penalty equal to tax amount. Taxpayers need to be cognizant of this Circular and insist for reduced penalty. If the department still end up imposing equal penalty, taxpayers should consider filing an appeal against such orders.
B. Way Forward
* It is notable that the orders issued by the officers in Form MOV-09 for recovery of tax and penalty, are appealable.
* The taxpayers can file an appeal within 3 months of the date of communication of the order under Section 107 of the CGST Act. If the taxpayers succeed in such an appeal, they will be entitled to claim refund of amount paid in such proceedings.
* In the case of Gati-Kintetsu Express Private Limited v. Assistant Commissioner of State Tax, 2018-VIL-260-CALCUTTA, the High Court held that orders passed under Section 129 of the CGST Act are appealable.
* The taxpayers can inter alia consider adopting following grounds:
– Collection of tax under Section 129 of the CGST Act leads to double taxation, which should only apply in case of tax evasion. In a case where a tax invoice and e-way bill are duly issued though with some minor infractions, the intent of taxpayer cannot be to evade tax;
– It is settled legal position that penalty (even if mandated by law) can only be imposed where there is intention of evade tax (mens rea).
2. Writ Petition
Challenge the detention order
* The taxpayers can challenge the detention order (Form GST MOV-06) considering that the detention of goods leads to business disruptions. Various High Courts have taken cognizance of this issue and ordered release of goods when all the statutory documents were accompanied by the person-in-charge of the vehicle. The Courts have directed taxpayers to furnish bond and
security for provisional release.
* The taxpayers should note that this will be only an interim relief and the proceedings will continue till the adjudicating authority finally determines the issue.
Challenge the Circular
* The taxpayers can challenge Section 129 of the CGST Act and April 2018 Circular as ultra vires of the CGST Act being wrongful exercise of jurisdiction. The grounds for challenge inter alia can be as under:
– Section 129 imposes tax twice on a single transaction;
– Section 129 does not discriminate a taxpayer who has evaded tax and a bona-fide taxpayer, thereby defeating the principle of intelligible differentia;
– April 2018 Circular forming a complete code of conditions and procedures to be followed in such cases, amounts to excessive exercise of power and is bad in law
With the increase in cases of interception of conveyance by the department and imposition of equal penalty for minimal breaches, it is important for the taxpayers to be aware of the available legal options.