Major disputes being faced by taxpayers vis-à-vis e-way bill compliances, its legal sanctity and way forward that a taxpayer may consider adopting.

The GST law allows Proper Officer to intercept vehicles carrying goods for verification of documents such as e-way bill. Non-generation and non-carriage of e-way bill is violative of the GST law and can result in both monetary as well as non-monetary losses to the taxpayer. The tax authorities have been quite proactive in issuing notices to businesses for both major and minor infractions in e-way bill.

1. Filing of writ petitions against detention orders

• Section 67 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) read with Rule 140 and 141 of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) provides the procedure for release of goods seized by a Proper Officer. As per these provisions, the goods can be provisionally released on furnishing of bond of a prescribed amount and security.

• The taxpayers have been challenging such detention orders issued by Proper Officer through writ petitions before various High Courts. The Courts have taken cognizance of this issue and ordered interim release of goods without payment of any security amount (in cash or any other form).

• Notably, the Supreme Court in the case of State of Uttar Pradesh v. Kay Pan Fragrance Private Limited, 2019-VIL-39-SC observed that the CGST Act read with CGST Rules is a complete code for release (including provisional release) of seized goods. The Court held that interim orders passed by the High Court are bad in law and erroneously allowed release of goods in contravention to the relevant provisions. 

NITYA’s Comments: This judgment of the Apex Court is likely to have an adverse impact on taxpayers. Various High Courts are unlikely to entertain petitions against seizure orders and issue interim orders for release of goods.

 Importantly, the taxpayers can still approach the High Courts if the officers do not abide by the  law, for example: 

• Non-acceptance of bond and insisting on cash payment;
• Not reducing penalty to Rs. 1,000 for minor errors in light of Circular No. 64/38/2018-GST dated September 14, 2018 (discussed in detail below); and
• Procedure followed by the department for detention of vehicle and imposition of penalty being ultra-vires the provisions of the CGST Act (Refer NITYA’s Outlook | Issue 24 | E-way bill procedural infractions, penalties imposable and way forward dated June 5, 2019 for detailed discussion in this regard)

Way forward: Filing of Appeal instead of Writ Petition

It is notable that in the case of Gati-Kintetsu Express Private Limited v. Assistant Commissioner of State Tax, 2018-VIL-260-CAL, the High Court held that orders passed under Section 129 of the CGST Act are appealable. Hence, it is imperative that taxpayers challenge the seizure orders before the appropriate Appellate Authority. 

2. Confiscation of goods / conveyances

• Section 129 of the CGST Act provides for detention, seizure and release of goods and conveyances in transit and applies to transactions in contravention with the GST law. Sections 130 of the CGST Act provides for confiscation where it is found that the taxpayer intend to evade payment of tax.

• It has been practically observed that in all cases, detention and seizure of goods and conveyance is made and thereafter, a notice is also issued under Section 130 of the CGST Act on the pretext that the goods were being transported with intention of evading tax. Once notice under Section 130 of the CGST Act is issued, then the vehicle is not released even if the owner of the goods is ready and willing to pay tax and penalty that can be determined under Section 129 of the CGST Act.  

• In the case of Synergy Ferticham Private Limited v. State of Gujarat, 2019-VIL-623-GUJ (‘Synergy Ferticham’), it has been held that Section 129 and 130 of the CGST Act are mutually exclusive and independent of each other. However, a mere suspicion may not be sufficient to straightway invoke Section 130 of the CGST Act. For issuing a notice of confiscation under Section 130 of the CGST Act, the authority should prima-facie be convinced that the contravention was with a definite intent to evade payment of tax and need to duly record such reasons in writing.  

NITYA Comments: The above judgment is a favourable for the taxpayers. It is imperative that the transporter needs to mandatorily carry statutory documents viz. invoice / bill of supply / delivery challan / bill of entry and a valid e-way bill. The department can invoke Section 130 of the CGST Act and impose penalty only where such documents are absent and intent to evade duty is visible. Where all the documents are present albeit any procedural infirmity in e-way bill or only one of the requisite documents is missing; such cases cannot be considered to encompass tax evasion. 

Way forward: Challenge of confiscation orders in bona fide cases

Taxpayers can challenge confiscation of goods under Section 130 of the CGST Act issued at the threshold in light of the principles laid down by the judgment in Synergy Ferticham. In bona-fide cases, the taxpayers can seek release of confiscated goods on merits.

3. Detention on minor procedural infirmities in e-way bill 

• Practically, the department is initiating same proceedings in case of minor violations such as typographical errors.

• The CBIC issued Circular 64/2018 providing for minor penalty of Rs. 1,000 in the following cases:

• Conveyance is accompanied by invoice or delivery challan and e-way bill, and
• There is a minor mistake in e-way bill like spelling mistake in the name of consignor or consignee, pin-code without increasing validity, one or two digits of document number mentioned on e-way bill etc. 

Way forward: Cognizance of Circular 64/2018

Taxpayers need to be cognizant of Circular 64/2018 and insist for reduced penalty before the authorities. If the department still imposes equal penalty, taxpayers should consider filing an appeal against such orders  or even approaching the High Court for directing officers to impose reduced penalty. In the case of Sabitha Riyaz v. Union of India, 2018-VIL-519-KER, the High Court reduced the penalty imposed by the department to Rs.1,000 in a similar case. In the case of K. B. Enterprises v. Assistant Commissioner, 2019-VIL-01-GSTAA the High Court held that in light of Circular 64/2018 proceedings under section 129 of the CGST Act may not be initiated in case of minor mistakes like error in one or two digits / characters of the vehicle number.

4. Seizure of goods due to technical difficulties 

• In some cases, department initiates proceedings on non-production of e-way bill which taxpayer could not produce due to problem of downloading from the site. In case of Vikram Solar Private Limited v. Union of India, 2018-VIL-15-ALH, the Court ordered release of goods in a similar case on furnishing of a bank guarantee.

Way forward: Challenge in case of technical difficulties

Taxpayers can contest seizure of goods in bona-fide cases such as non-availability of requisite documents due to technical issues on the portal.

NITYA’s Comments: 

With 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 and exercise the same in appropriate circumstances.