A.P. Refinery Pvt. Ltd. vs. State of Uttarakhand (2021)

⚖️ A.P. Refinery Pvt. Ltd. vs. State of Uttarakhand (2021)

Uttarakhand High Court: Mere Suspicion is Not Enough to Invoke GST Confiscation Provisions

📌 Background

The case of A.P. Refinery Pvt. Ltd. vs. State of Uttarakhand [(2021) 130 Taxmann.com 307] is a significant ruling on the scope and limits of confiscation powers under GST law.

• The assessee, A.P. Refinery Pvt. Ltd., was transporting Rice Bran Oil from its factory in Punjab to a dealer in Uttarakhand using three trucks.
• For the consignment, the assessee raised three e-invoices and generated e-way bills cross-referenced to those invoices.
• The e-way bills were valid for three days, but they expired before transportation was completed.
• On physical verification, the description of goods on invoices matched perfectly with the goods in the trucks. Despite this, GST authorities detained the goods and vehicles and initiated confiscation proceedings.
• Show cause notices were issued only on the ground of expiry of e-way bills, even though there was no discrepancy in goods or invoices.

This raised an important question about whether mere expiry of an e-way bill without intent to evade tax can justify confiscation under Section 130 of the CGST Act.

❓ Points of Dispute

1. Can confiscation under Section 130 of the CGST Act be invoked on mere suspicion such as expiry of an e-way bill?
2. Is it mandatory to provide the assessee an opportunity of being heard before passing a confiscation order?
3. Are the provisions of Section 129 and Rule 140 arbitrary, unreasonable, or violative of constitutional protections under Articles 14, 19(1)(g) and 300A?

📑 Submissions by the Assessee

• Violation of Natural Justice: The confiscation order under Section 130 was passed in Form GST MOV-11 without giving the assessee an opportunity of being heard, contrary to Section 130(4).
• Expiry of e-way bill ≠ tax evasion: Since the goods matched the invoices, there was no suppression, misstatement, or fraudulent intent. Expiry of the e-way bill was due to delay in transit, not evasion.
• Unconstitutional provisions: Section 129 (detention, seizure, release of goods) and Rule 140 (release on bond/security) were challenged as arbitrary and unreasonable, being violative of Articles 14 (equality before law), 19(1)(g) (freedom of trade), and 300A (right to property).

📑 Submissions by the Revenue

• Validity of Law: Section 129 and Rule 140 are valid provisions enacted to protect government revenue.
• Alternative Remedy: The assessee had the remedy of filing an appeal against the confiscation order. Therefore, writ petitions before the High Court were not maintainable.

⚖️ Legal Principles and Scope of Decision

The Uttarakhand High Court laid down important principles on confiscation under GST:

1. Strong Basis Needed for Confiscation
   • Section 130 empowers confiscation of goods, conveyances, and levy of penalties.
   • However, mere suspicion or technical lapses like expiry of e-way bills are not sufficient.
   • There must be a strong factual basis showing intent to evade tax.
2. Opportunity of Hearing is Mandatory
   • Section 130(4) expressly requires that the taxpayer must be given a reasonable opportunity of being heard before confiscation orders are passed.
   • In this case, GST authorities failed to follow this statutory safeguard, rendering the orders illegal.
3. Principles of Natural Justice
   • Confiscation has serious financial consequences for a business.
   • Denying the assessee the chance to defend itself amounts to violation of natural justice.
4. Expiry of E-way Bill ≠ Evasion
   • Since physical verification showed that goods matched invoices, the expiry of e-way bills alone could not establish intent to evade tax.
   • Confiscation based solely on this ground was unsustainable.

🏛️ Court’s Conclusion

• The High Court partly allowed the writ petitions.
• It quashed and set aside the confiscation orders passed under Section 130 in Form GST MOV-11.
• Directed immediate release of vehicles and goods, subject to:
  • Execution of a bond in Form GST INS-04 for the value of goods.
  • Furnishing of bank guarantee equal to the tax, interest, and penalty payable.
• Clarified that the Revenue may proceed further in accordance with law only after giving the assessee a fair opportunity of being heard.

✅ Practical Impact

1. Relief for Businesses
   • Businesses cannot face confiscation merely for technical lapses like expiry of e-way bills without proof of tax evasion.
2. Importance of Hearing
   • This case reinforces that authorities must follow natural justice and provide taxpayers an opportunity to explain.
3. Checks on Arbitrary Action
   • Authorities cannot treat every lapse as an attempt to evade tax. Mere suspicion is not enough.
4. Judicial Oversight
   • High Courts are willing to intervene when confiscation powers are exercised arbitrarily.

🔑 Key Takeaways

• Confiscation requires strong grounds, not mere suspicion.
• Expiry of e-way bill does not equal tax evasion.
• Hearing before confiscation is mandatory under Section 130(4).
• Principles of natural justice prevail over technicalities.
• Courts will strike down arbitrary use of GST confiscation powers.

📢 Why This Case Matters

The A.P. Refinery Pvt. Ltd. ruling is a major safeguard for GST taxpayers against arbitrary confiscation. It clarifies that mere suspicion or procedural lapses like expired e-way bills cannot justify harsh measures like confiscation.

By emphasizing natural justice and due process, the judgment ensures that GST authorities cannot bypass statutory safeguards and must demonstrate clear intent of evasion before penalizing businesses.

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