FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT

Appellant has assailed the judgement and order dated March 3, 2023 passed by the learned Single Judge in WPA 340 of 2023. By the impugned judgement and order the learned Judge has dismissed the writ petition filed by the appellant challenging an order passed by the adjudicating Authority and affirmed by the Appellate Authority imposing penalty under Section 129 (3) of the West Bengal Goods and Services Tax Act, 2017.

2. Learned advocate appearing for the appellant has submitted that, the appellant generated a valid e-way bill for transportation of electrical switches manufactured as per the requirement of Arunachal Pradesh Government. The appellant was transporting the electrical switches for delivery at Arunachal Pradesh through a vehicle which had suffered mechanical failure. On such vehicle suffering mechanical failure, the goods have been transported to a new vehicle. He has contended that, the mechanical snag of the first vehicle was unforeseen and beyond the control of the appellant. The subsequent vehicle had been intercepted and detained. He has contended that, the appellant did not have any intention to evade tax.

3. Learned advocate appearing for the appellant has contended that, the Adjudicating Authority overlooked the grounds put forth in the reply to the show cause notice. He has pointed out that, the Adjudicating Authority did not allude to the grounds of defence raised by the appellant in reply to the show-cause notice. The Appellate Authority also did not allude to the same or to the grounds of appeal.

4. Learned advocate appearing for the appellant has submitted that, on the day when, the new vehicle had been intercepted, the registered e-way bill was still valid. Accordingly, penalty under Section 129 (3) of the Act of 2017 ought not to have been imposed.

5. In support of his contentions, learned advocate for the appellant has relied upon 2000 Volume 35 STA 41 (Cal) (DB) (Pannalal Mahabir Prasad & Another vs. State of West Bengal and Others), 2022 Volume 100 GSTR 160 (Cal) SB (Ashok Kumar Sureka vs. Assistant Commissioner, State Tax Durgapur Range, West Bengal), 2023 Volume 110 GSTR 179 (Cal) (SB) (Hanuman Ganga Hydroproject Private Limited vs. Joint Commissioner, State Tax, Authority Siliguri Circle and Another), 2023 Volume 113 GSTR 191 (Cal) (Sunil Yadav vs. Assistant Commissioner, Bureau of Investigation (North Bengal Headquarters and Ors.), 2023 Volume 108 GSTR 366 (Cal) (Ramji Jaiswal and Anr. Vs. State Tax Officer, Bureau of Investigation (South Bengal), Kharagpur Zone and Ors.), unreported decision of the Single Bench passed in WPA 178 of 2023 (Pushpa Devi Jain vs. Assistant Commissioner of Revenue, Bureau of Investigation North Bengal Headquarter and Others), 2023 Volume 113 GSTR 189 (Cal) (DB) (Pushpa Devi Jain vs. Assistant Commissioner of Revenue, Bureau of Investigation North Bengal Headquarter and Others).

6. Learned advocate appearing for the appellant has relied upon 2022 Volume 97 GSTR 218 (SC) (Assistant Commissioner (ST) and Others vs. M/s. Satyam Shivam Papers Pvt. Limited & Anr.) and 2021 Volume 92 GSTR 154 (Satyam Shivam Papers Pvt. Ltd. Vs. Asst. Commissioner (ST) and Others) and contended that, provisions of Section 129 of the Act of 2017 had been construed therein and it was held that, explanation for non­compliance put forward should be considered and that in a given case, no penalty should imposed. According to him, in the facts and circumstances of the present case, the appellant was prevented by sufficient cause from non-compliance and therefore, no penalty should have been imposed.

7. Learned advocate appearing for the respondent has contended that, the appellant cannot set up the defence of non-compliance as done in the present case. He has referred to the Rules framed under the Act of 2017 and in particular to Rule 138 (5) thereof. He has contended that, three persons were authorised to revalidate the existing e-way bill in the event of an unforeseen eventuality namely, the consignor, consignee and the transporter. None of them had revalidated the e-way bill in respect of the goods concerned. He has contended that, revenue authorities are not required to establish mens rea or motive so far as Section 129 of the Act of 2017 is concerned.

8. In support of his contentions, learned advocate for the State has relied upon 2006 Volume 5 SCC 361 (Chairman SEBI vs. Shriram Mutual Fund and Another), 2007 Volume 7 Supreme Court Cases 269 (Guljag Industries vs. Commercial Tax Officer), 2011 Volume 7 Supreme Court Reports 934 (Commissioner of Central Excise, Chandigarh vs. M/s. Doba Steel Rolling Mills) and 2023 SCC OnLine SC 428 (State of Gujrat and Another vs. Saw Pipes Ltd.).

9. Appellant has claimed itself to be a manufacturer of electrical goods and to be registered under relevant statute in the State of Uttar Pradesh and under the provisions of the Central Goods and Services Tax Act, 2017.

10. Appellant has claimed that it entered into a contract with Flomore Limited of Uttar Pradesh for supply of specifically designed and customized electrical panel and ship them to the Department of Power, Government of Arunachal Pradesh through Power Grid Corporation of India Limited. Appellant has claimed that the goods in question was specifically designed suited and customized for the power grid maintained by the Government of Arunachal Pradesh and that such goods were of no other use except in such particular power grid.

11. Appellant has claimed that the goods had been moved from Kanpur, Uttar Pradesh to Itanagar, Arunachal Pradesh. The appellant had issued GST notice for the movement of the goods by road through states falling between Uttar Pradesh and Arunachal Pradesh. Appellant had appointed a transporter and handed over the consignment along with relevant documents and e-way bill to the transporter for delivery.

12. In e-way bill, as is required, the registration number of the vehicle transporting the goods had been registered.

13. The appellant has claimed that when the vehicle carrying the goods reached Jatiakali on National Highway 27 District, Jalpaiguri on June 19, 2022, it encountered a technical and mechanical failure preventing it from further movement. Consequently, the driver of the vehicle had in his wisdom decided to load the goods on another truck obviously bearing a different registration number. The appellant has claimed that, the driver of the first vehicle was ignorant of the legal requirements and therefore, did not initiate the process of generating a further e-way bill.

14. The Respondent No. 1 had detained the new vehicle with the goods of the appellant. The Respondent No. 1 had issued a pre-printed recorded statement of the driver in Form GST Mov – 01, dated June 19, 2022. The Respondent No. 1 had ordered for vehicle verification of the goods and documents in Form GST MOV- 02. The Respondent No. 1 had carried out physical verification in Form GST Mov – 04 dated June 20, 2022. In such report, the Respondent No. 1 did not find any description in the genuineness for the discrimination of the goods in conveyance with that of the e-way bill in the original vehicle.

15. The Respondent No. 1 had issued an order of detention in Form GST Mov – 06 on June 25, 2022. The Respondent No. 2 had issued a show cause notice dated June 23, 2022 as to why tax and penalty will not be imposed under Section 129 (3) by Form GST Mov – 7. The appellant has claimed that the show cause notice was served electronically prior to June 26, 2022 on the appellant and that the date June 26, 2022 thereon has been endorsed when such notice was served physically on the driver on such date.

16. The appellant had submitted claim of ownership of the goods before the Respondent No. 1 by a letter dated June 22, 2022. The appellant had explained the chain of events leading up to the goods being found on the new vehicle. It had claimed that the e-way bill containing the registration number of the first vehicle was valid on the date of detention. The appellant has claimed that the letter dated June 22, 2022 is essentially a reply to the show cause notice.

17. The Respondent No. 2 had passed an order dated June 27, 2022 imposing penalty under Section 129 (3) against the appellant to the tune of 200 per cent amounting to Rs. 4,31,380.

Provided that where the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with passage of time, the said period of seven days may be reduced by the proper officer.”

31. Sub-Section (1) of Section 129 of the Act of 2017 has specified that goods and conveyance shall be liable to detention and seizure if the goods were in transit in contravention of the provisions of the Act of 2017 or the Rules made there under. It has also prescribed that, goods once detained or seized shall be released on payment of penalty for the amount specified in respect of the eventualities laid down therein.

32. Sub-Section (3) of Section 129 has laid down that, the proper officer detaining or seizing the goods or conveyance shall issue a notice of detention or seizure specifying the penalty payable and thereafter pass an order for payment of penalty. Sub-Section (4) has specified that no penalty shall be determined under sub-Section (3) without giving the person concerned an opportunity of being heard. Sub-Section (5) has specified that on payment of the amount referred in sub-Section (1), all proceeding in respect of the notice specified under sub-Section (3) shall be deemed to be concluded. Sub-Section (6) has provided for the eventualities of evading to pay the amount of penalty specified under sub-Section (1) within the time period specified.

33. In the facts of the present case, the appellant had suffered a notice under Section 129 (1) of the Act of 2017 to which, there was a response dated June 22, 2022. The notice in Form GST Mov – 07 being a notice under Section 129 (3) of the Act of 2017, was undated. The response dated June 22, 2022, thereto, has referred to a subject of GST Mov – 2 dated June 19, 2022. However, GST Mov – 2 dated June 19, 2022 is not an order of detention. The order of detention is Form GST Mov -07 which has been undated in its soft version and a date of June 26, 2022 written on the left hand top corner on the hard copy thereof served on the driver of the vehicle.

34. It is trite law that, quoting of a wrong section or a wrong provision of law does not militate against the substance of the response. The response of the appellant is dated June 22, 2022 and is a response to the notice of show cause. The Adjudicating Authority has failed to allude to the response dated June 22, 2022 or the contents therein. The Adjudicating Authority did not apply its mind to the response. The Adjudicating Authority has proceeded mechanically to find that, there has been a violation of the Act of 2017 and therefore, the appellant was liable to penalty.

35. The Telengana High Court in M/s. Satyam Shivam Papers Pvt. Limited & Anr. (supra) has held that, such a course of action is not available to an Adjudicating Authority under Section 129 of the Act of 2017 and such view was affirmed by the Supreme Court in Assistant Commissioner (ST) and Others (supra).

36. Sub-Section (3) of Section 129 of the Act of 2017 has a requirement of issuance of notice with sub-Section (4) thereof, mandating the Adjudicating Authority not to pass an order of penalty without affording an opportunity of hearing to the defaulter. Compliance of principles of natural justice is inherent in any adjudicating proceedings unless specifically ousted by a statute. In the present case, Section 129 (3) and (4) of the Act of 2017 require compliance with the provisions of principles of natural justice prior to pronouncement of an order of penalty. Requirement of compliance with the principles of natural justice before passing an order of penalty ipso facto means that, the Adjudicating Authority has the jurisdiction to evaluate the merits of the defence taken and speak thereon. The mechanism provided under Section 129 of the Act of 2017 allows the Adjudicating Authority to accept the explanation given by a defaulter in given facts and circumstances and not to impose a penalty. The Adjudicating Authority has to consider the mitigating and aggravating circumstances, after affording the defaulter an opportunity of hearing and arrive at the finding whether there was a violation requiring imposition of penalty or not. Imposition of penalty cannot be said to be automatic given the mechanism provided for by the legislature in Section 129 (3) and (4) by affording an opportunity of hearing to the defaulter before imposition of the penalty.

37. By virtue of the authoritative pronouncement of the Supreme Court in Shriram Mutual Fund and Another (supra), Guljag Industries (supra) and Saw Pipes Limited (supra) the department has been relieved of the burden of proof of mens rea or motive in respect of a statute imposing penalty as a civil obligation for violating a tax regime. However, absence of requirement to establish mens rea by the department cannot be equated with an automatic imposition of penalty under the scheme of Section 129 of the Act of 2017 in view of the provisions of Section 129 (3) and (4) thereof. A delinquent alleged to have violated a tax regime inviting imposition of penalty, nonetheless may have potential defences which would require consideration by the Adjudicating Authority. The delinquent may have a defence of reasonable cause in non-compliance. He may have set up a defence of impossibility of performance and adherence to the tax regime leading up to the default. He may have suffered a supervening event unforeseen and unavoidable making the compliance with the tax regime impossible or burdensome. Such defences set up have to be considered by the Adjudicating Authority. In short, the regime of imposition of penalty as envisaged under Section 129 of the Act of 2017 does not automatically result in the penalty of a violation of the tax regime stipulated without the Adjudicating Authority alluding to and deciding on the defences, if any, set up, by passing a reasoned order thereon.

38. In the facts of the present case, e-way bill in respect of the goods transported was yet to expire when, the new vehicle had been detained. The explanation given by the appellant that, the driver of the old vehicle did not know the law and therefore did not comply with the same and did not inform the appellant about the same, should have been evaluated, in the facts and circumstances of the present case, by the Adjudicating Authority in light of the e-way bill being valid till then in respect of the first vehicle. He has to deal with the defence raised by the defaulter by a reasoned order. That is the mandate of Section 129 (3) and (4) of the Act of 2017 read together. The Adjudicating Authority has not done so. The Appellate Authority has also overlooked such fact. In the appeal preferred, the appellant has reiterated its defence taken in the reply to the show cause notice dated June 22, 2022. Appellate Authority had the jurisdiction and in fact was obliged to deal with the grounds of appeal pressed at the hearing of the appeal. Respondent has not contended that, the defence canvassed in the show cause notice and the grounds pressed in the appeal were not canvassed or pressed by the appellant at the time of hearing before the Adjudicating or the Appellate Authority.

39. In such circumstances, we find that the impugned order of the Adjudicating Authority as upheld by the Appellate Authority to have violated the principles of natural justice, inasmuch as it has not spoken on the defence taken. Consequently, both the orders passed by them are set aside. The Adjudicating Authority under the Act of 2017 is directed to decide on the show cause notice, in light of the reply to the show cause notice dated June 22, 2022, afresh after giving an opportunity of hearing to the appellant through its authorized representative. Let such exercise be completed within a period of fortnight from the date of communication of this order.

40. In view of the discussions above, the impugned judgement and order of the learned Single Judge is set aside.

41. A.T. No. 32 of 2023 along with IA No: CAN 1 of 2023 are disposed of without any order as to cost.