Penalty can not be levied u/s 129(3) of GST Act when search & seizure carried out u/s 67

Penalty proceedings can not be launched u/s 129(3) of GST Act subsequent to search and seizure carried out under Section 67 of the Act – Allahabad High Court

In a recent judgment, the Hon’ble Hon’ble High Court has set aside a penalty order passed u/s 129(3) of GST Act holding that penalty can not be imposed under Section 129(3) of the Act, when search and seizure carried out under Section 67 of the Act.

ABCAUS Case Law Citation:
ABCAUS 3905 (2024) (03) HC

Section 67 of the Act provides for power of inspection, search and seizure. Further, section 129 also provides detention, seizure and release of goods and transportation vehicle in transit.

In the instant case, a writ petition was filed by the assessee Petitioner under Article 226 of the Constitution of India challenging the order passed under Section 129(3) of the Uttar Pradesh Goods and Services Tax Act, 2017 (the Act) and the subsequent order passed in appeal.

In the instant case, UPGST Authorities, subsequent to search and seizure carried out under Section 67 of the Act, launched penalty proceedings against the petitioner under Section 129(3) of the Act.

The Petitioner relied upon a judgement of the coordinate Bench of the Hon’ble High Court to buttress her arguments that the penalty proceedings cannot be initiated u/s 129 of the Act when search and seizure is carried out at the godown of the petitioner.

In the said judgment, the assessee was not involved in any transportation of any goods. However, the business premises of the petitioner was subjected to a search and seizure operation by Special Investigation Branch of the Commercial Tax Department U.P.  A Panchnama was drawn alleging shortage of physical stock as compared to that recorded in the stock registers.  Later, the Assistant Commissioner (Mobile Squad) issued a show cause notice with the description “Vahan Sankhiya UPGodown2”. Similarly, another Assistant Commissioner (Mobile Squad) issued another show cause notice with respect to “Vahan Sankhiya Godown”.  The both above authorities proceeded to issue separate show cause notices to the assessee under Section 129(3) of the Act with respect to the same search and seizure operation conducted by the Special Investigation Branch of the Commercial Tax Department, at the business Godown of the petitioner. Pursuant to the above notices, seizure orders were passed and tax and penalty was demanded.

In the said case, the Hon’ble High Court observed as under:

“9. Insofar as seizure of goods and demand of tax under Section-129 of the Act is concerned, it is unbelievable that two (not one), authority of the Mobile Squad of Commercial Tax Department chose to act with negligence. The provision of Section 129(3) of the Act could not be invoked to subject a godown premises to search and seizure operation unmindful of the Act that no action was taken or contemplated under Section 67 of the Act, as that would have mandated existence of “reasons to believe”, to subject that premise to search and seize goods or documents found therein. Also, both authorities of the Commercial Tax Department namely, Sri Vijay Kumar-VIII, Assistant Commissioner (Mobile Squad)-5, Agra and Sri Prashant Kumar Singh-I, Assistant Commissioner (Mobile Squad)-2 Agra chose to exercise powers vested in them to search a vehicle carrying goods during transportation to proceed against goods lying in a godown.

10. They not only closed their eyes to the power and jurisdiction that never existed but they deliberately described the vehicle being checked as “UPGODOWN02” and “GODOWON” (as has been noted above). That description was given by them, deliberately. Therefore, they cannot deny that they were aware that the subject search was not directed at any vehicle but at an immovable property namely a godown premise.

11. The Court does not wish to go deeper into the intention of the officers concerned in issuing such notices and drawing up such proceedings for which they had no jurisdiction as that would entail calling of personal affidavits of the officers at the cost of precious time of the Court. However, the officers are accountable for their acts. Therefore, let this order be communicated to the Commissioner Commercial Tax UP to look into the matter, call for explanation and take appropriate action commensurate to the misconduct, if any, that may be found committed by the erring officers and to take consequential and corrective action to avoid such occurrences, in future.

12. Insofar as the present petitioner is concerned, the entire proceedings drawn up against it under Section 129(3) of the Act, are found to be without jurisdiction.”

The Hon’ble High Court opined that there does not seem to be any controversy with regard to the facts as penned in the writ petition with regard to the imposition of the penalty under Section 129(3) of the Act, in spite of there being search and seizure carried out under Section 67 of the Act.

The Hon’ble High Court held that in view of the above, the entire proceedings that have been initiated have no feet to stand, and accordingly, the impugned orders were quashed and set aside. The instant writ petition was allowed.

Download Full Judgment Click Here >>

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