Goods cannot be detained for undervaluation: HC quashes Penalty order

Background

A writ petition under Article 226 of the Constitution of India was filed by the petitioner, who was aggrieved by a GST penalty order dated December 20, 2020, issued by the Commercial Tax Officer, Mobile Squad-6, Agra (Respondent No. 2). The order was further upheld in a GST appeal by the Additional Commissioner Grade-II (Appeal)-II, State Tax, Agra, on September 17, 2021. The petitioner sought relief from these orders.

Petitioner's Contentions

Mr. Suyash Agarwal, representing the petitioner, contended that the detention of goods on the grounds of undervaluation was unwarranted under GST. He argued that the Commercial Tax Officer's actions contravened a circular issued by the Commissioner, Commercial Tax, Uttar Pradesh, dated May 9, 2018, which explicitly stated that goods should not be detained on the ground of undervaluation.

Additionally, Mr. Agarwal cited a judgment from the Kerala High Court in Hindustan Coca-Cola Private Limited vs. Assistant State Tax Officer (2020 NTN (73)-58), which held that disputes regarding classification and valuation should be resolved through proper judicial procedures rather than detention. The petitioner asserted that the goods were accompanied by all necessary documents, including an invoice and e-way bill, and there were no discrepancies in the description of the goods.

Court Decision

After hearing arguments from both sides and reviewing the material on record, the court found merit in the petitioner's contentions. The court noted the following key points:

1. Circular Compliance: The court emphasized the relevance of the circular issued on May 9, 2018, which prohibits the detention of goods based on under-valuation.

2. Judicial Precedents: The court referred to the Kerala High Court judgment, reinforcing that- valuation disputes should be addressed through notices under Sections 73 or 74 of the Uttar Pradesh Goods and Service Tax Act, 2017.

3. Lack of Competence: The court concluded that the Commercial Tax Officer was not authorized to detain goods solely based on suspected under-valuation.

4. Procedural Requirements: It was highlighted that proper procedure involves issuing a notice under Sections 73 or 74 if there is suspicion of undervaluation, followed by an assessment to determine any penalty.

Consequently, the court quashed the impugned orders dated December 20, 2020, and September 17, 2021. It ordered that any deposits made by the petitioner be returned within four weeks.