The Karnataka High Court has ruled that once an order of confiscation is passed under Section 130 of the Central Goods and Services Tax (CGST) Act, 2017, and the title to the goods and conveyance vests in the Government, an assessee cannot bypass the statutory appellate mechanism by challenging only the earlier detention order under Section 129. 

The bench of Justice S.G. Pandit and Justice K.V. Aravind has observed that the mechanism under Section 129 ceases to operate after confiscation, making the statutory appeal under Section 107 the appropriate remedy. 

The case arose after goods and a vehicle belonging to a steel trader were intercepted by the Commercial Tax authorities on November 23, 2024. During physical verification, the authorities found that the goods were being transported without valid statutory documents, leading to issuance of a notice under Section 68(3) of the CGST Act. The proprietor subsequently admitted that the goods had indeed been transported without valid documentation. 

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Consequently, proceedings under Section 129 of the CGST Act were initiated for detention of the goods and vehicle. An independent valuer assessed the value of the goods at approximately ₹45.29 lakh, and an order of detention was passed on December 4, 2024. Thereafter, the authorities initiated confiscation proceedings under Section 130 by issuing a show cause notice on December 16, 2024. 

After considering the trader’s reply, the authorities passed a confiscation order on January 10, 2025, confiscating both the goods and the vehicle. Such an order is appealable under Section 107 of the CGST Act. 

Instead of challenging the confiscation order, the trader filed writ petitions questioning only the detention order under Section 129 and sought release of the goods and vehicle.

The Single Judge accepted the plea and directed the authorities to release the goods and vehicle subject to deposit of 25% of the value of the goods and furnishing a bank guarantee for the remaining amount. This order was challenged by the State before the Division Bench. 

Aditya Vikram Bhat, AGA, on behalf of the department argued that once the confiscation order under Section 130 had been passed, ownership of the goods and vehicle stood vested in the Government by virtue of Section 130(5).

It further submitted that after confiscation, the earlier detention proceedings under Section 129 effectively merged into the confiscation proceedings, making any challenge solely to the detention order legally untenable.

The State also contended that the trader had already availed the statutory appellate remedy under Section 107 and was attempting to avoid complying with the mandatory pre-deposit requirements prescribed under Section 107(6) by filing writ petitions limited to the detention order.

Additionally, the Revenue pointed out that there was a substantial discrepancy between the valuation declared by the trader and the valuation determined by the independent valuer, making the Single Judge’s release directions based on the declared value legally unsustainable. 

The trader argued that the detention order under Section 129 constituted an independent cause of action capable of being challenged separately.

It was also submitted that Section 107(6) should be interpreted to require deposit of only 10% of the disputed tax and 10% of the fine for maintaining an appeal. According to the trader, insisting upon payment of the entire redemption fine equivalent to the value of confiscated goods would render the statutory remedy ineffective and cause undue hardship. 

The Division Bench observed that there was no dispute regarding the interception of the goods, the detention proceedings, or the subsequent confiscation order under Section 130. It also noted that the trader had not alleged any procedural violation during either the detention or confiscation proceedings and had already invoked the appellate remedy available under Section 107. 

The Court identified the central legal issue as whether a person could challenge only the detention order under Section 129 after a confiscation order had already been passed under Section 130 and ownership of the goods had vested in the Government.

Answering the question in the negative, the Bench explained that Section 129 merely provides a mechanism for detention, seizure and release of goods in transit. However, once confiscation proceedings culminate in an order under Section 130, the legal regime shifts entirely to Section 130, under which the title to the goods and conveyance vests in the Government. 

The Court held that after confiscation the mechanism under Section 129 is no longer available. Issues relating to confiscation, valuation, tax, penalty, interest and fine are governed exclusively by Section 130. A writ petition challenging only the detention order cannot result in release of goods that have already vested in the Government. 

The Bench observed that the Single Judge’s order effectively modified the confiscation order despite there being no challenge to the confiscation itself, making the release direction legally unsustainable. 

While allowing the Revenue’s appeals, the High Court granted liberty to the trader to pursue the statutory appellate remedy under Section 107.

Importantly, the Court clarified that for the purpose of Section 107(6), the pre-deposit requirement would comprise: 100% of the fine quantified under Section 130(2); and 10% of the tax determined under the confiscation order. 

The Court also kept all other legal contentions open for consideration before the appellate authority.

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