GST Evasion | Gold Transported For Sale Under The Pretext Of Showcasing In Exhibition: Madras High Court Refuses To Quash Confiscation Notice 

Date:

The Madras High Court while refusing to quash the Confiscation Notice held that the gold transported for sale under the pretext of showcasing in exhibition with the intention of GST evasion.

The bench of Justice Krishnan Ramasamy has observed that the Officials have come to the conclusion that the goods were transported only with the intention of evading the payment of tax under the pretext that the gold jewelries were carried to showcase the same to its customers, by misusing the provisions of Rules 138 and Rule 55 of the CGST Rules.

The bench stated that it is a bounded duty of the petitioner to file an appropriate reply and satisfy the department on the aspects of the various opinions formed against the petitioner as indicated in the impugned confiscation notice.

The petitioner/assessee is a Company incorporated under the provisions of the Companies Act, 1956. It operates a jewellery business and moves gold ornaments from Mumbai to Tamil Nadu for displaying to the potential re-sellers and at exhibitions. To manage these activities, the petitioner had appointed Sri Bala Vasavi Jewels and Gems, a Coimbatore-based agent (Agent), by virtue of agreement, to procure orders and handle logistics. The agreement subsists as on date.

The petitioner sent gold ornaments weighing 11,835.16 grams, valued at Rs.8.37 Crores, to the Agent with returnable delivery challans. The Agent displayed the jewellery across Tamil Nadu to solicit feedback before transporting the goods to Chennai.

The only intention of the petitioner was to display the jewellery at exhibition, where the re-sellers will participate and interact with the petitioner, which may possibly result in them placing orders with the petitioner.

The goods were moved from the Agents to Bhima Jewelery, Madurai, to display the goods and invite them for IIJS Show, which was scheduled to be conducted at Mumbai during the month of August, 2024.

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While returning to Chennai, the transport vehicle was stopped by the local police near Panruti and the gold ornaments were seized. After seizure of the gold ornaments, the statement of one Mr. Jayakrishnan was recorded in Form GST MOV-01 on 26.07.2024. The notice under Section 129(3) of the TNGST Act/CGST Act in Form GST MOV-07 was issued.

Rule 138(4) of CGST Rules, 2017, exempts the e-way bill, in the event if the goods were carried for exhibition or showcasing the samples to the customers, i.e., other than by way of sale. 

Rule 55 of CGST Rules permits the petitioner to carry the delivery challan with the goods without e-way bill. In such case, Since no sale was taken place, the goods were carried with the delivery challan, which is duly in accordance with the provisions of Rule 138(4) read with Rule 55 of the CGST Rules. The goods were carried only for display purpose and not for sale and thus, there is no need for any invoices.

The petitioner contended that the provisions of Section 130 of the TNGST Act may be invoked only if the goods were moved for the purpose of sale or supply. However, in the case on hand, the said provisions of the Act were wrongly invoked by the Officials. Therefore, he requests the Court to quash the impugned notice dated 02.08.2024.

The department contended that it is not that the impugned notice has been issued under Section 130 of the CGST Act without any prima facie materials or evidences as contended by the petitioner. Hence, prior to the issuance of notice under Section 130 of CGST Act, for confiscation of goods, the Officials were fully satisfied and formed a clear cut opinion that the goods were transported for the purpose of sale with the intention to evade the payment of Tax (GST and Income Tax). 

Findings By The Dept.

The suspicion of the Department with regard to the evading of tax stands confirmed with the materials, information and evidences, which were collected during the course of inspection conducted at the business premises of the petitioner by Chennai-01 (Intelligence) Officials on the following aspects:

During the inspection of Business Place of Tvl. Mukti Gold Private Limited at Chennai no stock of Gold was present.

The Business had no cash. The lockers were found to be empty. The tax payer is having more than hundred crores turnover and such a stock/ cash situations is dubious.

A notice was displayed outside the Business place that it is closed for 26.07.24 to 29.7.24 for which no valid reason was given by the Staff. The Business place was opened by Manager on 27.07.24 and inspections were commenced.

There were many carbon papers for which second copies were not traceable at the business place.

One of the staff Thiru. Saurabh turned up only last day with the Gold. It was informed that he had taken leave but a statement has been recorded that he was visiting Business places for showing Gold.

The House search of Ritesh, Manager and Saurabh was made and no incriminating documents could be collected.

The copies of Quotations, Delivery Slips etc., were not traceable at the business place.

The DVR of CCTV camera of Tvl. Mukti Gold Private Limited was under repair. The DVR was collected from one Vijay, CCTV repairing person by the Roving Squad officials. On verification the Hard Disk was empty. The Data Retrieval person retrieved the deleted data and found that the Hard Disk was a new one and not related to Tvl. Mukti Gold Private Limited. The CCTV camera was fixed only in October 2023 and there was distant possibility of Hard Disk getting repaired.

It is suspected that subsequent to retention of Gold at Cuddalore without documents, Tvl. Mukti Gold Private Limited, Chennai had removed all the incriminating documents at Chennai Office and has also removed the CCTV footage. On subsequent call made to DVR repair person Vijay it was informed by him that he had trashed the old Hard Disk. The earlier statement made him and his current version was contradictory.

The Statement recorded at Tvl. Mukti Gold Private limited regarding goods movement has contradictory versions from each of the involved person.

On verification of System Data it was made clear that the Delivery Challan and Receipt Challan are both made by Tvl. Mukti Gold Private Limited. The person who is moving the Gold or commission agent is not making any Documents. The Receiver is making documents for the person bringing the Gold. The receiver is just passing matching Documents in the system to equalize the stock.

There is every possibility of sales suppression with goods movement in the name of receipt and issue. The absence of packing list confirms this suspicion.

Conclusion

The court stated that as far as the over-riding effect of Section 129 of TNGST Act over Section 130 of the of TNGST Act due to the non-obstante clause is concerned, it would be applicable with regard to the detention and seizure of goods and not for the confiscation, i.e., the non-obstante clause available in Section 129 would be applicable only for the seizure. 

In other words, if there is any provision contained in the Act with regard to the seizure in any other manner, Section 129 will supersede over the same. Therefore, as far as confiscation is concerned, the said non-obstante clause available in Section 129 will not supersede the provisions of Section 130, since Section 129 only talks about the seizure of the goods and not about confiscation. Thus, both these Sections are independent in nature.

The court dismissed the writ petition.

Case Details

Case Title: Mukti Gold Private Limited Versus State Tax Officer

Case No.: W.P.No.23047 of 2024 and W.M.P.Nos.35135 & 35136 of 2024

Date: 27.01.2025

Counsel For Petitioner: Senior Advocate Vijay Narayan

Counsel For Respondent: Additional Government Pleader C.Harsha Raj 

Mariya Paliwala
Mariya Paliwalahttps://jurishour.in/
Mariya is the Senior Editor at JurisHour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.

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