Understanding the Detention, Seizure, and Confiscation of Goods in Transit Under GST

A recent update from the Union Budget 2024 suggested an amendment to Section 17(5) of the CGST Act. This section, which addresses blocked credits, would have references to Sections 129 (dealing with the detention, seizure, and release of goods and conveyances during transit) and 130 (concerning the confiscation of goods or conveyances and penalty imposition) removed. This change will be effective upon notification by the CBIC.

Inspection of Goods During Transit

Goods transported by a registered individual, with a value exceeding Rs 50,000, must include an e-way bill. Authorized state or central officers are empowered to stop and inspect these goods while they are in transit. The individual managing the vehicle carrying these goods, valued over Rs 50,000, must possess all required documentation, such as an invoice and an e-way bill. Upon interception, both the goods and their accompanying documents are subject to inspection by the designated officer.

Detention and Seizure of Goods in Transit

Distinguishing Between Detention, Seizure, and Confiscation

Detention

Detention occurs when legal orders or notices prevent the owner from accessing their goods, though ownership remains with them. This action is typically taken when there's a suspicion that the goods might be subject to confiscation.

Seizure

Seizure involves the department actively taking physical possession of the goods. This can only happen after an inquiry or investigation confirms that the goods are indeed liable for confiscation.

Confiscation

Confiscation represents the final action, following a proper adjudication process. Once goods are confiscated, both their ownership and possession are transferred from the original owner to the government authority.

Penalties for Seized Goods

When goods are transported in violation of the GST Act, the goods, associated documents, and the transporting vehicle may be seized. These items are only released upon payment of the due tax and penalty. Two main scenarios determine the penalty:

• If the owner comes forward: A penalty equivalent to 100% of the tax amount will be levied.
• If the owner does not come forward: A penalty amounting to 50% of the goods' value before tax will be charged.

For exempted goods, the penalty is 2% of the goods' value (if the owner comes forward) or 5% of the goods' value (if the owner does not come forward), or Rs. 25,000, whichever amount is less. The table below illustrates the penalty calculations:

As demonstrated, the penalty is significantly higher if the owner fails to come forward. The involved party also has the option to provide a security deposit covering the payable amount.

Procedure for Seizing Goods in Transit

The detention or seizure of goods and conveyances is initiated by issuing a detention order to the person transporting them. Following the detention, the tax officer will issue a notice detailing the tax payable and subsequently pass an order for the payment of both tax and penalty.

The affected party will be given an opportunity to be heard. Once the tax and penalty are paid, all liabilities related to the detention are resolved. If payment is not made within 7 days, the goods will be confiscated. This 7-day period may be shortened for perishable or hazardous goods.

Confiscation Under GST

Both the goods and the conveyance used for transport are subject to confiscation if a person:

• Supplies or receives goods in violation of GST provisions with the intent to evade tax.
• Cannot provide an explanation for the presence of seized goods.
• Supplies goods without being registered, despite being legally required to register.
• Breaches regulations specifically to evade tax.
• Uses any vehicle or conveyance to transport goods in contravention of GST provisions.

However, the vehicle may not be confiscated if its owner can prove that it was used without their knowledge. Penalties will also apply in each of the aforementioned scenarios.

For more detailed information on GST penalties, refer to our related article.

Before proceeding with confiscation, the tax officer must offer the option to pay a fine in place of confiscation.

Fine in Lieu of Confiscation

The minimum fine aligns with the penalties mentioned earlier: 100% of the tax if the owner steps forward, or 50% of the goods' pre-tax value if the owner does not. The maximum fine is capped at the market value of the goods before tax. For the confiscation of a vehicle, its owner will be given the option to pay a fine equal to the tax payable on the goods. It is important to note that a fine paid in lieu of confiscation does not exempt the party from other applicable penalties. Additional taxes, charges, and penalties will still be due.

Goods will not be confiscated without a show-cause notice and an opportunity for the owner to be heard. Once confiscated, the goods become government property. A three-month period is granted for the payment of the confiscation fine, after which the goods will be sold. Confiscation does not preclude other punishments under GST provisions; all other penalties and potential prosecutions remain applicable.

For further reading, explore articles on inspection, search, and seizure under GST, prosecution under GST, and arrest under GST.