Provisional Release of Seized Goods Remains Available Even After Section 130 Confiscation Proceedings Are Initiated: Gujarat High Court in Dhanlaxmi Metals Vs State of Gujarat
1. Background and Context
A significant question arising in GST enforcement practice concerns what happens to seized goods and conveyances once the department escalates proceedings from detention and seizure to formal confiscation. Specifically, the question is whether the assessee retains the right to seek provisional release of goods after a confiscation notice is issued under Section 130 of the Central/Gujarat Goods and Services Tax Act, 2017, or whether that right is extinguished by the very initiation of confiscation proceedings.
This precise issue came before the Gujarat High Court in Dhanlaxmi Metals Vs State of Gujarat (R/Special Civil Application Nos. 15680, 15682 and 16582 of 2021), decided on 28 July 2022 by a Division Bench of Justices N.V. Anjaria and Bhargav D. Karia. The Court's ruling has important practical consequences for assessees whose goods are detained during transit and against whom confiscation proceedings have been commenced.
2. Facts of the Case
The petitioners in these consolidated matters had consignments accompanied by valid tax invoices and e-way bills. Despite this, the goods and conveyances were detained and orders were issued in Form GST MOV-06 under Section 129 of the GST Act. Subsequently, the department issued show cause notices in Form GST MOV-10 under Section 130, alleging that the transactions were tainted by irregularities involving upstream vendors and that the entire supply chain was structured to facilitate tax evasion.
When the petitioners applied for provisional release of the seized goods and conveyances by letter dated 30 September 2021, the respondent authority rejected their application by an order dated 11 October 2021. The ground for rejection was straightforward but sweeping: once proceedings under Section 130 had been initiated, provisional release was no longer available. The petitioners challenged both the detention orders and the refusal to grant provisional release, and the High Court took up the limited but critical question of whether provisional release could be granted during the pendency of confiscation proceedings.
3. Statutory Framework: Seizure, Detention and Confiscation Provisions
To appreciate the Court's reasoning, it is necessary to understand how the relevant provisions interact.
(i) Section 67: Inspection, Search and Seizure at Premises
Section 67(2) of the GST Act empowers a proper officer, not below the rank of Joint Commissioner, to authorise search and seizure of goods liable to confiscation or documents relevant to proceedings under the Act. The provision governing provisional release of such seized goods is Section 67(6), which reads:
"The goods so seized under sub-section (2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be."
The use of the word "shall" in Section 67(6) is significant — it was a central plank of the petitioners' argument and the Court's ultimate finding.
(ii) Section 129: Detention and Seizure of Goods in Transit
Section 129(1) of the GST Act (as it stood prior to amendment) provides that where any person transports or stores goods while they are in transit in contravention of the Act or the rules, all such goods and the conveyance used to carry them shall be liable to detention or seizure. Release is permissible upon payment of specified penalties or upon furnishing equivalent security.
Crucially, Section 129(2) provided that:
"The provisions of sub-section (6) of section 67 shall, mutatis mutandis, apply for detention and seizure of goods and conveyances."
This cross-reference imported the provisional release mechanism of Section 67(6) into the transit seizure context as well.
(iii) Section 130: Confiscation of Goods or Conveyances
Section 130(1) of the GST Act (as it existed prior to amendment) provides:
"Where any person— (i) supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or (ii) does not account for any goods on which he is liable to pay tax under this Act; or (iii) supplies any goods liable to tax under this Act without having applied for registration; or (iv) contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or (v) uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance, then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122."
Importantly, Section 130 is a substantive provision that specifies the circumstances in which confiscation is warranted. It does not, by itself, confer any independent power to seize goods. This distinction proved decisive in the Court's analysis.