Recently, in a significant ruling concerning GST enforcement procedures, the Supreme Court examined whether the mere payment of tax and penalty during goods detention absolves authorities from issuing a reasoned order under Section 129(3) of the CGST Act. The case, stemming from the detention of a consignment of arecanut during transit, raised a crucial question, does the deeming provision under Section 129(5) override the taxpayer’s right to appeal and procedural safeguards? Read on to see how the Court addressed this procedural vacuum and clarified the legal obligations of tax authorities.
Brief facts:
The case arose when M/s ASP Traders, a registered dealer in Red Arecanut from Karnataka, consigned 17,850 kg of dry Arecanut to M/s Diamond Trading Company in Delhi, accompanied by an E-Way bill. During transit, 7 bags went missing due to transhipment, reducing the quantity to 17,670 kg. The vehicle was detained by the Mobile Squad on the grounds of discrepancies, including a shortage in quantity and the alleged non-existence of the consignee. A notice was issued under Section 129(3) of the CGST Act, 2017. To secure the release of the goods, the appellant paid Rs. 7,20,440 towards IGST through Form GST DRC-03, and the goods were subsequently released under Form GST MOV-05. However, no final order under Section 129(3) was issued despite repeated requests. A writ petition filed before the Allahabad High Court was dismissed, with the Court holding that the proceedings stood concluded under Section 129(5), leading the appellant to approach the Supreme Court.
Contentions of the Appellant:
The appellant contended that a reasoned final order under Section 129(3) of the CGST Act is mandatory to enable the appellate remedy under Section 107, relying on the Circular, which requires issuance of Form GST MOV-09. It was submitted that the payment of Rs. 7,20,440 was made under protest due to business exigencies, and the absence of a protest option in Form GST DRC-03 should not affect their rights. The appellant argued that, irrespective of payment, the Respondent was legally bound to issue a final order in Form GST MOV-09 and upload the summary in Form GST DRC-07 as per Rule 142(5) and the CBIC Circular. The failure to do so, it was urged, violates Article 265 of the Constitution and undermines the right of appeal. It was further submitted that the authority's reliance on an alleged oral withdrawal, denied by the appellant, without considering the written reply, breached principles of natural justice.
Contentions of the Respondent:
The respondent contended that the proceedings were concluded under Section 129(5) of the CGST Act upon the appellant’s voluntary payment of tax and penalty via Form GST DRC-03, rendering a final order unnecessary. It was submitted that the appellant’s representative orally withdrew objections, leading to the release of goods under Form GST MOV-05. The respondent argued that the statutory scheme does not require further adjudication once payment is made. They further submitted that the appellant could have furnished security to contest the notice, and the High Court rightly declined to issue a mandamus.
Observation of the Court:
The Supreme Court emphasized the mandatory nature of passing a reasoned order under Section 129(3) of the CGST Act, 2017, even when payment is made, particularly when objections are filed. The Court clarified that “every show cause notice must culminate in a final, reasoned order” to safeguard the taxpayer’s right to appeal under Section 107. It rejected the respondents’ reliance on Section 129(5), which deems proceedings concluded upon payment, stating that “this deeming fiction cannot be interpreted to imply that the assessee has agreed to waive or abandon the right to challenge the levy.” The Court noted that “The term “conclusion” as used in Section 129(5) merely signifies that no further proceedings for prosecution will be initiated. It does not absolve the responsibility of the proper officer to pass an order concluding the proceedings. Therefore, the proper officer is duty-bound to pass a formal order in Form GST MOV-09 and upload a summary thereof in Form GST DRT 07 as mandated under Rule 142(5) and the Circular dated 13.04.2018, so as to enable the taxpayer to avail the appeal remedy as per law."
The Court addressed the respondent’s claim of voluntary payment, observing that “the GST payment portal permits payments only through Form GST DRC-03, which is automatically classified as a voluntary payment, and does not provide any mechanism for an assessee to indicate that the payment is being made under protest.” It held that “the payment made by the appellant in the present case cannot be treated as voluntary, and the absence of a mechanism to record protest should not operate to the detriment of the assessee, especially when objections were already on record and the payment was clearly necessitated by business exigences”. The Court further noted the lack of evidence for the alleged oral withdrawal of objections, stating that “as between a written reply and an oral submission contrary to such written submission/reply, the written reply would prevail.”
While referring to the case Kranti Associates (P) Ltd & Anr. v. Masood Ahmed Khan & Ors., the Court emphasized that “a quasi-judicial authority must record reasons to support of its conclusions” to ensure fairness, transparency, and accountability. It highlighted that “failure to issue a speaking order in response to a show cause notice creates a legal vacuum” and may violate Article 265 of the Constitution, which prohibits tax collection without legal authority. The Court also clarified that payment does not constitute waiver or acquiescence, as “there can be no acquiescence in tax” without express abandonment of rights, supported by Sha Mulchand & Co. Ltd. v. Jawahar Mills Ltd. and Bhau Ram v. Baij Nath Singh and Ors.. The respondent's reliance on Commissioner of Customs (Import) Mumbai v. Dilip Kumar & Co. and others was deemed misplaced, as the issue concerned procedural safeguards, not tax exemptions.
The decision of the Court:
In view of the above discussion, the Apex Court set aside the impugned judgment of the Allahabad High Court. It directed the concerned authority to pass a reasoned order under Section 129(3) of the CGST Act, 2017, in Form GST MOV-09, after affording the appellant an opportunity of hearing as required under Section 129(4). The summary of the order is to be uploaded in Form GST DRC-07 within one month from the date of receipt of the judgment. The appellant was granted liberty to pursue appropriate legal remedies against such an order.
Case Title: M/S Asp Traders Vs. State Of Uttar Pradesh & Ors.
Case No.: Civil Appeal No. 9764 of 2025
Coram: Justice J.B. Pardiwala, Justice R. Mahadevan
