Provisional Release Not Prejudice Revenue Interests: Kerala High Court Permits Provisional Release of Seized Goods Under GST Act

Provisional Release Pending Adjudication Does Not Prejudice Revenue Interests – Kerala High Court addressed the question of provisional release of goods seized under the Central Goods and Services Tax Act, 2017 (GST Act) during confiscation proceedings under Section 130. The Court held that provisional release of goods is permissible even during adjudication, provided the owner complies with stipulated conditions.

Shish Jewels Private Limited, a Gujarat-based jewelry dealer, filed two writ petitions challenging the seizure of diamond-studded gold jewelry weighing approximately 3.8 kilograms. The seizure occurred during a search at the premises of Dubai Gold and Diamonds in Kerala, where the goods were displayed for marketing. The petitioner claimed the goods were accompanied by valid delivery challans under Rule 55(1)(c) of the GST Rules, 2017, and were not subject to any tax evasion attempts.

Provisional release of goods under Section 67(6) of the GST Act.

Quashing of a show cause notice issued under Section 130 for confiscation of goods.

The GST Department argued that Section 130 did not permit provisional release and that the seizure was justified to protect revenue interests pending adjudication.

The Court observed that Section 67(6) allows provisional release of seized goods upon execution of a bond and payment of applicable taxes, interest, and penalties. It stated:

"The intention of the GST Act is not to indefinitely retain goods but to secure their value. Provisional release ensures that business continuity is not unnecessarily disrupted while safeguarding revenue."

The Court clarified that provisional release under Section 67(6) does not conflict with confiscation proceedings under Section 130:

"Even if confiscation is ultimately ordered, the owner of goods has the option to pay a fine in lieu of confiscation under Section 130(2). Interim release merely ensures that goods are not held unused for prolonged periods."

Citing decisions such as Golden Traders v. Assistant State Tax Officer and Dhanlaxmi Metals v. State of Gujarat, the Court emphasized that the GST Act prioritizes securing revenue over physical custody of goods:

"The legislature’s intent is to protect revenue interests, not to indefinitely hold goods as a means of enforcement."

The Court acknowledged the petitioner's argument that prolonged seizure of goods adversely affected business operations and infringed upon their right to property under Article 14 of the Constitution.

The Court allowed provisional release of the seized goods, directing the petitioner to: Deposit a penalty and fine of ₹2.93 crore as quantified in the show cause notice. Execute a bond for the value of the goods. The Court also declined to quash the show cause notice under Section 130, noting:

"The legality of the seizure and the allegations of contravention under the GST Act must be determined during adjudication."

This judgment reaffirms the principle that the GST Act seeks to balance the protection of revenue interests with ensuring minimal disruption to legitimate business operations. It highlights that interim relief, such as provisional release of goods, can be granted without prejudicing adjudication or recovery mechanisms.

Date of Decision: : January 6, 2025