Suspicion of Tax Evasion Justifies GST Confiscation Proceedings: Madras High Court Rejects Mukti Gold's Challenge

Authorities Have the Right to Act When Transportation of High-Value Goods Raises Doubts - Madras High Court, in a judgment dismissed the writ petition filed by Mukti Gold Private Limited, which had challenged the confiscation notice issued under Section 130 of the Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act) and Central Goods and Services Tax Act, 2017 (CGST Act). The company had contended that the seized gold ornaments worth ₹8.37 crore were being moved solely for display at exhibitions and not for sale, and that the confiscation notice was unjustified.

Rejecting this argument, Justice Krishnan Ramasamy ruled that the GST authorities were within their rights to suspect tax evasion when the company's transport records contained inconsistencies. Observing that tax compliance must be strict when moving high-value goods, the court stated: "When authorities find discrepancies in transportation records, lack of proper documentation, and contradictions in statements, they are fully justified in initiating confiscation proceedings. The petitioner's claim that the goods were being moved solely for display lacks sufficient supporting evidence."

"Failure to Justify Route Diversion and Missing Documentation Raises Questions"
The dispute arose when Mukti Gold transported 11,835.16 grams of gold ornaments from Mumbai to Tamil Nadu for exhibitions and potential resale. The company claimed that the jewelry was moved to its Coimbatore-based agent, Sri Bala Vasavi Jewels and Gems, for showcasing purposes.

On 26th July 2024, while the consignment was being transported back to Chennai, the local police intercepted the vehicle at Panruti and seized the gold. The GST authorities were informed, and an investigation followed. After reviewing the records, the authorities issued a confiscation notice under Section 130 of the TNGST/CGST Act on 2nd August 2024, suspecting that the goods were being moved with an intent to evade tax.

The company argued that under Rule 138(4) and Rule 55 of the CGST Rules, 2017, gold being transported for display at exhibitions does not require an e-way bill and can be moved with a delivery challan. However, the GST authorities pointed out multiple irregularities that raised suspicion of an attempt to avoid tax obligations.

"If the movement of goods was only for display, why was there a route diversion? The transport should have followed a direct route to Chennai, yet the vehicle was intercepted near Cuddalore, where no exhibition was planned. The petitioner failed to provide any valid explanation for this deviation," the court noted.

The authorities also questioned why the delivery challans did not include crucial details such as item descriptions, weight breakdowns, or recipient acknowledgments. Further suspicions arose when officials found that the petitioner's appointed agent lacked valid insurance coverage for the consignment.

The High Court remarked that these discrepancies warranted scrutiny and dismissed Mukti Gold's argument that its consignment was being unfairly targeted.

"Claim of Exhibition Purpose Cannot Be a Shield to Escape Tax Scrutiny"

The company had argued that it was merely showcasing jewelry to potential buyers and not making any sales, meaning no tax liability had arisen. However, the GST Department countered that without valid receipts, customer acknowledgments, or clear transport records, the claim of ‘display only’ was unverifiable.

Refusing to interfere in the confiscation notice at this stage, the High Court emphasized that tax officials have the authority to act if they find prima facie evidence suggesting non-compliance. The court ruled: "When a taxpayer moves high-value goods under questionable circumstances and fails to provide complete documentation, authorities have the right to act under GST laws. The petitioner must first present its case before the adjudicating officer rather than seeking premature judicial intervention."

"Judicial Review Cannot Override Tax Authorities’ Investigation When Prima Facie Evidence Exists"

Mukti Gold relied on previous Gujarat High Court judgments in Synergy Fertichem and Anant Jignesh Shah, which held that confiscation should not be based on mere suspicion. The Madras High Court, however, rejected this comparison, noting that in those cases, tax authorities had no material evidence, whereas in the present case, "the GST officials have uncovered contradictions in the transport details, raising legitimate concerns about tax evasion."

Concluding the matter, the court clarified that Mukti Gold is not precluded from contesting the confiscation before GST authorities and was granted 15 days to submit its reply to the confiscation notice. The tax department, in turn, was directed to independently adjudicate the matter after considering the company’s explanation.

Reaffirming that GST laws require strict compliance when transporting high-value goods, the Madras High Court ruled that businesses cannot claim exemption from tax obligations without clear documentation and proof of legitimate movement.
 

Date of decision: 27 January 2025