Demand order u/s 129 of the CGST Act can’t be passed beyond the period of 7 days from the date of service of notice

The Madras High Court has ruled that demand orders issued under Section 129(3) of the CGST Act cannot be passed more than seven days after the notice of detention has been served. In a case involving Deepam Roadways, the court quashed a demand order because it was issued beyond this statutory timeframe. This decision reinforces the importance of adhering to the time limits set out in the CGST Act for issuing such orders.

The Hon'ble Madras High Court in the matter of Deepam Roadways v. the Deputy State Tax Officer and Ors. [W.P. No. 476 of 2023 and Ors. dated January 23, 2023] quashed the notice of detention of goods and the consequential demand order issued to the assessee, on the grounds that they were not in accordance with Section 129(3) of the Central Goods and Services Tax Act, 2017 ("the CGST Act"). Held that,the demand order passed beyond the period of seven days from the date of service of the notice, is contrary to Section 129(3) of the CGST Act.

Facts

This writ petition has been filed by Deepam Roadways ("the Petitioner"), challenging the detention of its vehicle and goods by the Revenue Department ("the Respondent") on October 26, 2022.

Further, within seven days of the detention, a Notice dated October 31, 2022 ("the Impugned Notice") was issued to the Petitioner. Consequently, an order dated November 10, 2022 ("the Impugned Demand Order") was passed under Section 129 of the CGST Act demanding an amount of INR 8,33,724/- towards payment of GST and penalty, after the expiry of seven days from the issuance of the Impugned Notice. 

The Petitioner contended that the Impugned Notice and the Impugned Demand Order were without jurisdiction and authority of law. Further, sought a direction to the Respondent to release the detained vehicle and goods.

Issue

Whether the Respondent adhered to Section 129(3) of the CGST Act while passing the Impugned Notice and the Impugned Demand Order?

Held

The Hon'ble Madras High Court in W.P. No. 476 of 2023 and Ors. held as under:

• Analyzed Section 129(3) of the CGST Act and noted that a notice of detention goods must be served by the proper officer within seven days of such detention and an order for payment of penalty must be passed within seven days of service of such notice.
• Observed that, the Impugned Notice was served within seven days of the detention of the vehicle and goods of the Petitioner, but the Impugned Order was passed after seven days of service of the Impugned Notice.
• Relied on its earlier judgments in a similar matter in the case of Udhayan Steels Private Limited v. Deputy Tax Officer (Int.) &Anr. [W.P.No.34268 of 2022dated December 28, 2022]and in the case of D.K. Enterprises v. the Assistant/Deputy Commissioner &Anr. [W.P.No.22646 of 2022 dated August 29, 2022] wherein, the Court set aside the proceedings and directed the release the vehicle/goods for being contrary to statutory requirements.Further, it was held that the order of detention passed beyond the time lines stipulated under Section 129(3) of the CGST Act, is a serious flaw, which vitiates the proceedings for interception in full and in entirety.
• Held that, the Impugned Demand Order passed beyond the period of seven days from the date of service of the Impugned Notice is contrary to Section 129(3) of the CGST Act.
• Quashed the Impugned Notice and the Impugned Demand Order.
• Directed the Respondent to release the detained vehicle and goods of the Petitioner within one week.

Relevant Provisions

Section 129 (3) of the CGST Act

"129. Detention, seizure and release of goods and conveyances in transit.–
...
(3) The proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1)."