The Kerala High Court has held that a bank guarantee furnished by a taxpayer to secure release of goods detained under Section 129 of the CGST Act cannot be invoked by the department before the three-month period for filing a statutory appeal under Section 107 expires.

Facts of the Case

The petitioner, Goldline Plywood, represented by its Managing Partner, had goods transported under a tax invoice dated 06.11.2021 and an e-way bill generated the same day. The goods were detained, and to secure their release the petitioner furnished a bond and a bank guarantee dated 10.11.2021 for Rs.1,03,680/- with Indian Overseas Bank, Perumbavoor. The first respondent, the Assistant State Tax Officer, subsequently passed an order dated 20.01.2022 under Section 129(3) of the CGST Act, 2017 in FORM GST MOV-09, confirming levy of tax and penalty, communicated by a summary of order dated 14.02.2022. Before the three-month period prescribed under Section 107 of the CGST Act for filing an appeal against the Section 129(3) order had expired, the first respondent directed invocation of the bank guarantee. Apprehending that this would render the appellate remedy redundant, the petitioner approached the High Court under Article 226.

Issues Involved

  1. Whether the GST authorities can invoke a bank guarantee furnished for release of detained goods under Section 129(3) before the expiry of the limitation period prescribed under Section 107 of the CGST Act for filing an appeal against the order confirming tax and penalty.

Petitioner's Arguments

  • The period stipulated under Section 107 of the CGST Act for filing an appeal is three months, and invoking the bank guarantee before its expiry would cause serious prejudice to the petitioner.
  • Premature invocation of the bank guarantee would render the statutory appellate remedy available under Section 107 redundant and defeat its purpose.

Respondent's Arguments

  • The learned Senior Government Pleader was heard on behalf of the department; the order records no substantive justification advanced for invoking the bank guarantee ahead of the expiry of the appeal period.

Court Order / Findings

  • The Court held that the interest of justice demands that the bank guarantee executed by the petitioner ought not to be invoked until the period for filing the appeal under Section 107 expires.
  • The first respondent was directed not to invoke the bank guarantee furnished pursuant to the Section 129(3) order until the statutory appeal period expires.
  • The petitioner was directed to necessarily keep the bank guarantee alive until the limitation period for filing the appeal expires.

Important Clarification

  • Security furnished by a taxpayer to secure release of goods detained under Section 129 — whether by bond or bank guarantee — cannot be invoked or encashed by the department before the statutory period for filing an appeal under Section 107 against the underlying order has run out.
  • The taxpayer, correspondingly, must keep such security alive and valid through the limitation period so that the appellate remedy remains meaningfully available.

Sections Involved

  • Section 129, CGST Act, 2017 — detention, seizure and release of goods and conveyances in transit; sub-section (3) provides for issue of notice and order (FORM GST MOV-09) confirming tax and penalty.
  • Section 107, CGST Act, 2017 — appeal to the appellate authority against orders passed under the Act, including the three-month limitation period.

Decision – In Favour of

The writ petition was disposed of with directions, in favour of the Assessee. The Kerala High Court restrained invocation of the bank guarantee until expiry of the Section 107 appeal period, while requiring the petitioner to keep the security alive through that period.

Case Details

  • Court: High Court of Kerala at Ernakulam
  • Case No.: WP(C) No.5453 of 2022
  • Coram: Hon'ble Mr. Justice Bechu Kurian Thomas
  • Date of Judgment: 17 February 2022
  • Parties: Goldline Plywood vs Assistant State Tax Officer & Ors.

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