After HC order: State tax dept reinforces authorities’ power to seize undervalued goods

: The state tax department has issued a circular reinforcing tax officials’ authority to seize goods transported with undervalued invoices, following a key judgment by the Allahabad high court.

The judgment also brings to the fore the rampant practice of pan masala/gutkha manufacturing units indulging in what the court said “organised tax evasion” in U.P.

On March 3, the court dismissed multiple writ petitions from traders dealing in pan masala and scented tobacco, upholding tax officials’ right to detain goods under Section 129 of the GST Act if their declared value is found to be deliberately understated.

A major factor in the ruling was a case where 3.84 lakh pouches of pan masala were declared at just ₹69,600—an amount the court deemed “grossly undervalued.”

In the cases reviewed, the court found that traders had intentionally undervalued their goods to take advantage of Rule 138, which dispenses with the requirement of e-way bills for goods valued below ₹50,000.

The court also took into account a truck driver’s statement contradicting the traders’ claim that the goods originated from West Bengal or Assam. Authorities verified through digital tracking that the vehicles never made the claimed journey.

The driver admitted that the goods had been loaded in Kanpur, despite documents claiming they originated from West Bengal or Assam. The court gave significant weight to this testimony, noting that the petitioners had “neither submitted any reply nor contradicted the statement made by the truck driver.

The court further observed that the petitioners failed to provide essential evidence such as truck numbers or toll receipts that could have proven the actual movement of goods from West Bengal/Assam to Kanpur, as claimed in their documentation.

The judgment highlighted the importance of correctly declaring the value of goods on tax invoices. According to Section 31 of the GST Act and Rule 46 of GST Rules, registered dealers must issue tax invoices showing true and correct values of transported goods.

“The intent of the legislature is that the registered dealer shall furnish the true and correct value of the goods on the tax invoice,” the court stated.

“But failing to declare the true value of the goods would result in the document being held not to be proper in the context of valuation.”

Upholding the seizure, the court characterized these cases as “glaring examples of organized tax evasion.” Investigations revealed that the goods in question were manufactured in Kanpur itself, with manufacturing details printed on the product packaging. Despite this, the traders attempted to create a paper trail suggesting the goods had been transported from West Bengal or Assam.

Verification by tax authorities through the e-Way Officer App showed no record of the vehicles in question traveling from West Bengal/Assam to Kanpur on the relevant dates, further undermining the traders’ claims.

The ruling confirms that the burden of proof lies with traders to establish the true movement of goods and their actual value

“This judgment aligns with previous rulings, including those from the Division Bench in the case of Shiv Shakti Trading Company and from the coordinate Bench in the case of Radha Fragrance, which established that seizure can be made on grounds of deliberate undervaluation intended to avoid tax payment,” a senior state tax official said.

“State tax commissioner Nitin Bansal has instructed all tax officials to familiarize themselves with this significant judgment and ensure compliance across their jurisdictional areas,” he said.