Supreme Court on GST Writ Petitions: Section 107 Appeal Is the Remedy – Commercial Steel [2021 INSC 441]

GST writ petition alternative remedy – Supreme Court ruling explained with headnote, key holdings, important paragraphs and FAQs.

The Supreme Court has held that a High Court should not have entertained a writ petition under Article 226 against a GST detention and the collection of tax and penalty when the taxpayer had a statutory appeal under Section 107 of the CGST Act and no recognised exception to the alternative-remedy rule applied. The Court said that an alternative remedy is not an absolute bar to a writ petition, but a writ can be entertained only in exceptional circumstances: breach of fundamental rights, violation of natural justice, excess of jurisdiction, or a challenge to the vires of a statute or delegated legislation. Because a notice had been served on the person in charge of the conveyance, there was no breach of natural justice, and the factual assessment belonged to the appellate authority. The Telangana High Court's order directing a refund with interest, recommending disciplinary proceedings and imposing costs was set aside. The writ petition was dismissed, and the taxpayer remains free to pursue its remedy under Section 107 (paras 11–13).

Headnote

Goods and Services Tax — Writ jurisdiction — Alternative statutory remedy — Detention of goods in transit and collection of tax and penalty — Writ petition under Article 226 not to be entertained where an appeal lies under Section 107 and no exception is made out — Central Goods and Services Tax Act, 2017, S. 107; Constitution of India, Art. 226

A registered dealer's consignment of iron and steel, bought from a Karnataka supplier on an invoice showing delivery at Balanagar, Telangana, was intercepted at Jeedimetala. The revenue suspected an attempt to sell the goods locally while evading SGST and CGST. A detention order was issued in Form GST MOV-06 and a notice was served on the person in charge of the conveyance. The dealer paid the tax and penalty, and the goods were released. The High Court, in a writ petition, ordered a refund with interest, directed the State to consider disciplinary proceedings against the Assistant Commissioner and imposed costs. — Held, (i) the existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226, but such a petition can be entertained only in exceptional circumstances, namely breach of fundamental rights, violation of the principles of natural justice, excess of jurisdiction, or a challenge to the vires of the statute or delegated legislation; (ii) none of these exceptions was established, and there was no violation of natural justice because a notice was served on the person in charge of the conveyance; (iii) the assessment of facts had to be carried out by the appellate authority, and the High Court had proceeded on the basis of surmises; (iv) the Supreme Court made no observation on the merits because it was relegating the respondent to the remedy under Section 107; appeal allowed, impugned order set aside, writ petition dismissed, and the respondent left free to pursue remedies under Section 107 of the CGST Act.

(Paras 3–7, 11–13)

Judgment Intelligence

Key Holdings

• A taxpayer aggrieved by a GST detention and the collection of tax and penalty has a statutory remedy by way of appeal under Section 107 of the CGST Act (para 11).
• The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution (para 11).
• A writ petition can nevertheless be entertained only in exceptional circumstances: (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation (para 11).
• None of these exceptions was established here. In particular, there was no violation of natural justice because a notice was served on the person in charge of the conveyance (para 12).
• The assessment of facts had to be carried out by the appellate authority, and the High Court, in undertaking that exercise itself, proceeded on the basis of surmises (para 12).
• Because the respondent was relegated to the statutory remedy, the Supreme Court made no observation on the merits of its case (para 12).
• The appeal was allowed, the High Court's order set aside and the writ petition dismissed, without barring the respondent from pursuing remedies under Section 107 of the CGST Act (para 13).

Brief Facts

The respondent, described in the judgment as a proprietary concern in the iron and steel business, is registered under the CGST Act, 2017 and holds a GST code. It bought goods from JSW Steel Limited, Vidyanagar, Karnataka, under a tax invoice dated 11 December 2019. The truck carrying the goods (registration No. KA 35 C 0141) was coming from Karnataka when it was intercepted at Jeedimetala on 12 December 2019 at 5.30 pm. The invoice showed delivery at Balanagar, Telangana. The appellants said Balanagar lies between Karnataka and Jeedimetala and that no reasonable person would pass Balanagar and then turn back to the destination. According to the tax invoices, the purchase value of the goods was Rs 11,14,579 (para 4). The revenue's case was that, under the guise of an inter-State sale, the respondent was trying to sell the goods in the local market while evading SGST and CGST. A detention order was issued in Form GST MOV-06 on 12 December 2019 and a notice was served on the person in charge of the conveyance. The respondent paid the tax and penalty, and the goods and conveyance were released on 13 December 2019 (para 5).

The respondent filed a writ petition under Article 226 challenging the detention order dated 12 December 2019 and the notice issued under Section 20 of the IGST Act, 2017, and sought a refund of the tax. The appellants filed a counter affidavit (para 6). The High Court allowed the petition. It held that a mere possibility of a local sale would not justify the action and that there was no material showing an attempt to deliver the goods elsewhere and sell them locally. It also reasoned that a driver from Karnataka, unfamiliar with the roads in Hyderabad, might have lost his way (para 7). The High Court set aside the collection of Rs 4,16,447 towards tax and penalty under the CGST and SGST Acts and directed a refund with interest at 6% per annum from 13 December 2019. It also directed the State of Telangana to consider initiating disciplinary proceedings against the Assistant Commissioner and imposed costs of Rs 25,000 on the first appellant (para 3).

Issue (para 8)

1. Should the High Court have entertained a writ petition under Article 226 against the detention of goods and the collection of tax and penalty, when the statutory alternative remedy of appeal under Section 107 of the CGST Act was available?
2. Did any of the recognised exceptions to the alternative-remedy rule apply on the facts?

Court's Findings

Submissions of the parties: The appellants (the State tax authorities) argued that the High Court was wrong to entertain the writ petition because a statutory alternative remedy existed under Section 107 of the CGST Act. They accepted that an alternative remedy is not an absolute bar to a writ petition, but said that none of the exceptions recognised by the Supreme Court's judgments applied. On merits, they argued that the High Court had proceeded on surmises. The respondent argued that, having entertained the petition, the High Court was justified on merits in setting aside the detention and the order under which tax and penalty were collected under duress, so no interference was warranted (paras 8–9).

Statutory remedy under Section 107: The Court set out Section 107 of the CGST Act in full. The section provides an appeal to the Appellate Authority by any person aggrieved by a decision or order of an adjudicating authority under the CGST, SGST or UTGST Acts, within three months of communication. It also contains provisions on condonation, pre-deposit and the deemed stay of recovery on payment of the pre-deposit. Its powers include confirming, modifying or annulling the order appealed against (para 10). The Court noted that the respondent had this statutory remedy but filed an Article 226 petition instead (para 11).

Limited exceptions to the alternative-remedy rule: The Court said that an alternate remedy is not an absolute bar to a writ petition. A writ petition can still be entertained in exceptional circumstances where there is a breach of fundamental rights, a violation of the principles of natural justice, an excess of jurisdiction, or a challenge to the vires of the statute or delegated legislation (para 11).

No exception made out; natural justice complied with: On the facts, none of the exceptions was established. There was no violation of natural justice because a notice had been served on the person in charge of the conveyance. In that setting it was not appropriate for the High Court to entertain the writ petition (para 12).

Fact-finding is for the appellate authority: The Court held that the assessment of facts would have to be carried out by the appellate authority, and observed that the High Court, in doing that exercise, had proceeded on surmises. Because the respondent was being relegated to its Section 107 remedy, the Court expressly made no observation on the merits of the respondent's case (para 12).

Final Outcome / Directions (paras 13–14)

• The appeal was allowed and the High Court's order dated 4 March 2020 was set aside (para 13).
• The respondent's writ petition stands dismissed (para 13).
• The respondent is not precluded from pursuing appropriate remedies under Section 107 of the CGST Act about the action taken by the State (para 13).
• No observation was made on the merits of the respondent's case (para 12).
• Pending applications, if any, stood disposed of (para 14).

Legal Principle

Where the CGST Act provides an appeal under Section 107 against a decision or order of an adjudicating authority, a High Court should not ordinarily entertain a writ petition under Article 226 to challenge that action. The alternative remedy is not an absolute bar, but a writ petition can be entertained only in exceptional circumstances: a breach of fundamental rights, a violation of the principles of natural justice, an excess of jurisdiction, or a challenge to the vires of the statute or delegated legislation. Where a notice has been served and the dispute turns on facts, such as whether goods in transit were really meant for an inter-State destination, the facts must be assessed by the statutory appellate authority, not by the writ court (paras 11–12).

Precedents Relied Upon

• No precedent is cited by name in the judgment. The Court refers generally to the exceptions "enunciated by the judgments of this Court" (as recorded in the appellants' submission at para 8) and states the four exceptions itself at para 11, without citing any specific decision.

Important Paragraphs of the Judgment

Para 11: "The respondent had a statutory remedy under section 107. Instead of availing of the remedy, the respondent instituted a petition under Article 226. The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution."

Para 11: "But a writ petition can be entertained in exceptional circumstances where there is: (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation."

Para 12: "In the present case, none of the above exceptions was established. There was, in fact, no violation of the principles of natural justice since a notice was served on the person in charge of the conveyance. In this backdrop, it was not appropriate for the High Court to entertain a writ petition."

Para 12: "The assessment of facts would have to be carried out by the appellate authority. As a matter of fact, the High Court has while doing this exercise proceeded on the basis of surmises."

Para 13: "… this shall not preclude the respondent from taking recourse to appropriate remedies which are available in terms of Section 107 of the CGST Act to pursue the grievance in regard to the action which has been adopted by the state in the present case."

What the Ruling Means: Practical Impact

• Appeal first for detention and penalty disputes: Taxpayers challenging GST detention of goods in transit, and the tax and penalty collected on release, should ordinarily file an appeal under Section 107 rather than go directly to the High Court under Article 226 (paras 11–13).
• Writ only within the four exceptions: A writ petition needs a breach of fundamental rights, a violation of natural justice, an excess of jurisdiction, or a vires challenge. A grievance that only disputes the officer's reading of the facts does not qualify (paras 11–12).
• Service of notice matters: Here, service of a notice on the person in charge of the conveyance was enough for the Court to find no violation of natural justice. That point is likely to be raised in later writ petitions against detention proceedings (para 12).
• Merits remain open: The Supreme Court did not endorse the department's view on merits. It made no observation on the merits and left the respondent free to raise its grievance before the appellate authority under Section 107 (paras 12–13).

Frequently Asked Questions

Can a writ petition be filed against a GST detention order instead of an appeal under Section 107?

Only in exceptional circumstances. The Court held that an alternate remedy is not an absolute bar, but a writ petition can be entertained only where there is a breach of fundamental rights, a violation of natural justice, an excess of jurisdiction, or a challenge to the vires of the statute or delegated legislation (para 11).

Why did the Supreme Court find no violation of natural justice in this case?

Because a notice had been served on the person in charge of the conveyance (para 12).

What had the Telangana High Court ordered, and what happened to that order?

The High Court had set aside the collection of Rs 4,16,447 towards tax and penalty, directed a refund with interest at 6% per annum from 13 December 2019, directed the State to consider disciplinary proceedings against the Assistant Commissioner and imposed costs of Rs 25,000 (para 3). The Supreme Court set that order aside and dismissed the writ petition (para 13).

Did the Supreme Court decide whether the detention and penalty were justified?

No. The Court relegated the respondent to its remedy under Section 107 and expressly made no observation on the merits, although it noted that the High Court had proceeded on the basis of surmises (para 12).

Can the taxpayer still challenge the action after this judgment?

Yes. The Court said the dismissal of the writ petition does not stop the respondent from pursuing appropriate remedies under Section 107 of the CGST Act about the State's action (para 13).

Judgment Copy

Judgment PDF: 2021 INSC 441 – Asst. Commissioner of State Tax v. M/s Commercial Steel Limited (official copy, sci.gov.in)

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