In a significant development, the state tax department has issued a circular to reinforce the authority of tax officials to seize goods transported with undervalued invoices, following a pivotal judgment by the Allahabad High Court. The court’s decision came in light of evidence of organized tax evasion, particularly among pan masala and gutkha manufacturers in Uttar Pradesh.
On March 3, the Allahabad High Court ruled against multiple traders dealing in pan masala and scented tobacco, who had filed writ petitions challenging the detention of their goods. The court upheld the tax officials’ right under Section 129 of the GST Act to detain goods if found to be deliberately undervalued to evade taxes.
A critical case highlighted during the court proceedings involved 3.84 lakh pouches of pan masala declared at merely ₹69,600, a figure deemed “grossly undervalued” by the judiciary. The court noted that traders had been exploiting Rule 138 of the GST Rules, which eliminates the need for e-way bills for goods valued under ₹50,000, by intentionally understating the value of their goods.
Further complications arose when a truck driver’s testimony contradicted the traders’ claims that the goods originated from West Bengal or Assam. Digital tracking confirmed that the vehicles had not made the journeys claimed, and the driver admitted the goods were loaded in Kanpur, contradicting the documentation provided.
The judgment stressed the necessity for traders to adhere to Section 31 of the GST Act and Rule 46 of the GST Rules, which require tax invoices to reflect the true and correct values of transported goods. The court underscored, “The intent of the legislature is that the registered dealer shall furnish the true and correct value of the goods on the tax invoice. 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.”
The verdict also aligns with previous court rulings that have similarly upheld seizures based on deliberate undervaluation intended to circumvent tax obligations. Investigations in the current cases revealed that the goods were actually manufactured in Kanpur, despite claims of their origin from West Bengal or Assam, and no travel records supported the traders’ assertions.
