Introduction:

In the case of Nikhil Ayyappan v. State of Kerala, WP(C) No. 19789 of 2025, cited as 2025 LiveLaw (Ker) 371, the Kerala High Court, through Justice Ziyad Rahman A.A., addressed a significant question under the Goods and Services Tax (GST) Act: whether goods confiscated under Section 130 of the CGST Act can be released to the assessee while an appeal against the confiscation order is pending, provided the goods have not yet been auctioned. The matter arose when the petitioner, an assessee, dispatched certain scrap materials through a conveyance which was intercepted by the Enforcement Officer during transit. Observing irregularities, the officer initiated proceedings under Section 130 of the CGST Act, culminating in a confiscation order determining a fine in lieu of confiscation at Rs.10,82,539/- each under the CGST and KSGST Acts, and providing an option for release of the goods upon payment of the fine within three months. The assessee, unable to meet the deadline, appealed the order, but was later served a notice warning of imminent auction of the confiscated goods unless he produced a stay order from the appellate authority. Aggrieved by this notice and fearing irreparable loss, the petitioner approached the High Court seeking relief.

Arguments:

Counsel for the petitioner, advocates Salim V.S., K. Muhammed Thoyyib, A.M. Fousi, and A.B. Ajin, argued that since an appeal against the confiscation order had already been filed, selling the goods during the pendency of appeal would render the appeal infructuous and cause irreparable injury to the assessee’s rights. They contended that although the period granted for payment of the fine had expired, the law did not mandate automatic auction upon expiry, especially when the auction had not yet occurred, and the department retained possession of the goods. The petitioner emphasized that under principles of natural justice and fair opportunity, the assessee should be allowed to pay the fine in lieu of confiscation even belatedly, as long as the goods remained unsold.

On the other hand, counsel for the department, Muhammed Rafiq, opposed the plea by drawing the Court’s attention to the statutory language of Section 130 of the CGST Act, particularly sub-sections (2) and (7), arguing that the statute did not permit release of confiscated goods beyond the three-month period stipulated for payment of fine. He maintained that allowing release beyond statutory timelines would defeat the mandatory nature of the GST Act’s confiscation provisions, undermine the objective of deterring tax evasion, and set a precedent encouraging assessees to ignore compliance deadlines. The department argued that the statutory scheme of Section 130 contemplates a fixed opportunity window, after which the revenue authorities are entitled to proceed with auction to recover dues. It was further submitted that the Court should not exercise writ jurisdiction to modify statutory timelines in fiscal statutes, as these were designed to balance revenue interests and taxpayers’ rights, and discretionary relief beyond what the law provides would distort this balance.

Judgement:

Justice Ziyad Rahman, while acknowledging the department’s contention regarding the statutory stipulations of Section 130, examined whether denying the petitioner the chance to pay the fine in lieu of confiscation when the goods were admittedly still in the custody of the department and not yet auctioned would be justified. The Court noted that although the period for payment granted in the confiscation order had expired, the department had neither initiated nor completed the auction process, and thus, the goods continued to exist as realizable assets. The bench observed that the purpose of the three-month window in Section 130(7) was to provide the assessee a reasonable opportunity to reclaim goods by paying the fine, but the mere expiry of that period without auctioning the goods did not automatically extinguish the assessee’s right to make good the payment, especially when the appeal challenging the confiscation order was pending consideration. The Court highlighted that the GST regime, like any tax system, must balance efficient tax administration with principles of equity and fairness. In this context, the High Court held that forcing an auction of goods while an appeal is actively pending would effectively nullify the appellate remedy and preempt judicial scrutiny of the confiscation order’s legality, potentially causing irreparable harm to the assessee. Justice Rahman clarified that the department’s right to auction remains intact if the assessee defaults entirely or if the appeal fails, but until those outcomes are determined, the assessee cannot be denied the opportunity to comply with the payment condition of the confiscation order if the goods remain unsold. Referring to judicial precedents emphasizing protection of substantive rights during the pendency of statutory appeals, the Court found no legal or equitable justification to deny the petitioner’s request, particularly when the department itself admitted that the auction process had not yet commenced. Therefore, the Court directed the department to permit the petitioner to release the confiscated goods by paying the fine in lieu of confiscation as determined under the confiscation order, despite the expiry of the original period, since the appeal was pending and the goods had not been sold. The judgment underscored that such relief not only preserved the assessee’s appellate rights but also ensured that the department’s revenue interest was secured through payment of the determined fine, achieving a fair and balanced outcome. The Kerala High Court’s ruling thus reaffirmed that statutory provisions must be interpreted and applied in a manner consistent with principles of justice and that rigid adherence to procedural timelines cannot override the fundamental right to pursue statutory remedies through appeal. The Court’s intervention provided the petitioner a crucial opportunity to rectify his position and protect his commercial interests while upholding the integrity of the GST Act’s enforcement framework.