Facts of the Case

The petitioner, M/s. Macmet Engineering Limited, was engaged as a subcontractor by ITD Cementation India Limited for execution of a conveyor system project for TANGEDCO. For execution of the project, the petitioner procured specialized pipe conveyor belts from Phoenix Conveyor Belt India Private Limited, West Bengal.

The transaction was structured under the 'Bill To – Ship To' model, wherein the supplier issued invoices to the petitioner while dispatching the goods directly to the project site in Tamil Nadu.

Out of 34 consignments, 14 had already reached the project site. Five consignments were intercepted by the GST Intelligence Wing during transit on the allegation that the drivers were not carrying the invoice corresponding to the 'Ship To' transaction and that the documentation did not properly reflect the triangular transaction.

The authorities detained the vehicles under Section 68(3) read with Section 129 of the CGST Act, 2017, alleging violation of GST documentation requirements and imposed penalty. Aggrieved by the detention and penalty orders, the petitioner approached the Madras High Court.

Issues Involved

  • Whether detention of goods was justified merely because the consignee's name was incorrectly mentioned in the invoice under a 'Bill To–Ship To' transaction.
  • Whether such documentation error amounted to tax evasion attracting detention and penalty under Sections 68 and 129 of the CGST Act, 2017.
  • Whether the Roving Squad could undertake valuation, classification, and penalty proceedings instead of forwarding the matter to the jurisdictional assessing officer.

Petitioner’s Arguments

The petitioner contended that:

  • The entire movement of goods was genuine and formed part of an EPC project for TANGEDCO.
  • All GST registrations, invoices, purchase orders, e-way bills, Letter of Intent, and contractual documents were available.
  • The only mistake committed by the supplier was mentioning the petitioner's Tamil Nadu office instead of ITD Cementation India Limited as the consignee, although the delivery location was correctly reflected.
  • Prior to interception, the petitioner had already generated and uploaded its own GST invoices in favour of ITD Cementation India Limited.
  • There was absolutely no intention to evade tax and no revenue loss to the Government since IGST was payable on the transaction.
  • The error was merely clerical and rectifiable and should be treated as a minor breach under Section 126 of the CGST Act.
  • The Roving Squad had no jurisdiction to undertake valuation and impose penalty, particularly when the issue involved interpretation of documents and the nature of transaction.
  • Reliance was placed upon earlier judicial precedents including Jeyyam Global Foods Pvt. Ltd., N.V.K. Mohammed Sulthan Rawther & Sons, and K.P. Sugandh Ltd..

Respondent’s Arguments

The Commercial Taxes Department submitted that:

  • Under the 'Bill To–Ship To' mechanism, two separate invoices are mandatory.
  • At the time of interception, the transporters carried only one invoice and failed to produce the second invoice corresponding to the 'Ship To' transaction.
  • The documentation produced during personal hearing could not cure the original defect existing during transportation.
  • The transaction violated the prescribed GST documentation requirements, thereby disrupting the taxation chain.
  • The mistake could not be treated as a minor clerical error because it affected the proper flow of tax.
  • Since the petitioner violated the GST provisions, detention and penalty under Section 129 were legally justified.
  • The petitioner ought to have preferred a statutory appeal instead of filing writ petitions before the High Court.

Court Order / Findings

The Madras High Court allowed the writ petitions and held that:

  • The project, contractual documents, purchase orders, GST registrations, invoices, and transportation records clearly established the genuineness of the transaction.
  • The only defect noticed was that the supplier inadvertently mentioned the petitioner's name instead of ITD Cementation India Limited as consignee.
  • The place of delivery, GSTIN, invoice particulars, e-way bill details, and all other essential particulars were correctly available.
  • The petitioner had already uploaded the relevant GST invoices on the GST portal even before interception.
  • There was no material indicating any intention to evade tax or cause revenue loss to the Government.
  • The discrepancy was a rectifiable documentation error and not a case of fraudulent transportation.
  • The Roving Squad exceeded its jurisdiction by undertaking valuation, computing freight, estimating profit margins, and imposing penalty instead of forwarding the matter to the jurisdictional assessing officer.
  • Questions relating to classification, valuation, and detailed adjudication must be decided by the jurisdictional assessing authority and not by the Intelligence Wing during interception proceedings.

Accordingly, the Court:

  • Quashed the detention orders.
  • Directed the authorities to forward the entire records to the jurisdictional assessing officer.
  • Directed the petitioner to execute an appropriate bond towards the proposed demand and penalty to safeguard revenue.
  • Directed the jurisdictional assessing officer to decide the matter independently after granting adequate opportunity of hearing.

Important Clarification

This judgment reiterates that:

  • A genuine 'Bill To–Ship To' transaction cannot be penalized merely because of a clerical error in the consignee's name.
  • Minor documentation discrepancies, without any evidence of tax evasion or revenue loss, do not justify detention of goods under GST.
  • GST authorities must distinguish between technical defects and intentional tax evasion.
  • The Roving Squad cannot assume the role of the jurisdictional assessing authority by determining valuation, classification, and tax liability during interception proceedings.
  • Genuine business transactions supported by complete documentary evidence deserve substantive consideration rather than penal action based on technical mistakes

Sections Involved

  • Article 226 of the Constitution of India
  • Section 31 of the CGST Act, 2017
  • Section 68 of the CGST Act, 2017
  • Section 126 of the CGST Act, 2017
  • Section 129 of the CGST Act, 2017
  • Section 20 of the IGST Act, 2017
  • Rule 138A of the CGST Rules, 2017

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785403138_2380compressed.pdf

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