Facts of the Case

The petitioner challenged the appellate order dated 31.12.2021 whereby the Appellate Authority upheld the tax and penalty imposed by the Assistant Commissioner under Section 129(3) of the CGST Act.

The goods were being transported from Guwahati to New Delhi under a valid e-way bill. However, during transit, the original vehicle broke down, necessitating a change of vehicle. Although a fresh vehicle was arranged, the petitioner did not seek an extension of the e-way bill validity period. Consequently, when the goods were intercepted on 29.09.2020 at 3:40 A.M., the e-way bill had already expired.

Based solely on the expiry of the e-way bill, the authorities initiated proceedings under Section 129(3) of the CGST Act and demanded tax of ₹2,33,100 along with an equivalent penalty of ₹2,33,100. The petitioner paid the demanded amount immediately to ensure timely delivery of the goods but later challenged the demand before the appellate authority, which upheld the levy. Aggrieved thereby, the petitioner approached the Delhi High Court.

Issues Involved

  1. Whether tax and penalty under Section 129(3) of the CGST Act can be sustained merely because the e-way bill expired during transit.
  2. Whether the petitioner should be granted an opportunity to establish genuine reasons for the delay in transportation.
  3. Whether the authorities were required to consider Section 126 of the CGST Act relating to minor and rectifiable procedural lapses before imposing penalty.
  4. Whether the appellate order deserved to be set aside for fresh consideration.

Petitioner's Arguments

  • The delay occurred because the original vehicle transporting the goods broke down, requiring replacement with another vehicle.
  • There was no intention to evade payment of GST.
  • The tax relating to the goods had already been duly paid.
  • The only alleged violation was expiry of the e-way bill before completion of transportation.
  • The petitioner paid the tax and penalty immediately only to avoid further detention of the goods and ensure timely delivery.
  • The authorities failed to appreciate the genuine circumstances resulting in the delay and ignored the provisions of Section 126 of the CGST Act concerning rectifiable procedural mistakes.

Respondent's Arguments

  • The goods were intercepted after expiry of the validity period of the e-way bill.
  • Since the goods were not covered by a valid e-way bill at the time of interception, proceedings under Section 129(3) of the CGST Act were rightly initiated.
  • The show cause notice was issued in Form GST MOV-07 in accordance with law.
  • The tax and penalty imposed under the statutory provisions were correctly upheld by the appellate authority.

Court Findings / Order

The Delhi High Court observed that:

  • The entire demand arose only because the e-way bill had expired when the goods were intercepted.
  • There was no dispute that GST on the goods had already been paid.
  • The record did not indicate any intention on the part of the petitioner to evade tax.
  • The explanation that the original vehicle had broken down and another vehicle had been arranged required proper examination.
  • Since the petitioner paid the demand immediately to secure release of the goods, he could not effectively demonstrate the genuine reasons for the delay before the authorities.
  • The petitioner deserved another opportunity to establish that the delay in transportation occurred due to genuine circumstances.
  • While reconsidering the matter, the authority must also keep in mind the provisions of Section 126 of the CGST Act, which deal with omissions or documentation mistakes that are minor and easily rectifiable.

Accordingly, the High Court set aside the appellate order dated 31.12.2021 and remanded the matter to the Appellate Authority for fresh adjudication after granting the petitioner a proper opportunity to produce evidence and after considering Section 126 of the CGST Act.

Important Clarification

  • Mere expiry of an e-way bill does not automatically establish an intention to evade tax.
  • Genuine reasons causing delay in transportation deserve proper consideration before imposing penalty.
  • Authorities should examine whether the lapse is merely procedural and rectifiable under Section 126 of the CGST Act.
  • Payment of GST on the goods remains an important factor while determining whether penal action is justified.
  • The judgment reinforces the requirement of following principles of natural justice before sustaining tax and penalty under Section 129 of the CGST Act.

Sections Involved

  • Section 129(3), Central Goods and Services Tax Act, 2017
    • Detention, seizure and release of goods and conveyances in transit.
  • Section 126, Central Goods and Services Tax Act, 2017
    • General disciplines relating to imposition of penalty for minor breaches and procedural lapses.

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785569880_2547compressed.pdf 

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