Facts of the Case

The petitioner, M/S New India Traders, a proprietorship concern, was transporting scrap iron from its business premises in Bareilly to M/s Wave Industries Private Limited, Amroha, along with a tax invoice, e-way bill and other transport documents on 04.08.2022. On interception and physical verification, the mobile squad found that the weight recorded in the e-way bill was higher than the actual weight of the goods. A show cause notice was issued the same day, and the Assistant Commissioner, Mobile Squad-3, SGST, Bareilly passed a penalty order under the Goods and Services Tax Act, 2017 imposing a penalty of Rs. 1,70,860. The petitioner's appeal against this order was dismissed by the Additional Commissioner, Grade-2 (Appeal), Bareilly on 30.01.2023, prompting two connected writ petitions before the Allahabad High Court (Writ Tax No. 527 of 2023, treated as the leading case, along with Writ Tax No. 529 of 2023), entertained because no GST Appellate Tribunal had yet been constituted in Uttar Pradesh.

Issues Involved

  1. Whether a penalty could be sustained where the e-way bill showed a higher weight than the goods actually found on physical verification.
  2. Whether the appellate authority could draw an adverse inference — that the petitioner had issued two tax invoices bearing the same number — without prior notice to the petitioner.
  3. Whether the orders violated the principles of natural justice.

Petitioner's Arguments

  • The discrepancy arose purely from a clerical error by the petitioner's accountant while generating the tax invoice and e-way bill, and the correct weight was rectified before the goods left their originating place.
  • The corrected tax invoice and e-way bill were produced along with the reply to the show cause notice, before the goods were detained and seized, yet the authorities ignored this compliance.
  • The appellate authority, for the first time, drew an adverse inference that the petitioner had issued a fresh tax invoice bearing the same number (No. 33) to suggest an intent to evade tax, without ever putting the petitioner to notice or affording an opportunity to rebut this specific allegation.
  • The writ petitions should be allowed as the penalty and appellate orders were passed without due process.

Respondent's Arguments

  • Tax invoice No. 33 and the corresponding e-way bill had, in fact, been generated a day prior to the movement of goods.
  • Once the goods were detained, the petitioner generated a fresh tax invoice bearing the same number, with the weight corrected in both the invoice and the e-way bill, to accompany the goods.
  • This conduct showed an intention to evade tax and was in contravention of the provisions of the Act, justifying the penalty and its confirmation in appeal.

Court Order/Findings

  • The Court held that where the e-way bill recorded a higher weight than what was actually found on physical verification, no adverse inference could be drawn against the petitioner on that ground alone.
  • It reiterated its consistent view that where corrected documents are produced after issuance of a show cause notice but before the seizure order, no adverse inference should ordinarily follow.
  • The Court found that the appellate authority could not draw a fresh adverse inference regarding the duplicate invoice number without first informing the petitioner and giving it an opportunity to rebut the allegation — doing so violated the principles of natural justice.
  • Both the original penalty order dated 04.08.2022 and the appellate order dated 30.01.2023 were quashed, the writ petitions were allowed, and the matter was remanded to the Additional Commissioner (Appeal) for a fresh decision after affording a full hearing to all stakeholders, preferably within three months of receipt of the certified copy of the order.

Important Clarification

  • A mismatch between the e-way bill weight and the actual weight found on physical verification, where the e-way bill overstates the weight, does not by itself justify an adverse inference of tax evasion.
  • Before an adjudicating or appellate authority relies on a new ground — such as the issuance of two invoices bearing the same number — to draw an adverse inference against the taxpayer, that ground must first be put to the taxpayer for a response.
  • Failure to do so amounts to a breach of natural justice, sufficient to have the order set aside even where an alternative appellate remedy exists.

Sections Involved

  • Goods and Services Tax Act, 2017 (Central and Uttar Pradesh) — governs the levy of GST, e-way bill compliance for movement of goods, and penalty/seizure proceedings for discrepancies detected in transit.
  • Provisions relating to the constitution of the GST Appellate Tribunal — non-constitution of the Tribunal in Uttar Pradesh was the ground on which the writ petitions were entertained directly by the High Court.

Decision – In Favour of

In favour of the Assessee. The Allahabad High Court quashed both the penalty order and the appellate order and remanded the matter for fresh adjudication, finding a clear violation of natural justice in the manner the adverse inference was drawn against the petitioner.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: Allahabad High Court
  • Case No.: WRIT TAX No. 527 of 2023 (with WRIT TAX No. 529 of 2023)
  • CNR: Not available on record (Neutral Citation No. 2023:AHC:200726)
  • Coram: Hon'ble Piyush Agrawal, J.
  • Decision Date: 17.10.2023
  • Disposal Nature: Allowed – impugned orders quashed and remanded

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