Writ Petition (M/S) Nos. 2396 and 2399 of 2023

Facts of the Case

M/s Prestress Steel LLP, engaged in manufacturing PC wires and galvanized steel wire, purchased raw material from Steel Authority of India Limited (SAIL), Kolkata, which was transported by railway wagon from West Bengal to Kanpur and thereafter moved by two trucks toward Bazpur under a validly generated e-way bill. On interception on 04.06.2023, the vehicles were found not to be carrying delivery challans as required under Rule 55(5)(b) of the CGST/State GST Rules, 2017. Separate penalty orders dated 09.06.2023 were passed for each vehicle under Section 20 read with Section 129 of the Act, and the petitioner deposited the demanded amount on 10.06.2023 before challenging both orders before the Uttarakhand High Court, also seeking a refund of the deposited sum.

Issues Involved

  1. Whether mere absence of a delivery challan, without more, could attract penalty proceedings under Section 129 of the Act.
  2. Whether, in the absence of any element of tax evasion, the appropriate provision was instead Section 122, dealing with minor procedural breaches.
  3. Whether Sections 129 and 130 of the Act are mutually exclusive of Section 122, and how they interrelate with Section 126's bar on penalising minor, rectifiable breaches.

Petitioner's Arguments

  • Counsel submitted that non-availability of the delivery challan was, at most, a procedural irregularity with no element of tax evasion, since the vehicles carried invoices, e-way bills and bilty, and all tax had already been paid.
  • Relying on Satyam Shivam Papers (affirmed by the Supreme Court), Daya Shanker Singh, Smart Roofing, Algae Labs, and Varun Beverages, it was argued that Section 129 requires an element of intent to evade tax, and Section 126 bars penalising minor, easily rectifiable breaches made without fraudulent intent.
  • It was submitted that Section 122(1)(xiv), dealing specifically with transporting goods without cover of specified documents, was the correct and proportionate provision, not Section 129.

Respondent's Arguments

  • The State argued that Rule 55 compliance is mandatory to prevent leakage of revenue, that Section 129 has an overriding non obstante clause dealing specifically with goods in transit, and that any deviation found during interception justified invoking Section 129 rather than the general Section 122.

Court Order / Findings

  • Undertaking a detailed statutory analysis, the Court held that Section 122 and Section 129 operate in different spheres — Section 129 requires an element connected to tax, while Section 122 addresses mere non-compliance with documentation requirements without an evasion element, and Section 130 requires actual intent to evade tax for confiscation.
  • Since there was no dispute that the e-way bill was properly generated, tax was fully paid, and every relevant detail was already available to the GST authorities, the Court found no evasion or intent to evade, making Section 129 inapplicable to a case of mere missing delivery challan.
  • Both writ petitions were allowed, the impugned penalty orders dated 09.06.2023 were set aside, and the GST authorities were directed to refund the amount deposited on 10.06.2023, while reserving liberty to the authorities to proceed instead under Section 122 of the Act.

Important Clarification

  • Sections 122, 129 and 130 of the GST Act address distinct categories of non-compliance — general documentary breaches, tax-linked detention of goods in transit, and confiscation for intentional evasion, respectively — and the appropriate provision must be matched to the facts rather than defaulting to the more stringent Section 129 for any interception.
  • Where an e-way bill is properly generated and taxes are fully paid, the mere absence of an accompanying delivery challan is a minor, rectifiable procedural lapse under Section 126, attracting Section 122 rather than the detention-and-penalty regime of Section 129.

Sections Involved

  • Section 129, CGST Act, 2017 — detention, seizure and release of goods and conveyances in transit, held inapplicable absent a tax-evasion element on these facts.
  • Section 122, CGST Act, 2017 — penalty for specified offences including transporting goods without cover of prescribed documents; held to be the correct provision.
  • Section 126, CGST Act, 2017 — bars penalty for minor breaches or easily rectifiable documentation errors made without fraudulent intent.
  • Rule 55(5)(b), CGST Rules, 2017 — requires a delivery challan for goods transported in batches or lots.

Decision – In Favour of

The decision is in favour of the assessee, with both penalty orders set aside, refund of the deposited amount directed, and the department left at liberty to proceed only under the milder Section 122 if it chooses.

Case Details

Court: High Court of Uttarakhand at Nainital
Case Number: Writ Petition (M/S) Nos. 2396 and 2399 of 2023
Coram: Hon'ble Mr. Justice Ravindra Maithani
Date of Order: 26.09.2023

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