Facts of the Case

M/s Kasturi Udyog (GSTIN 29AZPP0563IZU) transported cashew nut shell oil from Mangalore to Kolar under a tax invoice, e-way bill and stock transfer memo dated 04.04.2021. Due to a clerical oversight, the vehicle's registration number was mis-entered as KA-19 A-1413 instead of KA-19 AB-1413, and the goods were described as 'light blaze oil' with an incorrect HSN code instead of 'cashew nut shell oil'. When the vehicle was intercepted the same evening, the Commercial Tax Officer, Kolar, issued a notice under Section 129(3) of the KGST Act and, after considering the petitioner's objections, imposed a penalty of Rs.3,08,064/- by order dated 07.04.2021, which was affirmed in appeal on 23.11.2021.

Issues Involved

  1. Whether clerical/typographical errors — a single-letter vehicle registration mistake, an HSN code error, and a goods-description discrepancy — justify invoking the higher detention penalty under Section 129 rather than the general penalty under Section 125.
  2. How CBIC Circular No.64/38/2018-GST, which lists specific minor discrepancies (including 'error in one or two digits/characters of the vehicle number' and HSN errors where the first two digits are correct) that should attract only a nominal Section 125 penalty, applies to such facts.
  3. Whether the impugned penalty orders should be set aside and replaced with the lower general penalty, with a consequential refund direction.

Petitioner's Arguments

  • The petitioner contended that the discrepancies — omission of the letter 'B' in the vehicle number, an incorrect HSN code, and describing cashew nut shell oil as 'light blaze oil' — were purely clerical, bonafide, inadvertent errors, with no intention to evade tax, and that the goods shown in the e-way bill otherwise tallied with the goods actually intercepted.
  • Reliance was placed on CBIC Circular No.64/38/2018-GST, which specifically lists 'error in one or two digits/characters of the vehicle number' and certain HSN-level errors among situations where Section 129 proceedings should not be invoked at all, and only a nominal Rs.500 (Rs.1000 under IGST) penalty under Section 125 should be imposed per consignment.
  • The petitioner also relied on a string of precedents — including a Division Bench ruling in Hysum Steel (applying the same Circular), the Telangana High Court's Kamalesh Steels, the Madras High Court's R.K.Motors, and the Gujarat High Court's Synergy Fertichem — all holding that mere technical or minor documentary defects, without any indication of intent to evade tax, cannot justify Section 129 detention and penalty.

Respondent's Arguments

  • The learned AGA for the respondents submitted that there was no merit in the petition and that the impugned penalty orders, passed after considering the petitioner's objections, were liable to be sustained.

Court Order / Findings

  • The Court extensively analysed CBIC Circular No.64/38/2018-GST, reaffirming — as it had recently done in Hysum Steel — that the Circular directs authorities not to paint all documentary violations with the same brush, distinguishing serious/substantive contraventions from minor/procedural ones, the latter attracting only a nominal general penalty under Section 125.
  • Finding that the goods shown in the e-way bill tallied with the goods actually intercepted and inspected, and that the discrepancies in the vehicle registration number, HSN code and goods description were bonafide, inadvertent clerical errors rather than indicators of any intent to evade tax, the Court held that these were minor discrepancies falling squarely within the situations listed in the CBIC Circular that warrant only the general penalty under Section 125 of the KGST Act, and not the higher detention penalty under Section 129.
  • The Court allowed the petition, set aside both the original penalty order dated 07.04.2021 and the appellate order dated 23.11.2021, held the petitioner liable to pay only a general penalty of Rs.25,000/- under Section 125, and directed the respondents to refund the entire penalty already collected (after deducting the Rs.25,000/-) within six weeks.

Important Clarification

  • CBIC Circular No.64/38/2018-GST creates a clear, judicially-enforced distinction: genuinely minor and listed documentary discrepancies (vehicle number errors of one or two characters, certain HSN-level mismatches, spelling errors, pin-code errors) must be treated with a nominal Section 125 general penalty, not the far heavier Section 129 detention-and-tax-plus-penalty regime.
  • Courts across multiple High Courts — Karnataka, Telangana, Madras and Gujarat — have converged on the principle that Section 129/130 action is warranted only where there is a genuine, demonstrable intent to evade tax, not for bonafide clerical slips where the underlying goods and tax position otherwise match the accompanying documents.
  • Where such disproportionate penalty has already been recovered, courts will direct a refund of the excess over the correctly-computed general penalty, together with a mandated compliance timeline for the refund.

Sections Involved

  • Section 129 of the Central/Karnataka Goods and Services Tax Act, 2017 – governs detention, seizure and release of goods and conveyances in transit for contraventions, held wrongly invoked for minor clerical errors.
  • Section 125 of the CGST/KGST Act, 2017 – the general penalty provision, held to be the correct and proportionate penalty for minor documentary discrepancies.
  • CBIC Circular No.64/38/2018-GST dated 14.09.2018 – lists specific minor discrepancies exempting a consignment from Section 129 proceedings, central to the ruling.
  • Rule 138A/138 of the CGST Rules, 2017 – governs the e-way bill and accompanying documentation requirements for goods in transit.

Decision – In Favour of

In favour of the assessee — the disproportionate Section 129 penalty was quashed and replaced with a modest general penalty under Section 125, with a refund of the excess amount directed.

Case Details

Court: High Court of Karnataka at Bengaluru
Case No.: WP No. 6336 of 2022 (T-RES)
Coram: Hon'ble Mr. Justice S.R. Krishna Kumar
Date of Order: 06.11.2025

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