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. The goods were transported by rail from West Bengal to Kanpur under proper invoices and documents. At Kanpur, the wagon was unloaded and the goods were further transported to Bazpur using two vehicles, for which e-way bills were duly generated. On 04.06.2023, when the vehicles were intercepted by the Assistant Commissioner, State Tax/Tax Officer, Mobile Squad, Rudrapur, it was found that they were not carrying delivery challans as required under Rule 55(5)(b) of the CGST/SGST Rules, 2017, even though invoices, e-way bills and bilty were available. Separate penalty orders dated 09.06.2023 were passed under Section 129 of the CGST/SGST Act for each vehicle, and the petitioner deposited the penalty amount on 10.06.2023 under protest. The petitioner challenged both orders and sought a refund, contending that the penalty was illegal since all substantive compliances, including e-way bills, had been met and only the delivery challan was missing — a mere procedural lapse without any element of tax evasion.

Issues Involved

  1. Whether non-carriage of a delivery challan alone, without any element of tax evasion, justifies invoking Section 129 of the CGST Act.
  2. Whether such a lapse should instead be dealt with under Section 122 of the Act, which does not carry a tax element.
  3. Whether the penalty imposed was disproportionate in light of Section 126 of the Act.

Petitioner's Arguments

  • Non-availability of delivery challan is a mere procedural irregularity under Rules 138A and 55(5)(b), with no element of tax evasion.
  • All information regarding the transaction was already available with GST authorities through the railway consignment and subsequently generated e-way bills.
  • Relied on Satyam Shivam Papers (affirmed by the Supreme Court), Daya Shanker Singh, Smart Roofing, Algae Labs and Varun Beverages to argue that technical breaches without intent to evade tax should not attract Section 129.
  • Circular No. 64/38/2018-GST clarifies that minor infractions should not invoke Section 129.

Respondent's Arguments

  • Procedural compliance under Rule 55 is mandatory and its vires were not under challenge.
  • Section 129 has an overriding, non obstante effect over other provisions and deals specifically with goods in transit.
  • Breach of procedural requirements cannot be condoned as it could facilitate leakage of revenue.

Court Order / Findings

  • The Court held that Section 129 was not automatically attracted merely because a document required under the Rules was missing.
  • Since e-way bills were generated, tax had been paid, and there was no evidence of any intention to evade tax, the case fell squarely within Section 122(xiv), which penalises non-production of documents without a tax element.
  • The impugned orders dated 09.06.2023 were set aside, and the GST authorities were directed to refund the amount deposited by the petitioner.
  • The respondent authorities were given liberty to proceed afresh under Section 122.

Important Clarification

  • The Court clarified that Sections 122, 129 and 130 operate in different fields: Section 122 applies for mere non-compliance without a tax element, Section 129 applies where tax payment is in question, and Section 130 applies where there is intentional evasion of tax.
  • Circular No. 94 issued by the Government of India also supports proceeding under Section 126 instead of Section 129 for typographical or minor errors.

Sections Involved

  • Section 122 of the CGST Act, 2017 — penalty for certain offences without a tax element, including transport of goods without cover of prescribed documents.
  • Section 126 of the CGST Act, 2017 — general disciplines relating to penalty, cautioning against penalising minor, rectifiable breaches without fraudulent intent.
  • Section 129 of the CGST Act, 2017 — detention, seizure and release of goods and conveyances in transit.
  • Section 130 of the CGST Act, 2017 — confiscation of goods where there is intent to evade tax.
  • Rule 55(5)(b) and Rule 138A of the CGST Rules, 2017 — documents to be carried during transportation of goods.

Decision – In Favour of

Petitioner. Both writ petitions were allowed, the penalty orders under Section 129 were quashed, and refund of the deposited amount was directed, with liberty to the department to proceed under Section 122.

Case Details

  • Court: High Court of Uttarakhand at Nainital
  • Case No.: Writ Petition (M/S) No. 2396 of 2023 with Writ Petition (M/S) No. 2399 of 2023
  • Coram: Hon'ble Ravindra Maithani, J.
  • Date of Order: 26.09.2023

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