The Goods and Services Tax Appellate Tribunal (GSTAT), Thiruvananthapuram Bench, has held that the seven-day time limit prescribed under Section 129(3) of the CGST/KGST Act, 2017 for passing an order imposing penalty on detained goods is mandatory.
The bench of Subramanya V. Rayaprol (Judicial Member) and Ramamoorthi Sriram (Technical Member) ruled that a penalty order passed beyond the statutory period is illegal and without jurisdiction.
The bench set aside the impugned appellate order and directed the Kerala State tax authorities to immediately release the bank guarantee furnished in connection with the detention proceedings.
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The case concerned transportation of automobile parts and spare parts in Kerala. On April 18, 2022, a vehicle carrying the goods was intercepted by the Assistant State Tax Officer, Mobile Squad IV, Kollam, at Punalur.
The consignment was accompanied by two tax e-invoices dated April 16, 2022. One invoice was for ₹3,41,952, while the other was for ₹4,498. However, the driver could not produce an e-way bill for the transportation.
The authorities consequently detained the goods and vehicle and issued Form GST MOV-07 on April 18, 2022. A penalty of ₹1,38,706, equivalent to 100% of GST, was imposed under Section 129(1). The goods and conveyance were released on April 20, 2022 against a bond and bank guarantee for the same amount.
The department subsequently uploaded the DRC-01 summary on April 20, 2022. However, the formal MOV-09 order confirming the penalty was passed only on June 4, 2022—47 days after the MOV-07 notice.
The penalty comprised CGST of ₹69,353 and SGST of ₹69,353.
The taxpayer challenged the penalty before the First Appellate Authority. However, the authority upheld the levy, reasoning that Section 68 read with Rule 138A required a person in charge of a conveyance carrying goods above the prescribed value to carry the relevant documents, including the e-way bill.
The First Appellate Authority observed that the automobile spare parts had been transported with e-invoices but without the required e-way bill and treated the transaction as being in contravention of the GST law. It consequently held the penalty to be proper.
Before GSTAT, the taxpayer argued that the goods were covered by valid e-invoices and that the failure to generate the e-way bill occurred in the early period of the e-invoicing regime.
According to the taxpayer, there was a bona fide belief that generation of the e-invoice itself had disclosed the transaction to the GST authorities in real time. The taxpayer also pointed out that the supplies had been reported in GST returns and the applicable tax had already been paid.
The central legal argument, however, concerned limitation under Section 129(3). The taxpayer submitted that while the MOV-07 notice was issued on April 18, 2022, the MOV-09 penalty order was passed only on June 4, 2022. Thus, the order came 47 days after the notice, despite Section 129(3) requiring the order to be passed within seven days from the date of service of the notice.
The State tax department opposed the appeal on the ground that the limitation issue had not been raised before the First Appellate Authority.
The department submitted that the taxpayer’s first appeal had been based on the contention that the lapse was merely clerical or technical and on an allegation concerning the involvement of the same officer in adjudication and investigation.
According to the department, the dates of MOV-07 and MOV-09 were always available to the taxpayer. Therefore, it argued that the limitation issue should not ordinarily be allowed to be introduced for the first time at the second appellate stage.
The Tribunal rejected this contention.
It noted that the dates of the MOV-07 notice and MOV-09 order were undisputed and were already part of the record. The First Appellate Authority itself had recorded those dates in its order.
The Tribunal therefore held that pointing out the statutory consequence arising from those undisputed dates did not amount to introducing a completely new factual ground at the second appellate stage.
Significantly, the Tribunal observed that the First Appellate Authority had “grossly failed” to examine the legal aspect arising from the delay even though the relevant dates were apparent on the record.
The Tribunal then examined Section 129(3) of the CGST/KGST Act.
The provision requires the proper officer detaining or seizing goods or a conveyance to:
- issue a notice within seven days of detention or seizure, specifying the penalty payable; and
- thereafter, pass an order within seven days from the date of service of the notice for payment of penalty.
The Tribunal focused particularly on the second seven-day requirement.
According to GSTAT, the language of Section 129(3) leaves little room for treating the seven-day period as merely directory.
The Tribunal highlighted that the legislature had used the word “shall” in prescribing the statutory timelines. It held that this demonstrated legislative intent that the timelines must be complied with.
The Tribunal further emphasised that GST legislation is a fiscal statute and must be construed strictly. The fact that Section 129(3) does not expressly state the consequence of failure to comply with the seven-day period does not, by itself, convert the mandatory timeline into a directory requirement.
The Tribunal relied upon several High Court decisions dealing with the statutory time limit under Section 129(3).
The decisions considered the nature of the power being exercised under Section 129, particularly because the provision authorises coercive measures such as detention and seizure of goods and conveyances.
The Tribunal noted that statutory timelines in such circumstances protect valuable rights and prevent prolonged detention of goods, vehicles and documents. It also observed that where legislation authorises coercive action, authorities are expected to strictly comply with the prescribed statutory procedure.
The Tribunal also referred to the Gujarat High Court’s decision in Allcargo Logistics Ltd. v. State of Gujarat, where failure to comply with the Section 129(3) timeline was held to vitiate the detention proceedings.
GSTAT referred to a series of judicial decisions from different High Courts.
In Deepam Roadways v. Deputy State Tax Officer, the Madras High Court had held that where the penalty order was passed beyond seven days from service of the notice, the consequential orders could not be sustained.
Similarly, in Pawan Carrying Corporation v. State of Bihar, the Patna High Court treated the statutory limitation as clear and definite and declined to sustain the detention proceedings where the authorities failed to act within the prescribed period.
The Tribunal also referred to K.P. Sugandh Ltd. v. Chief Commissioner of CT & GST, Odisha, where the Odisha High Court considered the seven-day period for passing the penalty order to be specific and held that an order made on the eighth day did not satisfy Section 129(3).
Apart from the limitation issue, GSTAT considered the surrounding facts of the transaction.
The Tribunal noted that the goods were accompanied by two e-invoices generated through the e-invoice portal. The taxpayer subsequently filed its GST return and paid the applicable tax.
The Tribunal observed that generation of an e-invoice results in the relevant transaction being auto-populated in GSTR-1. Since the tax on the two invoices had in fact been paid in the April 2022 return, the Tribunal found no evidence of an attempt to evade tax merely because the e-way bill had not been generated along with the e-invoice.
Thus, the Tribunal found no mens rea to evade payment of tax in the circumstances of the case.
Applying the statutory requirement and the judicial precedents, GSTAT concluded that the seven-day period under Section 129(3) had to be calculated from the date of service of the penalty notice.
In the present case, the MOV-07 notice was dated April 18, 2022, whereas MOV-09 was issued on June 4, 2022.
The Tribunal therefore found that the penalty order had been passed 47 days after the notice, far beyond the statutory seven-day period.
It held that the order was consequently “illegal and without jurisdiction.” The Tribunal also found that the First Appellate Authority had failed to examine this basic legal issue despite the relevant dates being clearly available on record.
GSTAT accordingly set aside the impugned Order-in-Appeal and allowed the appeals with consequential relief.
The Kerala State tax authorities were specifically directed to release the bank guarantee immediately upon receipt of the Tribunal’s order.
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