The Goods and Services Tax Appellate Tribunal (GSTAT), Thiruvananthapuram Bench, has held that penalty under Section 129 of the CGST/KGST Acts cannot be imposed merely because an e-way bill was not generated for goods transported as a stock transfer between two registered premises of the same person.

The Bench of Subramanya V. Rayaprol (Judicial Member) and Ramamoorthi Sriram (Technical Member) has observed that because the stock movement was not a “supply”, it could not be treated as an intra-State supply. Consequently, Section 9, the charging provision, did not apply and there was no tax payable on the goods in the context of the disputed movement.

The dispute arose from the transportation of steel goods on June 13, 2022. The goods were being moved under Delivery Challan No. M120 from one premises of the registered person to another godown belonging to the same registered person and carrying the same GSTIN.

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The vehicle was intercepted by the Mobile Squad, Thiruvananthapuram, and the goods were detained under Section 129(1) of the CGST/KGST Acts on the ground that no e-way bill was available.

Following the detention proceedings, authorities imposed a penalty of ₹1,34,640, comprising ₹67,320 CGST and ₹67,320 SGST, without raising any tax demand. The amount was paid to secure release of the goods. The first appellate authority subsequently upheld the penalty, leading to the second appeal before GSTAT.

The principal question before the Tribunal was whether the first appellate authority was justified in confirming a Section 129 penalty where goods were transported without an e-way bill but the movement represented an internal stock transfer between registered premises of the same GSTIN.

The Tribunal focused particularly on the relationship between Sections 7, 9 and 129 of the GST law.

The taxpayer argued that Section 129 computes the penalty with reference to the “tax payable” on the goods. Since the movement did not constitute a taxable supply, there was no tax payable on the goods in the first place. Consequently, the statutory basis for calculating a Section 129 penalty was absent.

The Tribunal examined the statutory framework governing the levy of GST.

Section 9 of the CGST/KGST Acts levies tax on intra-State supplies of goods or services. The Tribunal then examined the definition of “supply” under Section 7.

According to the Tribunal, a transaction falling within Section 7 necessarily contemplates two persons or entities between whom the sale, transfer, exchange or other transaction takes place. It also considered the requirement of consideration under Section 7(1)(a).

In the case before it, there was only one person—the registered taxpayer. The goods were simply being moved from one registered premises to another belonging to the same person. There was also no consideration involved in the movement.

The Tribunal therefore concluded that the movement did not constitute a supply under Section 7.

The Tribunal drew a direct statutory connection between the absence of supply and the Section 129 penalty.

The Tribunal reasoned that once there was no tax payable, there could be no tax-linked penalty under Section 129.

“Once a determination has been made that tax on the goods is non est,” the Tribunal held, Section 129 penalty could not be levied because the penalty itself is determined with reference to such tax payable.

Importantly, the Tribunal did not hold that an e-way bill is unnecessary for every movement of goods that is not a supply.

The Revenue had relied upon Rule 138(1)(ii), which specifically covers movement of goods “for reasons other than supply.” The Tribunal acknowledged that the statutory framework requires e-way bill compliance even for certain non-supply movements exceeding the prescribed threshold.

However, the Tribunal drew a distinction between the existence of an e-way bill compliance requirement and the statutory provision under which a penalty can be imposed.

It held that the failure to generate an e-way bill for a movement covered by Rule 138(1)(ii) does not automatically justify a penalty under Section 129 when there is no tax payable on the underlying transaction.

The Tribunal found that the appropriate consequence for such a document-related contravention would lie under Section 122(1)(xiv) rather than Section 129(3).

The Revenue had argued that Section 129 operates as a self-contained machinery provision for detention and release of goods in transit and does not require the Department to first establish a taxable supply.

According to the Revenue, the expression “tax payable on such goods” was merely a mechanism for quantifying the penalty by applying the applicable tax rate to the goods. The Department also argued that TMT bars were taxable goods and therefore the penalty formula under Section 129 was applicable.

The Tribunal, however, rejected this interpretation.

It relied upon the Bombay High Court’s decision in Fabricship Pvt. Ltd. v. Union of India, observing that the phrase “tax payable” necessarily contemplates that the transaction itself is liable to tax and that tax becomes payable on it.

The Tribunal further rejected the Revenue’s attempt to distinguish Fabricship on the ground that the goods involved in that case were exempt.

A significant part of the ruling is the Tribunal’s treatment of the Fabricship precedent.

The Revenue argued that Fabricship concerned exempt goods and therefore its reasoning should not apply to taxable TMT bars.

GSTAT rejected the argument, describing it as based on a misreading of the judgment.

The Tribunal held that the central ratio of Fabricship was not dependent upon the goods being exempt. Rather, the relevant principle was that where a transaction does not involve two distinct entities and there is no consideration, it falls outside the charging provision of the GST law.

The Tribunal found that the same principle applied to the stock movement in the present case, notwithstanding that the goods were taxable TMT bars.

The Tribunal also took issue with the finding of the first appellate authority that the transaction was “not genuine”.

It noted that the appellate order repeatedly stressed the absence of an e-way bill but did not provide independent reasons for treating the transaction as non-genuine.

On examining the show cause notice, order-in-original and appellate order, the Tribunal found no allegation or evidence of fraud, wilful misstatement, suppression of facts or an attempt to evade tax.

The Tribunal specifically observed that the Revenue’s contention that the transaction was not genuine because no e-way bill had been generated was unsupported by the material on record.

GSTAT also relied upon judicial precedents concerning stock transfers.

In Vacmet India Ltd. v. Additional Commissioner Grade-2 (Appeal), the Allahabad High Court had dealt with movement of goods by way of stock transfer between units within Uttar Pradesh. The High Court found that where no tax liability was established on the stock transfer, tax evasion could not be attributed to the movement.

The Tribunal also considered Goverdhan Oil Mill v. Additional Commissioner, where the Allahabad High Court held that where the authorities did not dispute that the movement was a stock transfer and there was no tax liability, a Section 129(3) penalty had no legal basis.

GSTAT clarified that these decisions did not mean that an e-way bill was unnecessary for non-supply movements. Rather, their effect was that the absence of an e-way bill in such circumstances cannot be used as the basis for imposing the tax-linked penalty under Section 129(3).

A registered person may still be required to comply with the e-way bill provisions when goods are moved for reasons other than supply. However, the mere fact that an e-way bill was not generated does not permit the Department to impose a Section 129 penalty calculated on tax that is not otherwise payable on the underlying movement.

The Tribunal found that treating the applicable GST rate on the goods as sufficient to create a “tax payable” amount for Section 129 purposes would effectively impose a tax-linked penalty even though the underlying transaction was outside the charging provision.

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