The GST Appellate Tribunal (GSTAT), Lucknow Bench, has held that a taxpayer cannot be penalised merely on the basis of suspicion that goods were being transported using a previously used/reused e-way bill. 

The bench of Santosh Kumar Srivastava (Judicial Member) and Arvind Kumar (Technical Member) ruled that an allegation of tax evasion must be supported by cogent evidence and cannot be founded merely on assumptions, coincidences or an inference drawn from the earlier verification or location of an e-way bill.

The Tribunal set aside both the appellate order dated October 30, 2024, and the original order dated January 19, 2024, passed under Section 129 of the CGST/UPGST Act, 2017. It also directed that the ₹2,51,196 deposited by the taxpayer pursuant to the detention and penalty proceedings be refunded in accordance with law.

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The dispute arose from the interception of goods being transported by the taxpayer. The appellant was a registered proprietorship concern engaged in manufacturing business, and the goods were being transported from its business premises at Arazi No. 1071, Mubarakpur, Akbarpur, Kanpur Dehat, to the declared destination.

The goods were accompanied by the relevant tax documents, including a valid tax invoice, e-invoice and e-way bill. However, the goods were intercepted on January 14, 2024, and the department alleged that the same e-way bill had already been used.

According to the department, an earlier verification of the e-way bill had taken place at Banthara Bazaar, Kanpur Road, at around 4:15 A.M. The vehicle was subsequently found at Haj House, Lucknow, at approximately 12:45 P.M. on the same day.

On this basis, the department presumed that the goods were being transported again using previously used documents. Proceedings under Section 129 of the CGST/UPGST Act followed, resulting in detention of the goods and a penalty of ₹2,51,196.

Before the Tribunal, the taxpayer argued that the goods were being transported with a valid invoice, e-invoice and corresponding e-way bill. It was submitted that there was no evidence demonstrating that the transportation was in contravention of the GST law.

The appellant further contended that the documents had been generated and downloaded during the validity period of the transaction and that the tax charged on the bills had been duly accounted for. Consequently, there was no material indicating any mala fide intention or attempt to evade tax.

A key argument was that a show cause notice and subsequent penalty proceedings under Section 129 could not be sustained merely on suspicion. According to the taxpayer, there had to be prima facie material establishing that the goods were liable to detention and seizure under the GST law.

The taxpayer therefore sought setting aside of the penalty and relied upon several judgments of the Supreme Court and High Courts concerning detention of goods, reuse of e-way bills and the requirement of evidence to establish an intention to evade tax.

The departmental representative opposed the appeal and supported both the original adjudication order and the first appellate order.

The department argued that the orders passed by the authorities were legal and proper and did not warrant interference by the Tribunal.

The central departmental position was essentially based on the circumstances surrounding the movement of the vehicle and the earlier verification/location of the e-way bill, which had led the authorities to conclude that the goods were being re-transported.

The Tribunal, however, found that the material available on record did not establish any discrepancy in the description, quantity, value or ownership of the goods.

Importantly, the Tribunal noted that the goods were accompanied by the relevant tax documents, including the invoice/e-invoice and e-way bill.

The Tribunal examined the finding of the first appellate authority that the fact that the trader had allegedly transported the goods again on the basis of documents already used automatically established an intention to evade tax.

The Bench rejected this approach.

According to the Tribunal, the finding that the goods were being “re-transported” was based principally on an inference drawn from the earlier verification or location of the e-way bill. No independent and cogent evidence had been produced to establish that the same goods had already completed an earlier journey or had already been delivered.

The Tribunal placed significant emphasis on the distinction between suspicion and proof.

It observed that the department had failed to establish that the goods were being transported in violation of the GST Act or Rules or that the e-way bill was actually being reused.

The Tribunal specifically held that the conclusion of the first appellate authority that an “intention to evade tax is automatically proved” was legally and factually unsustainable.

The Bench made it clear that intention to evade tax cannot be presumed merely from suspicion. A presumption of tax evasion cannot substitute for actual proof.

The Tribunal considered several judicial precedents cited by both sides.

Among them was the Supreme Court decision in Assistant Commissioner (ST) & Others v. M/s Satyam Shivam Papers Pvt. Ltd. & Anr., where the Supreme Court declined to interfere with the Telangana High Court’s conclusion that no fault or intention to evade tax could be inferred merely from circumstances relied upon by the revenue.

The Tribunal also referred to the Allahabad High Court’s decision in M/s Shri Surya Traders v. Union of India, decided on January 6, 2022. The High Court had held that where movement of goods complies with the provisions of the GST Act, the goods cannot be detained merely on the basis of presumptions and assumptions.

The Tribunal further considered the Supreme Court’s observation in State of Kerala v. M.M. Mathew, that strong suspicion, strange coincidences and grave doubt cannot take the place of legal proof.

Another significant precedent considered by the Tribunal was M/s Anandeshwar Traders v. State of U.P.

In that matter, tax and penalty had been imposed on an allegation concerning reuse of an e-way bill. The revenue had presumed reuse because the goods had not moved within 24 hours of generation of the e-way bill.

The Tribunal noted that the court had rejected the revenue’s approach where the allegation of reuse was based merely on such reasoning and without adequate supporting material.

The Bench also referred to the Allahabad High Court’s decision in M/s B.L. Agro Oils Ltd., Bareilly, where the court observed that, for seizure, the authority must establish by evidence that the e-way bill had been reused. In the case before the Tribunal, no such evidence had been produced by the seizing authority.

The Tribunal found the facts of the present case to be substantially similar to the judicial precedents relied upon.

It concluded that the department had failed to establish that the goods in question were being transported in contravention of the GST provisions or that the e-way bill was being reused.

A particularly important factor was the absence of independent evidence demonstrating that the goods had previously completed another journey.

The Tribunal observed that the department had not produced cogent material, such as evidence relating to the crossing of a toll plaza during the course of the alleged earlier movement on the same day, to demonstrate that the goods had actually undergone an earlier transportation using the same e-way bill.

The Tribunal also examined the reliance placed by the first appellate authority on another Allahabad High Court judgment concerning transportation of goods.

It observed that the earlier judgment had involved findings that the department had actually proved an intention to evade tax. In the present matter, however, the department had failed to establish such intention.

Therefore, the Tribunal held that the earlier ruling could not support the conclusion adopted by the first appellate authority.

The Bench ultimately held that the department’s case rested on inference rather than evidence and that the legal requirement for sustaining detention and penalty under Section 129 had not been established.

Consequently, the GST Appellate Tribunal allowed the appeal.

The appellate order dated October 30, 2024, passed by the Additional Commissioner Grade-II (Appeal-IV), Lucknow, was set aside.

The original order dated January 19, 2024, passed under Section 129 of the CGST/UPGST Act, 2017, was also set aside.

The Tribunal further directed that the amount of ₹2,51,196 deposited by the appellant pursuant to the detention and penalty proceedings be refunded in accordance with law. The order was pronounced on August 25, 2026.

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