The Goods and Services Tax Appellate Tribunal (GSTAT), Ernakulam 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 after service of a detention notice is mandatory.
The bench of Subramanya Rayaprol (Vice-President) and Ramamoorthi Sriram (Technical Member) set aside the penalty proceedings holding that the GST department had passed the Form GST MOV-09 order 230 days after issuance of the MOV-07 notice.
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The appellant/assessee was engaged in the trading of cigarettes. The appellant generated an invoice for transportation of cigarettes from its ITC godown at Kochal, Alangad, to its godown at Aluva. The invoice carried a taxable value of approximately ₹35.66 lakh, and an e-way bill was generated for vehicle.
The following day, on July 31, 2020, the Assistant State Tax Officer, Mobile Squad No. III, Mattancherry, intercepted another vehicle.
During verification, the authorities found that the e-way bill related to a different vehicle, different value and a different route. Physical verification also revealed nine varieties of cigarettes valued at approximately ₹19.25 lakh, which did not match the invoice and e-way bill accompanying the original consignment. Consequently, the goods were detained.
A notice in Form GST MOV-07 was subsequently issued on August 4, 2020, proposing tax and penalty aggregating to ₹39,21,831.06 under Section 129(3) of the CGST/KGST Act.
However, the adjudication order in Form GST MOV-09 was passed only on March 22, 2021, confirming the same demand.
The appellant explained that the movement took place during the COVID-19 restrictions.
According to the appellant, a lockdown had been declared in Aluva Municipality on July 30, 2020. Due to the restrictions, the goods were unloaded at a small godown in North Paravur and part of the cargo was subsequently transshipped into vehicle KL 07 BY 5013 for movement towards Angamaly.
The appellant maintained that the goods were being moved between its own registered godowns and were accompanied by a delivery challan. It also submitted that the second e-way bill could not be generated immediately because the original vehicle had stopped midway and the goods had to be shifted to another vehicle.
Importantly, the appellant pointed out that both the relevant premises were registered as additional places of business under its GST registration, a fact which was not disputed. It further relied upon the decision of the GSTAT Thiruvananthapuram Bench in Siddhi Vinayak Automobiles v. Commissioner of State Tax, cited as 2026 (8) TMI 1052 – GSTAT Thiruvananthapuram.
The department opposed the appeal and relied upon judicial precedents concerning the strict liability nature of proceedings under Section 129.
The Department argued that Section 129 operates as a civil enforcement mechanism concerning contraventions of statutory requirements relating to the transportation of goods. According to the Revenue’s submissions, the existence or absence of an intention to evade tax was not decisive for detention or penalty under Section 129.
The Department therefore sought dismissal of the appeal and requested that the appellate and adjudication orders be sustained. It also sought invocation of the bank guarantee furnished towards the confirmed demand of ₹39,21,831.06.
The Bench rejected that objection. It noted that the dates of the MOV-07 notice and MOV-09 order were already part of the record and had also been recorded by the First Appellate Authority.
Therefore, according to the Tribunal, pointing out the statutory consequence flowing from those undisputed dates did not amount to introducing a completely new factual ground at the appellate stage.
The Tribunal reproduced Section 129(3), which provides that the proper officer detaining or seizing goods or conveyances must issue a notice within seven days of detention or seizure and thereafter pass an order within seven days from the date of service of the notice for payment of the prescribed penalty.
The Bench placed particular emphasis on the use of the word “shall” in the statutory provision.
The Tribunal observed that Section 129 is concerned with detention and seizure of goods and conveyances in transit. Since the provision authorises coercive action against goods and transport vehicles, the statutory timelines assume particular significance.
According to the Tribunal, the legislature’s use of the expression “shall” indicates that compliance with the prescribed timeline is mandatory. The fact that Section 129(3) does not expressly prescribe a consequence for failure to comply with the seven-day period does not, by itself, make the timeline directory.
The Tribunal examined several judicial decisions supporting strict compliance with the seven-day limitation under Section 129(3).
In Mohd Hazzak Lohar & Others v. Commissioner of State Tax, the J&K and Ladakh High Court had considered the statutory timeline in the context of coercive powers of detention and seizure. The Tribunal noted the High Court’s reasoning that the timeline protects valuable rights and prevents prolonged detention and seizure of goods, conveyances and documents.
The High Court had also emphasised that where statutory powers are coercive in nature, authorities are required to strictly comply with the prescribed procedure.
The Tribunal also referred to the Gujarat High Court’s decision in Allcargo Logistics Limited v. State of Gujarat, where an order passed beyond the seven-day period was held to violate Section 129(3), resulting in the detention order, MOV-07 notice and MOV-09 order being quashed.
Similarly, in Khatu Enterprises v. State of Gujarat, the Gujarat High Court had held that the authorities were required to issue the notice within seven days and pass the penalty order within seven days from service of the notice. Failure to comply resulted in the detention order being quashed.
The Tribunal further considered Deepam Roadways v. Deputy State Tax Officer, where the Madras High Court had quashed proceedings because the consequential penalty order was passed beyond seven days from service of the notice.
The Bench also relied upon Pawan Carrying Corporation v. State of Bihar, where the Patna High Court treated the limitation under Section 129(3) as clear and definite and declined to sustain the detention proceedings when the statutory timeline was not followed.
Reference was also made to K.P. Sugandh Ltd. v. Chief Commissioner of CT & GST, in which the Odisha High Court held that the seven-day period must be reckoned from the date of service of the notice specifying the penalty. The Tribunal noted that an order communicated beyond the statutory period could not satisfy the requirement of Section 129(3).
The Tribunal examined the circumstances surrounding the movement of the cigarettes.
The Bench found that the goods were being transported under delivery challans between the appellant’s own registered godowns during the COVID-19 restrictions. According to the Tribunal, the second vehicle was used after the first vehicle broke down on the road, and the appellant could not generate the corresponding e-way bill immediately.
The Tribunal treated the movement as an undisputed stock transfer, observing that such movement did not involve a taxable supply.
The Tribunal found no tax involved in the stock transfer and held that the discrepancy in the e-way bill could be treated as a minor procedural mistake in the circumstances of the COVID-19 pandemic.
The Bench also recorded that it found no other allegation of tax evasion against the appellant and no mens rea to evade tax merely because the e-way bill was not prepared for the second vehicle along with the delivery challan for the stock transfer.
The Tribunal ultimately found that the statutory seven-day period under Section 129(3) had not been followed.
The MOV-07 notice was issued on August 4, 2020, whereas the MOV-09 order was passed on March 22, 2021.
The Tribunal calculated that the penalty order had been issued 230 days after the MOV-07 notice, far beyond the mandatory seven-day period.
It therefore held that the order was illegal and without jurisdiction.
The Bench further observed that the State tax authority had an opportunity to pass the order within the prescribed seven days and that keeping the proceedings pending beyond the statutory period could not be justified in view of the limitation prescribed under Section 129(3).
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