The Goods and Services Tax Appellate Tribunal (GSTAT), Lucknow, has set aside an appellate order upholding a ₹63.72 lakh penalty for transporting machinery without an e-invoice, holding that the initial e-invoicing lapse did not establish an intention to evade tax in the circumstances of the case.

The bench comprising Santosh Kumar Srivastava (Judicial Member) and Arvind Kumar (Technical Member) found that the consignment was accompanied by a tax invoice, an e-way bill and a transport document. The supplier, recipient, goods, value and tax liability were identifiable, and the department had not established any substantive discrepancy in the transaction.

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The Tribunal distinguished between failure to follow the prescribed electronic invoicing procedure and concealment of a taxable supply. It also clarified that subsequent generation of an e-invoice did not erase the initial statutory lapse, but was relevant to assessing whether the transaction involved tax evasion.

The appellant/assessee is a partnership firm engaged in manufacturing and supplying machinery, issued a tax invoice for ₹2,08,86,000, including IGST of ₹31,86,000. The consignment was supported by an e-way bill and a TCI Express bilty or lorry receipt issued on the same date.

A mobile squad intercepted the vehicle at Barajore Toll Plaza on October 6, 2024. The driver produced the tax invoice, e-way bill and transport document. However, the invoice did not contain the prescribed Invoice Reference Number (IRN) or QR code, and the driver could not produce an e-invoice generated under Rule 48(4) of the GST Rules.

The officer consequently detained the goods and vehicle and initiated proceedings under Section 129 of the CGST/UPGST Act.

The proper officer imposed a penalty of ₹63,72,000, calculated at 200% of the IGST involved. The firm paid the amount to secure release of the goods and vehicle and subsequently challenged the penalty.

The Additional Commissioner, Grade-II (Appeal)-3rd, State Tax, Kanpur, rejected the firm’s first appeal through an ex parte order dated April 9, 2025.

The appellate authority recorded that neither the firm nor its authorised representative appeared despite hearing opportunities, and no adjournment application had been filed.

On the merits, the authority held that the supplier was required to generate an e-invoice and that transportation against a manual tax invoice violated the applicable GST provisions. It therefore upheld the detention and penalty under Section 129.

The firm approached GSTAT against that decision.

Before the Tribunal, the firm admitted that it had not generated the e-invoice before transportation commenced. It maintained, however, that the omission was a procedural lapse and that the underlying supply was fully documented.

The firm pointed out that the tax invoice, e-way bill and lorry receipt accompanied the goods and disclosed the relevant transaction particulars. There was no discrepancy in the description, quantity or value of the machinery, it argued.

An e-invoice was subsequently generated on October 8, 2024, at 6.27 p.m., and produced before the mobile squad officer. This was after interception but before the penalty proceedings culminated on October 10.

The firm also relied on an advisory concerning the time limit for reporting invoices on the Invoice Registration Portal. It argued that the subsequent electronic record, together with the documents already accompanying the goods, demonstrated the absence of any attempt to conceal the supply or evade tax.

The department maintained that e-invoicing was mandatory for the supplier under Rule 48(4), and an ordinary tax invoice could not substitute for the prescribed e-invoice.

It argued that generating the e-invoice after interception could not retrospectively validate transportation that had commenced without it.

The department also submitted that the explanation concerning the non-availability of accounts staff was an internal administrative issue that could not excuse statutory non-compliance. The existence of an e-way bill and physical invoice, it contended, did not dispense with the independent e-invoicing requirement.

The Tribunal acknowledged the initial breach of the e-invoicing procedure. However, it found that the goods were not being transported without documentation.

The invoice identified the supplier, recipient, description of goods, value and tax liability. The corresponding e-way bill and transport document were available when the vehicle was intercepted.

The bench found no allegation that the physical invoice was fabricated, the e-way bill was fake, the goods differed from those described, or the consignor or consignee was fictitious.

It further noted that the department had not shown that the subsequently generated e-invoice concerned a different transaction, different goods, a different recipient or a different value. Nor was there any allegation that the uploaded particulars had been manipulated to create a false transaction trail.

These facts, the Tribunal held, were relevant to distinguishing an electronic compliance failure from deliberate suppression of a taxable transaction.

The Tribunal held that establishing a procedural irregularity did not, by itself, resolve whether the particular facts justified the penalty imposed under Section 129.

It relied on the Allahabad High Court’s decision in Nancy Trading Company v. State of U.P., which addressed Section 129 proceedings in the absence of a specific finding concerning an intention to evade tax.

The bench explained that this principle did not permit taxpayers to disregard Rule 48(4). Rather, it required consideration of the underlying documents and circumstances when assessing the consequences of the lapse.

The Tribunal also relied on M/s Kumar Cargo Solution v. State of U.P. and Others, where the Allahabad High Court had examined a physical invoice and a subsequently produced e-invoice and found that the factual record did not support the finding of an intention to evade tax.

Applying those decisions, GSTAT found that neither the proper officer nor the first appellate authority had established tax evasion in the present case.

The bench observed that substantive discrepancies—such as mismatches between goods and documents, undervaluation, fictitious parties, an invalid e-way bill or other circumstances indicating an attempt to avoid tax—could justify Section 129 proceedings. No such discrepancy had been established here.

The Tribunal also rejected the implication that payment of the penalty established wrongdoing.

It held that the ₹63.72 lakh payment, made during detention proceedings to obtain release of the goods and vehicle, could not by itself be treated as a voluntary admission of fraud or an intention to evade tax.

The firm had consistently disputed the penalty and pursued appellate remedies.

The bench further found that the first appellate authority should have considered the subsequent e-invoice, the existing e-way bill and transport document, the absence of discrepancies in the goods, and the judicial decisions relied upon by the firm.

The Tribunal set aside the April 9, 2025 appellate order and allowed the appeal with consequential relief in accordance with law.

Regarding the ₹63.72 lakh deposit, it directed that any amount deposited be dealt with according to law, subject to verification of payment records and compliance with the applicable statutory procedure.

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