The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru, has set aside a tax and penalty demand arising from the detention of goods at the consignee’s premises over an unfilled Part-B of the e-way bill. 

The bench of Sudha Koka (Technical Member) and Srikanth Venkatraman (Judicial Member) held that, on the facts of the case, a rectifiable documentation lapse could not justify detention under Section 129 when the vehicle had completed its journey, valid tax invoices accompanied the goods and no intention to evade tax was established.

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The bench directed the department to refund the entire tax and penalty collected under protest, together with applicable statutory interest, within four weeks of receiving the order.

The order’s demand summary records disputed tax of ₹1,61,488 and an equal penalty, taking the total amount set aside to ₹3,22,976.

The dispute concerned a stock transfer of sewing threads from the company’s Unit-III at Perundurai, Tamil Nadu, to its trading branch at Yeshwantpur, Bengaluru.

On May 4, 2018, the supplier issued three tax invoices and generated Part-A of the e-way bill. However, the vehicle registration number was inadvertently left unfilled in Part-B. The company attributed the omission to an oversight during the initial weeks of implementation of the interstate e-way bill system.

According to the factual findings recorded in the order, the vehicle reached the Bengaluru godown at approximately 6 a.m. on May 5, 2018. Since the premises were closed, it remained parked at the gate awaiting unloading.

At approximately 6.30 a.m., a Commercial Tax Officer inspected the stationary vehicle at the company’s premises. The officer recorded the driver’s statement and detained the goods under Section 129 on the ground that Part-B of the e-way bill had not been updated.

The company updated Part-B on the same day after the omission was brought to its attention.

The department initiated proceedings under Section 129(3), proposing tax and an equal penalty under the CGST and Karnataka GST enactments.

To secure release of the goods, the company paid the disputed amounts under protest and submitted its objections. A release order was issued on May 7, 2018.

The tribunal’s order refers to an original demand of ₹1,80,824 towards tax and an equal penalty, which was subsequently re-quantified. The final demand summary accompanying the tribunal’s decision records ₹1,61,488 each towards tax and penalty.

The first appellate authority upheld the departmental action through an order dated November 27, 2019. The company then approached GSTAT.

The company submitted that the essential condition for invoking Section 129 was absent because the goods were no longer in transit. The vehicle had reached the declared delivery address and was waiting at the consignee’s gate solely because the premises had not opened.

It further argued that the consignment was supported by valid tax invoices, transport documents and Part-A of the e-way bill. The documents matched the goods, the underlying transaction was accounted for and the omitted vehicle number was entered immediately after the officer pointed out the lapse.

Relying on Section 126 and judicial precedents, the company contended that a minor, easily rectifiable error without revenue loss should not attract a substantial tax and penalty demand.

The company also challenged the adjudication procedure, pointing out that the order bore a date preceding the personal hearing.

The department argued that Part-B had to be completed before road transportation commenced. In its submission, moving goods over an interstate distance of approximately 350 kilometres without the vehicle details rendered the e-way bill incomplete and justified action under Section 129.

It maintained that a completely blank Part-B could not be equated with a minor typographical error, such as one or two incorrect digits in a vehicle number. The department also argued that Section 129 operated on the basis of statutory contravention and did not require separate proof of an intention to evade tax.

On Section 126, the department relied on subsection (6), arguing that the general penalty safeguards did not apply to penalties prescribed as a fixed sum or percentage.

The department additionally disputed the company’s claim that transit had ended, citing the absence of contemporaneous inward gate or stock entries.

The tribunal framed the central issue as whether goods could lawfully be detained at the consignee’s doorstep solely because Part-B had not been updated, where the omission was subsequently cured.

Answering that question in the negative, the bench held that Section 129 contemplates detention of goods “in transit”.

On the evidence before it, the vehicle had completed its interstate journey and was stationary at the company’s registered premises. The driver’s statement corroborated its arrival at the destination.

The tribunal therefore concluded that invoking transit detention provisions against a vehicle that had already finished its journey amounted to a misapplication of the statute.

In its analysis, the bench relied on the destination-related principle discussed in the Karnataka High Court’s decision in State of Karnataka v. Hemanth Motors.

The tribunal also treated the missing Part-B entry as a clerical lapse in the circumstances of this transaction.

It emphasised that valid tax invoices and Part-A were available, the underlying supply was tax-paid and the omission was promptly corrected. The bench found no material establishing a fraudulent design or an intention to evade tax.

Drawing on Section 126 and the authorities discussed in its order, the tribunal said penalty enforcement must reflect proportionality, moderation and reasonableness.

The bench relied on its reading of Assistant Commissioner (ST) v. Satyam Shivam Papers (P.) Ltd. and BVM Trans Solutions Pvt. Ltd. v. Commercial Tax Officer to support the distinction between genuine documentation errors and deliberate evasion.

It rejected the department’s attempt, on these facts, to treat the bona fide stock transfer as tax evasion merely because the vehicle number had initially been omitted from the electronic record.

A separate ground for allowing the appeal was the defect in the adjudication process.

The company’s personal hearing took place on August 6, 2018, when it submitted detailed written arguments. However, the adjudication order received on September 15, 2018, bore the earlier date of May 7, 2018.

The tribunal held that conducting a hearing while issuing an order dated before that hearing reduced the safeguard to an empty formality and violated the principle of audi alteram partem—the right to be heard.

The bench also observed that the first appellate authority had ignored this objection.

Allowing the appeal, GSTAT set aside the first appellate order dated November 27, 2019, and declared the detention, tax demand and penalty under Section 129 illegal and unsustainable.

The department was directed to refund the entire amount collected under protest, along with applicable statutory interest, within four weeks from receipt of the tribunal’s order.

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