The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru, has set aside a 200% penalty imposed for transporting goods without a pre-generated e-invoice where a technical failure on the government portal prevented timely generation of the Invoice Reference Number (IRN).
The bench of Srikanth Venkatraman (Judicial Member) and Sudha Koka (Technical Member) found that the consignment was accompanied by a valid e-way bill, a commercial invoice and a delivery note, with no discrepancy in the goods or their declared value. It held that a temporary delay in electronic authentication could not, in the circumstances, be treated as fraudulent tax evasion.
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The Bench directed the authorities to refund ₹5,81,316, along with statutory interest, within eight weeks, after verifying the demand and payment records.
The dispute arose from an inter-State supply of raised access flooring tiles by the assessee to a recipient in Maharashtra.
According to the order, e-invoicing requirements became applicable to the supplier from October 1, 2022, pursuant to Notification No. 17/2022-Central Tax.
The supplier attempted to generate an e-invoice for the consignment. However, technical downtime on the government’s e-invoice portal prevented generation of the IRN at the time of dispatch.
As the goods were urgently required at the recipient’s project site in Pune, the supplier generated an e-way bill at 7:20 p.m. and dispatched the consignment with a commercial invoice and delivery note.
The vehicle was intercepted at the NH-04 Bypass in Davanagere at 7:30 a.m. on October 7, 2022. Although the driver produced the accompanying documents, the authorities detained the goods because an e-invoice bearing the IRN and QR code was unavailable at interception.
The IRN was subsequently generated and acknowledged on the portal later that morning.
The adjudicating authority issued a notice proposing a penalty under Section 129(1)(a) of the CGST Act, read with Section 20 of the IGST Act.
The authorities treated transportation without the mandatory e-invoice as transportation without a legally valid invoice. A penalty of ₹5,81,316, representing 200% of the invoice tax, was imposed.
The supplier paid the amount under protest through Form DRC-03 to secure release of the detained goods and vehicle and prevent further disruption to its business.
The first appellate authority subsequently upheld the penalty through an order dated August 28, 2023.
Relying on Rule 48(5), the appellate authority reasoned that an invoice issued otherwise than in the prescribed electronic manner could not be treated as an invoice where e-invoicing was mandatory. It also held that proof of an intention to evade tax was unnecessary once the statutory contravention was established.
Before the Tribunal, the department maintained that possession of a manual invoice and delivery challan did not dispense with mandatory e-invoicing.
It argued that the supplier had to establish why electronic generation was impossible and that general claims of portal difficulties, without contemporaneous error logs, were insufficient.
The department also relied on an initial communication referring to “clerical mistakes” and contended that the relevant issue was the documentary contravention existing when the vehicle was intercepted.
The supplier, however, argued that the transaction had been fully disclosed through the invoice, e-way bill and delivery note. It maintained that a government portal failure could not justify treating an otherwise transparent supply as an attempt to evade tax.
The Tribunal held that the statutory requirements had to be interpreted with regard to the operational circumstances in which compliance was attempted.
It noted that the supplier had generated a valid e-way bill and that the goods were accompanied by a commercial invoice and delivery note. There was no mismatch in quantity, quality, value or tax payment.
The Bench considered the successful generation of the IRN the following morning significant in assessing the explanation for the delay.
It also described Rule 55(4) as a statutory safeguard for circumstances in which an invoice cannot be issued at removal. While recognising the mandatory e-invoicing provisions, the Tribunal rejected their application in a manner that treated a taxpayer affected by government portal downtime as a tax evader.
Invoking the principle “lex non cogit ad impossibilia”, the Tribunal observed that the law cannot demand the impossible.
Relying on its reading of the Supreme Court’s decision in Assistant Commissioner (ST) v. Satyam Shivam Papers Pvt. Ltd., the Tribunal held that mechanical imposition of a penalty for a technical or procedural lapse could not be sustained without evidence of an intention to evade tax.
In the present case, it found no fraudulent intent or deliberate concealment. The transaction was supported by the accompanying documents, and the missing IRN was generated after the temporary technical difficulty.
The Tribunal accordingly concluded that the 200% penalty was unsustainable on the facts before it.
The department sought to distinguish Athiyan Exports v. State Tax Officer on the ground that it concerned an export transaction, whereas the present dispute involved a domestic inter-State supply.
The Tribunal rejected that distinction, observing that exports are also treated as inter-State supplies under Section 7(5) of the IGST Act. It explained that an e-invoice represents electronic authentication of commercial invoice data on the Invoice Registration Portal.
It also distinguished Jhansi Enterprises v. State of U.P., which, according to the Tribunal, involved the absence of both an invoice and an e-way bill. Here, the supplier had maintained the underlying transit documents.
The Bench additionally referred to Nancy Trading Company v. State of U.P. in support of its treatment of an e-invoice lapse, accompanied by physical invoices and e-way bills, as a technical mistake in the absence of established evasion intent.
The Tribunal rejected the suggestion that payment through DRC-03 prevented the supplier from challenging the penalty.
It found that the amount had been paid under protest to secure immediate release of the detained commercial vehicle and avoid further transit delays and project disruption.
Such payment under economic pressure, the Bench held, did not bar substantive appellate relief.
Allowing the appeal, the Tribunal set aside the first appellate authority’s order confirming the penalty under Section 129(1)(a).
It directed the respondent authorities to refund ₹5,81,316 with statutory interest within eight weeks from the order, subject to verification of the demand and payment records.
The ruling turns on the combination of portal downtime, valid accompanying documents, subsequent IRN generation and the absence of discrepancies or evidence of tax evasion.
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