The Goods and Services Tax Appellate Tribunal (GSTAT), Lucknow, has dismissed a departmental appeal seeking restoration of a ₹2,27,160 penalty on an iron scrap consignment, holding that an uncorroborated driver’s statement could not sustain the action when the goods fully matched the accompanying tax invoice, e-way bill and transport documents.

The Bench of Santosh Kumar Srivastava (Judicial Member) and Arvind Kumar (Technical Member) upheld the first appellate order granting relief to the taxpayer. In its order dated October 28, 2026, the Tribunal emphasised the need for independent evidence before treating an alleged difference in the loading point as a basis for penalty under Section 129(3) of the UPGST/CGST Act.

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The dispute arose after Mobile Squad Unit-5, Lucknow, intercepted a vehicle carrying 16,170 kilograms of iron scrap near Tata Motors on Deva Road at approximately 1:19 a.m. on May 17, 2024.

The driver produced Tax Invoice, an e-way bill and Bilty issued by Shri Balaji Transport Company. The invoice recorded a consignment value of ₹7,44,143, inclusive of tax.

The documents identified the taxpayer’s registered principal place of business in Lucknow as the dispatch location. However, according to the department, the driver stated that the goods had been loaded from a warehouse at Chinhat, Deva Road, on instructions from the transporter.

A departmental portal check showed that the taxpayer had no additional place of business or warehouse registered at Chinhat. Treating the movement as transportation from undeclared business premises, the department initiated proceedings and imposed a penalty on May 18, 2024.

The penalty comprised ₹1,13,580 each under CGST and SGST, totalling ₹2,27,160.

The taxpayer challenged the penalty before the Additional Commissioner, Grade-2 (Appeals)-Second, State Tax, Lucknow.

By an order dated July 4, 2024, the first appellate authority allowed the appeal, set aside the penalty and directed a refund. It found that the physical goods tallied with the invoice and that the driver’s statement had not been supported by independent evidence.

The authority also recorded the absence of a tracking mismatch or material indication of tax evasion.

The State Tax Department subsequently approached the Tribunal under Section 112 of the UPGST/CGST Act.

As a preliminary objection, the taxpayer argued that the disputed penalty fell below the ₹20 lakh monetary threshold prescribed for departmental appeals before GSTAT under Circular No. 207/01/2024-GST.

The Tribunal rejected this objection by applying the circular’s exclusion for issues of a recurring nature.

It held that the dispute raised a recurring legal question concerning the mobile squad’s enforcement jurisdiction during transportation checks. Consequently, the appeal was maintainable notwithstanding the amount involved.

The Bench therefore examined the department’s challenge on its merits.

The department argued that declaring places of business is a mandatory statutory requirement. According to it, dispatch from an undeclared location violated Section 2(85), Section 31 and Rule 46, read with CBIC Circular No. 61/35/2018-GST.

It contended that the invoice and e-way bill lost their validity because they recorded an incorrect dispatch address. The department also maintained that the driver’s contemporaneous statement carried evidentiary value.

It further argued that a civil tax penalty did not necessarily require proof of mens rea.

The taxpayer disputed the alleged loading point and stressed that the physical verification report in Form GST MOV-04 disclosed no discrepancy in the consignment.

The taxpayer also argued that the department had neither inspected the alleged warehouse nor produced a panchnama, photograph or other material establishing its connection with the business. It additionally complained that a copy of the driver’s statement had not been supplied during the proceedings.

The Tribunal treated the physical verification record as central to the dispute.

It found no difference between the description, quantity, quality, weight or value of the iron scrap in the vehicle and the particulars recorded in the tax invoice and e-way bill.

On these facts, the Bench held that the department could not sustain detention and penalty merely by relying on an unsupported allegation about the source of loading.

The Tribunal characterised Section 129 as an anti-evasion provision and concluded that the fully documented consignment and matching physical goods did not support the penal action in this case.

The Bench observed that a driver is an agent of transportation and is not necessarily a party to the commercial arrangements between traders.

It held that a driver’s statement could provide a starting point for investigation but could not substitute for the evidence necessary to adjudicate an alleged violation.

The Tribunal also addressed procedural fairness. Referring to the Supreme Court’s decision in Andaman Timber Industries, it observed that using a statement against a taxpayer without providing a fair opportunity for cross-examination undermined the adjudication.

In the present case, the record did not establish a verifiable connection supporting the driver’s account of the alleged warehouse.

The Tribunal rejected the mechanical application of Circular No. 61/35/2018-GST to the facts before it.

It reasoned that the existence of an operational undeclared dispatch facility or warehouse had to be established through concrete inquiry or verification. The proper officer had not verified the status or ownership of the alleged Chinhat warehouse.

Accordingly, the Bench held that the circular could not justify the penalty on the strength of the driver’s roadside statement alone.

The finding turned on the absence of proof of the alleged undeclared facility. It did not grant a general exemption from the requirement to declare additional places of business.

The Tribunal rejected the department’s attempt to infer tax evasion from the alleged loading-point discrepancy.

It noted that the transaction was documented, the vehicle was on its designated route and no parallel unaccounted stock or secret disposal of goods had been established.

Referring to the judicial principles discussed in its order, the Bench stressed that administrative doubts and strong suspicion could not replace legal proof.

It also held that the civil nature of a penalty did not justify imposing it mechanically for a technical infraction on the facts of the case. The department had produced no fresh material warranting interference with the first appellate authority’s findings.

The Tribunal upheld Order and dismissed the department’s appeal. The original penalty order dated May 18, 2024, remained set aside.

The demand summary accompanying the Tribunal’s order records the determined penalty as nil, against the disputed amount of ₹2,27,160.

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