The Allahabad High Court has partly allowed a writ petition concerning detention of goods in transit under the GST law, holding that where the goods are accompanied by a valid tax invoice and the consignor or consignee is subsequently found to have a valid GST registration, proceedings for penalty ought to be treated as having been initiated under Section 129(1)(a) of the CGST Act, rather than under the more stringent provision contained in Section 129(1)(b).

The bench of Justice Piyush Agrawal modified the impugned orders to the extent that the penalty proceedings against the petitioner were required to be enforced under Section 129(1)(a) instead of Section 129(1)(b).

The dispute arose from transportation of watermelon seeds pursuant to an order received by the petitioner, a proprietorship concern, from M/s Mahadev Traders, New Delhi.

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According to the petitioner, the goods were being transported from Sitamarhi, Bihar to New Delhi in vehicle number HR58 C 9615. The consignment was accompanied by a tax invoice and RR. During transit, the vehicle was intercepted on May 31, 2026, at Purvanchal Expressway Dhaba in Azamgarh, Uttar Pradesh.

Following interception, the driver’s statement was recorded and Form GST MOV-2 was issued on the ground that an e-way bill had not been tendered for the goods in movement.

The authorities thereafter made inquiries with the GST authorities at Sitamarhi, Bihar. On the basis of the information received, the petitioner was treated as an unregistered dealer, resulting in the authorities proceeding under Section 129(1)(b) of the GST Act.

A significant development in the case was that the petitioner’s GST registration, which had been suspended during the proceedings, was subsequently restored.

The petitioner informed the High Court that the suspension order had been revoked and the registration restored by an order dated August 7, 2026. It was therefore argued that the petitioner was a registered dealer at the time of the transaction and that the detention proceedings should consequently have been initiated under Section 129(1)(a), rather than Section 129(1)(b).

The petitioner had earlier received a show cause notice in GST DRC-01 on June 6, 2026, to which a detailed reply was submitted. However, according to the petitioner, the reply was not properly considered and an order dated June 12, 2026 was passed demanding penalty for release of the goods and vehicle.

The petitioner’s statutory appeal against the order was subsequently dismissed on July 3, 2026.

The State authorities defended the detention proceedings, arguing that the goods were intercepted without an e-way bill being presented.

The Additional Chief Standing Counsel submitted that the proceedings had been correctly initiated because no e-way bill was produced at the time of interception. The State also relied upon the report received from the counterpart GST authority at Sitamarhi, Bihar, which had indicated that the petitioner was an unregistered dealer.

Thus, the principal controversy before the High Court was not merely whether the goods could be detained for non-production of the e-way bill, but whether the circumstances justified invoking Section 129(1)(b), or whether the case fell within Section 129(1)(a).

After considering the rival submissions and examining the record, Justice Piyush Agrawal noted that the goods had been intercepted and seized following information that the petitioner was an unregistered dealer.

However, the Court took note of the subsequent restoration of the petitioner’s GST registration. The cancellation proceedings had been dropped and the registration restored on August 7, 2026.

The Court also found that the goods were accompanied by a tax invoice, which was an important factor in determining ownership of the goods in transit.

The Court observed that once the petitioner’s registration had been restored, it could not be said that the consignor or consignee was bogus merely on the basis of the earlier suspension or cancellation-related proceedings.

The High Court found that the controversy was squarely covered by its earlier decision in Shri Raju Ujir/M/s R.R. Enterprises v. State of U.P. and Others, Neutral Citation No. 2025:AHC:132173.

In that case, the Court had considered the significance of the documents accompanying goods in transit and referred to Clause 6 of Circular dated December 31, 2018.

The circular specifically contemplated that where a tax invoice or another specified document accompanies the consignment, either the consignor or consignee should be deemed to be the owner of the goods.

The earlier ruling also dealt with a situation where the purchaser’s GST registration had been suspended during transit but was subsequently restored. The Court had held that no adverse inference could be drawn against the consignor merely because the purchaser’s registration had been suspended after the movement of goods commenced.

The earlier judgment, relied upon by the Court in the present case, emphasized that where the registration was valid when movement of goods commenced, subsequent suspension of the purchaser’s registration could not by itself justify treating the consignor or consignee as bogus.

The Court further noted that where the prescribed tax invoice or specified document accompanies the goods, proceedings under Section 129(1)(a) ought to be initiated, referring to earlier decisions including H/S Halder Enterprises and M/s Shahil Traders.

Applying this reasoning to the present dispute, the Court concluded that the case was squarely covered by its earlier ruling.

The central legal consequence of the judgment is the direction regarding the appropriate statutory provision.

The High Court held that the impugned orders required modification to the extent that the penalty imposed against the petitioner ought to have been enforced under Section 129(1)(a) rather than Section 129(1)(b) of the GST Act.

The Allahabad High Court did not completely annul the detention proceedings. Instead, it partly allowed the writ petition and modified the impugned orders.

The Court specifically directed that the orders be treated as having been passed under Section 129(1)(a) instead of Section 129(1)(b), and that the penalty imposed against the petitioner be enforced accordingly.

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