The Goods and Services Tax Appellate Tribunal (GSTAT), Ernakulam Bench, has allowed an appeal and set aside the appellate order confirming tax and penalty under Section 129 of the CGST/KGST Acts, holding that the adjudication order was passed in clear violation of the statutory time limit prescribed under Section 129(3).

The bench of Justice Subramanya Rayaprol (Vice-President) and Shri Ramamoorthi Sriram (Technical Member) has observed that where the proper officer fails to pass the penalty order within the mandatory seven-day period prescribed under Section 129(3), the proceedings are vitiated. In the present case, the penalty order was passed 445 days after the issuance of the notice, leading the Tribunal to declare the order void ab initio and a nullity in the eyes of law. 

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The appellant/assessee is a registered taxable person in Kerala, is engaged in the trading of low-tension and high-tension line materials, safety products and hardware. The appeal was filed before the Ernakulam Bench of GSTAT against an Order-in-Appeal passed by the Joint Commissioner (Appeals), SGST Department, Ernakulam. 

The dispute arose from the interception of a vehicle. The vehicle was carrying 360 V Cross Arm Clamps with bolts and nuts intended for the Deputy Chief Engineer, Nilambur Electrical Circle, along with 1,470.600 kg of LT Stay Wire intended for the Deputy Chief Engineer, Kondotty Electrical Division.

The goods had been supplied by GMG Electric. During interception by the Assistant Sales Tax Officer, Squad No. V, Thrissur, on 16 August 2021, verification revealed that the relevant e-way bills had expired on 15 August 2021. The vehicle was consequently detained through Form GST MOV-06 and was subsequently released upon furnishing a bank guarantee. 

Following the detention, proceedings were initiated under Section 129(3) of the KGST/CGST Acts.

A notice in Form GST MOV-07 was issued on 16 August 2021, proposing the payment of tax and penalty. However, the order confirming the demand under Section 129(3) was not passed until 4 November 2022.

The original order was subsequently challenged before the appellate authority, but the appeal was rejected through Order No. GSTA 487/2022 dated 8 December 2022. GMG Electric thereafter approached the GSTAT, Ernakulam Bench. 

The central issue before the Tribunal was not merely the validity of the e-way bill proceedings but the statutory time limit within which an order under Section 129(3) must be passed.

The Tribunal reproduced Section 129(3), which provides that the proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure and thereafter pass an order within seven days from the date of service of such notice for payment of penalty. 

According to the Tribunal, the use of the word “shall” makes compliance with the prescribed timeline mandatory.

Applying the statutory requirement to the facts of the case, the Tribunal found a substantial delay.

The notice under Section 129(3) was issued on 16 August 2021, whereas the order confirming the tax and penalty was passed only on 4 November 2022.

The Tribunal specifically noted that the order was issued 445 days after the notice, despite Section 129(3) requiring the order to be passed within seven days from the date of service of the notice. 

The Bench observed that the statutory timeline was not merely directory but mandatory. Consequently, the prolonged delay could not be treated as a procedural irregularity capable of being overlooked.

The GSTAT held that the blatant violation of the statutory timeline rendered the original order legally unsustainable.

The Tribunal concluded that the order dated 4 November 2022 was “void ab initio” and a nullity in the eyes of law because it had been passed in violation of the mandatory time limit under Section 129(3). 

The finding was significant because the appellate authority had earlier upheld the disputed order. According to the Tribunal, however, the foundational defect in the proceedings went to the validity of the order itself.

The Ernakulam Bench also relied upon the recent decision of the Thiruvananthapuram Bench of GSTAT in Siddhivinayak Automobiles v. Commissioner of Kerala State GST.

The Tribunal had held that the legislature’s use of the expression “shall” in Section 129(3) demonstrated its intention that the statutory timeline be adhered to. The Tribunal also observed that the CGST/KGST Act is a fiscal statute and therefore requires strict construction. 

The Ernakulam Bench further referred to a series of decisions of High Courts concerning compliance with the statutory timelines under Section 129.

The order refers to decisions including Danish Hassan v. UT of J&K & Ors. before the Jammu & Kashmir High Court, Mohd Hazzak Lohar & Others v. Commissioner of State Tax, J&K, Allcargo Logistics Limited v. State of Gujarat, Khatu Enterprises v. State of Gujarat, Pawan Carrying Corporation v. State of Bihar, K.P. Sugandh Ltd. v. Chief Commissioner of CT & GST, Odisha, Deepam Roadways v. Deputy State Tax Officer, Chennai, and Tvl. Udhayan Steels Private Limited v. Deputy State Tax Officer (Int.). 

The Tribunal observed that courts across the country had consistently treated the statutory timeline under Section 129(3) as mandatory.

It stated that the decisions, spanning from 28 December 2022 to 7 September 2026, had consistently held that violation of the mandated timeline by the proper officer vitiates the proceedings. The Bench described the issue as well settled. 

The GSTAT also found that the appellate authority had failed to consider the basic statutory time-limit issue, despite the defect being apparent from the record.

Since the original order itself was found to be a nullity, the Tribunal held that the Order-in-Appeal could not survive. It therefore set aside the impugned appellate order. 

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