The Goods and Services Tax Appellate Tribunal (GSTAT), Agra Bench, has upheld the cancellation of a ₹6,65,028 penalty imposed on an areca nut consignment, holding that a technical error in invoice numbering cannot justify detention and penalty under Section 129 when valid documents accompany the goods and there is no evidence of tax evasion.

The Bench of Ajeet Singh (Judicial Member) and Vivek Kumar (Technical Member) dismissed the Uttar Pradesh State Tax Department’s appeal against the relief granted by the first appellate authority.

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The bench observed that Uttar Pradesh tax authorities lacked jurisdiction to adjudicate the alleged invoice numbering violation by a supplier registered in Maharashtra.

The dispute arose from the transportation of areca nuts, commonly known as supari, by Meera Trading Company, Nagpur, Maharashtra, to Girraj Supari Traders LLP, Mathura, Uttar Pradesh.

State Tax officers intercepted the vehicle near Beegha Khet toll plaza in Lalitpur on November 12, 2024. During verification, the driver produced a consignment note issued by Sanskar Roadways, a tax invoice, an e-way bill and a weighment slip, all dated November 11, 2024.

The authorities nevertheless raised an objection concerning the numbering of the tax invoice. After examining earlier invoices, the proper officer concluded that the invoices had not been issued consecutively as required under Rule 46(b) of the CGST Rules, 2017.

On this basis, the officer detained the vehicle and goods through Form GST MOV-06 dated November 13, 2024. Following show cause proceedings, a penalty of ₹6,65,028 was imposed under Section 129(3).

The taxpayer deposited the amount under protest to secure release of the vehicle and consignment.

The taxpayer challenged the adjudication order before the first appellate authority under Section 107 of the GST legislation.

Allowing the appeal, the authority treated the irregular invoice numbering as a bona fide human error. It found no intention to evade tax and no other substantial discrepancy warranting detention and penalty.

The authority further held that a breach of Rule 46(b), if otherwise liable to penalty, could at most be considered under the general penalty provision in Section 125.

The State Tax Department subsequently approached GSTAT through Assistant Commissioner Ram Kumar Yadav, seeking restoration of the penalty. The taxpayer opposed the departmental appeal.

The Tribunal examined whether non-consecutive issuance of a tax invoice discovered during transit verification warranted detention and penalty under Section 129(3), or constituted a technical breach.

It found that invoice numbering was the department’s sole objection.

The consignment represented a genuine interstate movement between registered dealers and was supported by a tax invoice, e-way bill and consignment note. The quantity and description of the goods matched the accompanying documents.

There was no discrepancy concerning missing transport papers or non-payment of tax. The Tribunal also noted that the transaction was recorded in the books of both registered entities, and the department had not alleged its omission from regular statutory returns.

On these facts, the Bench agreed with the first appellate authority that the lapse was a bona fide human error and the transaction was revenue neutral.

The Tribunal observed that Section 129 is intended to address tax evasion, clandestine removal and movement of goods without proper documentation.

A clerical or sequential error in invoice numbering does not convert an otherwise legitimate transaction into an illegal or untaxed movement, it held.

The Bench reasoned that where the e-way bill, goods and quantity match, and the transaction is duly accounted for, a numbering lapse by itself does not establish an intention to evade tax.

It further observed that technical or venial breaches should not attract severe financial penalties unless the authorities establish a substantive contravention or loss of revenue.

The ruling therefore rested on the absence of any material discrepancy beyond invoice numbering and the lack of evidence of tax evasion.

The Tribunal agreed that, if the department wished to pursue a technical infringement of Rule 46, the appropriate provision for consideration would be Section 125, rather than detention and seizure under Section 129.

However, the Bench did not substitute the cancelled penalty with a general penalty.

It observed that even the imposition of a penalty under Section 125 required deliberate non-compliance to be established, which was absent in the present case.

The Tribunal additionally stated that Uttar Pradesh tax authorities had no jurisdiction to adjudicate a violation of Rule 46(b) by a supplier registered in Maharashtra.

This observation concerned the alleged invoice issuance violation by the out-of-state supplier, which formed the basis of the disputed proceedings.

GSTAT upheld the first appellate authority’s order quashing the ₹6,65,028 penalty.

The Bench described the appellate decision as sound, logical and consistent with settled principles of tax jurisprudence. It dismissed the appeal without any order as to costs.

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