The Goods and Services Tax Appellate Tribunal (GSTAT), State Bench at Lucknow, has set aside a penalty of ₹6,76,694 imposed on a consignment of refined glycerine, holding that deviation from the usual transport route, without evidence of an existing statutory contravention, could not sustain proceedings under Section 129 of the GST law.
The bench of Santosh Kumar Srivastava (Judicial Member) and Arvind Kumar (Technical Member) found that the goods were accompanied by valid documents and that the department’s own demand summary recorded Punjab as the place of supply. This contradicted the allegation that the consignment was intended for an undisclosed buyer in Uttar Pradesh.
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The central legal issue was whether a vehicle’s presence near an undeclared factory, coupled with the driver’s statement and a substantial route deviation, justified a GST penalty when valid transit documents identified a different destination and no unloading had occurred.
The transaction had a total value of ₹22,18,052, inclusive of tax. The consignment was covered by a tax invoice, an e-way bill and a transport bilty, all dated August 10, 2024. The documents identified Ludhiana, Punjab, as the destination. The goods had been loaded in Mangalore, Karnataka.
On August 18, 2024, the State Tax Mobile Squad intercepted the tanker near the factory gate of a local oil concern in Kanpur Dehat, Uttar Pradesh. According to the department, the tanker was approximately 500 kilometres away from the usual route towards Punjab and was manoeuvring to enter the factory premises.
The department relied on the driver’s statement that a broker named Anil Yadav had instructed him to unload the glycerine at the Kanpur factory. Officers alleged that the Punjab-bound documents were being used to conceal an intended supply to an undisclosed local buyer.
A penalty of ₹6,76,694 was consequently imposed under Section 129(3) of the CGST/UPGST Act through an order dated August 23, 2024. The appellant deposited the amount to obtain release of the goods and vehicle.
First Appellate Authority Upheld the Penalty
The first appellate authority confirmed the penalty on November 20, 2025, relying on the interception location, the driver’s statement and video evidence concerning the vehicle’s movement towards the factory gate.
The appellant had explained that the driver stopped near the factory to meet other drivers for Raksha Bandhan and had become apprehensive because an unidentified private vehicle was following him. It also disputed the circumstances in which his statement was recorded.
The first appellate authority rejected these explanations as afterthoughts and upheld the inference that the goods were intended for delivery in Kanpur rather than Ludhiana.
Before the tribunal, the department defended the penalty, arguing that documents could not be treated as valid when the actual movement of goods indicated delivery at an undeclared destination.
The tribunal identified a fundamental inconsistency in the department’s case: while the allegation concerned diversion of goods to Uttar Pradesh, the accompanying Form GST DRC-07 recorded the place of supply as Punjab.
Referring to Section 10(1)(a) of the IGST Act, the bench explained that where a supply involves movement of goods, the place of supply is the location where that movement terminates for delivery to the recipient.
The tribunal held that the Punjab entry was consistent with the invoice and e-way bill. Had the department concluded that delivery was to terminate in Uttar Pradesh, its demand record should have reflected that conclusion.
The bench therefore found that the department’s allegation of an undisclosed Uttar Pradesh destination conflicted with its own formal adjudication record.
The tribunal rejected the contention that the tanker’s substantial departure from the usual route independently justified the penalty.
It relied on the Allahabad High Court’s decision in M/s Om Prakash Kuldeep Kumar v. Additional Commissioner Grade-2, which distinguished the GST framework from the earlier VAT regime on the requirement to disclose a transport route.
Applying that decision, the bench held that route deviation did not constitute a statutory offence under the GST law when the goods were accompanied by valid documents.
The tribunal found that the transaction was documented through a valid e-invoice and e-way bill and was reflected in the GST system. The unusual location of the tanker did not, by itself, establish that those documents concealed a different transaction.
The tribunal also examined the department’s reliance on the driver’s statement about instructions allegedly received from Anil Yadav.
It found that the record did not establish a verifiable connection or transaction history between the appellant and the named broker. The statement lacked supporting proof sufficient to establish the alleged diversion.
The bench further held that the presence of a vehicle in a service lane near a factory gate could not conclusively establish unauthorised unloading or supply when the transit documents remained valid.
Crucially, the department’s own order described the vehicle as being in the process of entering the gate and suggested that it would have entered had officers intervened a minute later. The tribunal noted that the interception occurred outside the gate and that no unloading had taken place.
Liability under Section 129(3), the tribunal held, required clear evidence of a contravention existing at the time of interception, rather than a presumption about a possible future violation.
The tribunal distinguished the department’s reliance on Yashika Overseas and Ghata Mehandipur Balaji Grinding Works.
It observed that those decisions arose under the earlier tax regime, where route declaration had statutory significance. It also noted that the authorities cited involved circumstances where transit documents were absent at interception and relevant bills were produced later.
In the present case, the invoice and e-way bill already accompanied the consignment. The earlier decisions therefore did not justify treating the driver’s statement as conclusive proof of evasion.
The bench also relied on the Supreme Court’s decision in Hindustan Steel Ltd. v. State of Orissa concerning the judicial exercise of penalty powers. On the facts before it, the tribunal found that the allegation rested on assumptions rather than proof of tax evasion or deliberate defiance of law.
Allowing the appeal, the tribunal set aside both the penalty order dated August 23, 2024, and the first appellate order dated November 20, 2025.
It directed that any amount deposited pursuant to the proceedings be refunded in accordance with law, subject to verification of payment and fulfilment of statutory requirements.
The ruling underscores the need for evidence connecting suspicious transport circumstances to an actual statutory breach. On the facts of this case, route deviation, proximity to a factory and an uncorroborated driver’s statement were insufficient to sustain the penalty.
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