The Goods and Services Tax Appellate Tribunal (GSTAT), Agra Bench, has quashed a penalty of ₹7,75,240 imposed on a machinery supplier whose goods were intercepted in Uttar Pradesh while being transported to Karnataka. The Tribunal held that, in the circumstances of the case, authorities in a state through which goods merely passed could not invoke Section 129 to impose a penalty where the supply originated and terminated outside that state and was supported by valid documents.
The Bench of Ajeet Singh (Judicial Member) and Vivek Kumar (Technical Member) further held that a one-day difference between outward dispatch documents and an internal stock-transfer invoice was a revenue-neutral inter-branch accounting mismatch that did not justify the penalty.
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The Tribunal set aside the original penalty order and the first appellate order. It also directed the refund of any penalty amount or security collected during the proceedings, along with interest as provided by law.
The appellant/assessee manufactures and supplies industrial machinery and equipment, primarily to cement plants and other industrial undertakings. The company held GST registrations in Delhi and Haryana.
The dispute concerned machinery supplied to ACC Limited in Karnataka. The consignment was covered by tax invoices dated September 27, 2024, and October 3, 2024, together with e-way bills dated October 3, 2024.
The truck carrying the goods was intercepted at Raibha Toll Plaza in Agra on October 7, 2024, at approximately 12:40 p.m.
According to the Tribunal’s account, verification revealed no discrepancy in the description of the goods, invoices, e-way bills or quantity. The objection related to the date of an internal stock-transfer invoice between the taxpayer’s Haryana and Delhi registrations.
While the outward dispatch documents were dated October 3, 2024, the invoice for the interstate stock transfer from the Haryana registration to the Delhi registration was issued on October 4, 2024.
The proper officer questioned how the internal stock-transfer invoice could be generated a day after dispatch. Following a show-cause notice, the officer imposed a penalty of ₹7,75,240 under Section 129 of the CGST/UPGST Acts.
First Appellate Authority Upholds Penalty
The taxpayer challenged the penalty under Section 107 of the CGST Act. However, the first appellate authority dismissed the appeal on July 23, 2025, affirming the proper officer’s findings.
The company subsequently approached the GSTAT under Section 112(1), seeking to set aside the original order, the appellate order and the consequential penalty demand.
The department defended the findings of the authorities below and sought dismissal of the appeal.
Can A Transit State Exercise Penal Jurisdiction?
The Tribunal examined whether Uttar Pradesh authorities, acting solely in a transit state, could seize the goods and impose a penalty under Section 129 when the transaction originated in Delhi or Haryana, was destined for Karnataka, and involved no tax liability or evasion arising in Uttar Pradesh.
It also considered whether a minor timing mismatch in internal stock-transfer invoices justified a 200% penalty when the movement was otherwise covered by the required documents.
The Bench noted that Uttar Pradesh was merely the transit state. Both the origin and destination of the supply were outside Uttar Pradesh, and the consignment was accompanied by the documents required by law.
The Tribunal relied on the Allahabad High Court’s decision in M/s Maruti Enterprises v. State of U.P., cited in the order as 2026-VIL-515-All.
As recorded by the Tribunal, the High Court distinguished the power to inspect and verify goods in transit from the power to impose tax or penalties.
Applying that reasoning, the GSTAT held that transit-state authorities could not exercise penal jurisdiction under Section 129 in the circumstances before it, where the supply originated and ended outside the state and no tax incidence arose there.
The Bench further recorded that, where a transit-state officer noticed a possible documentary deficiency or anomaly between registrations, the officer could flag the issue to the jurisdictional GST authorities in the state of origin or destination.
Referring to the High Court’s reasoning, the Tribunal also noted the constitutional protection for trade and commerce under Article 301 in relation to seizure and penal demands by transit-state authorities.
It accordingly decided the jurisdictional issue against the department.
Addressing the documentary discrepancy, the Tribunal found that valid tax invoices and e-way bills covered the supply to ACC Limited in Karnataka.
It characterised the difference between the October 3 dispatch documents and the October 4 internal stock-transfer invoice as a revenue-neutral accounting sequence mismatch between branches.
The Bench reasoned that Section 129 was intended to address deliberate tax evasion during transit, including the movement of untaxed or unaccounted goods and the use of fake bills. The technical invoice-dating irregularity between two registrations of the same business did not justify the penalty in this case.
The Tribunal therefore decided this issue against the department as well.
The GSTAT set aside the first appellate order and the original order dated October 8, 2024. The consequential penalty demand was also quashed.
The Bench directed that any penalty amount or security deposited or collected during the proceedings be refunded along with interest in accordance with law. It did not specify an interest rate or a separate refund deadline.
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