Transfer of Machinery or Tax Evasion? – High Court Quashes Penalty
in GST E-Way Bill Case
Case
Summary
- Case Title:
M/s D And D Construction And Developers Company vs. Additional
Commissioner and Others
- Case Numbers:
WRIT TAX No. 1384 of 2022 (leading case) & WRIT TAX No. 1383 of 2022
- Court:
High Court of Judicature at Allahabad, Court No. 10
- Hon'ble Judge:
Justice Piyush Agrawal
- Date of Order:
8 April 2025
- Counsel for Petitioner:
Mr. Suyash Agarwal
- Counsel for Respondent:
Mr. Ravi Shanker Pandey, Additional Chief Standing Counsel
Background
and Facts of the Case
The petitioner, M/s D and
D Construction and Developers Company, is a registered construction and
infrastructure company with its principal office located in Jodhpur, Rajasthan.
The company had been awarded a contract to carry out earthwork for the development
of the Bundelkhand Expressway-IV between Bakhariya (Auraiya District) and
Kudrail (Etawah District) in Uttar Pradesh.
To execute this contract,
the company decided to transfer one of its own old Compactor Machines
from its head office in Rajasthan to its project site in Auraiya, Uttar
Pradesh. The transfer was done using a delivery challan dated 17.03.2020
and was meant solely for the company’s own use at a different site.
On 16.03.2020, the
vehicle carrying the machinery was intercepted by the GST authorities,
who alleged that the goods were being transported without a valid invoice,
bilty, or e-way bill. Despite the subsequent production of relevant
documents, the officers proceeded to seize the goods and initiated
proceedings under Section 129 of the CGST Act, leading to a penalty
order dated 20.03.2020.
The petitioner appealed
the order, but the appellate authority dismissed it on 08.04.2022. Hence, the
petitioner filed the current writ petitions before the Allahabad High Court.
Issues
Involved
1. Whether
the transfer of an old machine from head office to a branch office within
another state constitutes a “supply” liable to GST?
2. Whether
proceedings under Section 129 of the CGST Act are valid when there is no
intent to evade tax?
3. Whether
seizure and penalty for a stock transfer for internal use is lawful?
Submissions
by the Petitioner
Mr. Suyash Agarwal,
learned counsel for the petitioner, advanced the following submissions:
1. Nature
of Transaction: The transaction was merely a branch
transfer or stock transfer from the company's head office to a work
site. No element of “sale” was involved.
2. Absence
of Taxable Supply: As no consideration was exchanged and
the machinery was already owned by the petitioner, it cannot be treated as a
taxable supply under GST.
3. Production
of Documents: All documents including the delivery
challan and e-way bill were subsequently presented before the
authorities, and there was no discrepancy reported in the content of the
documents.
4. No
Intent to Evade Tax: There was no evidence to suggest that
the petitioner intended to evade taxes. Thus, the invocation of Section 129 was
arbitrary and contrary to the scheme of the GST Act.
5. Support
from Case Laws:
o M/s
Vacmet India Ltd. vs. Addl. Commissioner (Writ Tax No. 687 of 2019)
o Shyam
Sel & Power Ltd. [(2023) 11 Centax 99 (All)]
o Same
Deutzfahr India Pvt. Ltd. [Telangana HC, Writ Petition No. 13392/2020]
These judgments supported
the proposition that mere procedural lapses, in absence of an intention
to evade tax, do not justify penalty or seizure under Section 129.
Submissions
by the Respondent
Mr. Ravi Shanker Pandey,
representing the State, supported the seizure and penalty orders,
maintaining that:
1. Mandatory
Requirement: The goods were intercepted without an
e-way bill or invoice at the time of checking, which is a clear violation of
GST provisions.
2. Legal
Action Justified: The authorities acted within their legal
powers in detaining the goods and issuing penalty under Section 129 of the Act.
3. Delay
in Presentation of Documents: The subsequent
production of documents after interception does not undo the initial violation.
Court's
Analysis & Findings
Justice Piyush Agrawal
examined the case with a pragmatic and purposive interpretation of the GST
provisions.
1. Nature
of Movement: The movement of the machine was for
internal business use and not a sale. The delivery challan showed a transfer
from Rajasthan to UP for project work, not for sale or transfer to a third
party.
2. Absence
of Tax Evasion: The Court found no evidence of tax
evasion or intention to evade tax. Section 129 must be interpreted with
Section 130, which necessitates intent to evade for invoking punitive
action.
3. Minor
Procedural Lapse: Even if there was a delay or omission in
generating the e-way bill, it was later produced, and there was no
discrepancy in the goods and purpose of transport.
4. Provisions
to be Read Harmoniously: The Court emphasized that Section
129 cannot be applied in isolation. It has to be interpreted alongside
Section 130, which establishes confiscation for tax evasion.
5. Judicial
Precedents Applied: The Court relied on the Shyam Sel,
Vacmet India, and Same Deutzfahr cases, which had ruled against
penalty in similar intra-company transfers.
Judgment
The Hon’ble High Court
held as follows:
- The impugned orders dated
08.04.2022 (appellate) and 20.03.2020 (seizure/penalty) are quashed.
- The penalty proceedings under
Section 129 were not sustainable, as the intent to evade tax was not
proven.
- The Court allowed both writ
petitions.
- The State was directed to refund
the fine/penalty deposited by the petitioner within one month from
receiving a certified copy of the judgment.
- If the refund was not issued within
the stipulated time, the petitioner would be entitled to 4% interest
per annum on the amount till actual payment.
Conclusion
The case is a landmark
decision that reinforces the principle of intention in GST compliance.
The Allahabad High Court firmly established that mere technical lapses,
such as not carrying an e-way bill at the time of transport, do not amount
to tax evasion if the goods are being moved for legitimate internal use.
This judgment will serve
as a safeguard for genuine businesses against undue harassment by
authorities for procedural lapses. It also clarifies the application of
Sections 129 and 130 in the GST Act, ensuring that only deliberate
violations are punished, not bonafide mistakes.
Disclaimer: All
the Information is based on the notification, circular and order issued by the
Govt. authority and judgement delivered by the court or the authority
information is strictly for educational purposes and on the basis of our
best understanding of laws & not binding on anyone.
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