Suspension of GST Registration After Dispatch Cannot Justify
Seizure: High Court's Important Ruling
Summary of
the Case
In a landmark ruling
dated 11 November 2024, the Allahabad High Court (Chief Justice’s
Bench) held that when goods are accompanied by proper tax invoices and
e-way bills, mere subsequent suspension of GST registration after
dispatch cannot justify penalty or seizure under Section 129 of the CGST
Act. In the case of M/s Lakhdatar Traders vs. State of U.P. and Others,
goods were intercepted in transit after the dispatch, and authorities sought to
penalize the petitioner based on suspension of registration by the
jurisdictional officer. The Court quashed the penalty order, reaffirming that ownership
of goods supported by valid documents must be respected, and the detention
provisions cannot be misapplied where intent to evade tax is absent.
This ruling strengthens safeguards against arbitrary detention of goods during
transit under GST law.
1. Case Overview
- Case Name:
M/s Lakhdatar Traders vs. State of U.P. and Others
- Case Number:
Writ Tax No. 1852 of 2024
- Neutral Citation:
2024:AHC:176212-DB
- Date of Judgment:
11 November 2024
- Court:
High Court of Judicature at Allahabad (Chief Justice's Court)
2. Background
and Facts
M/s Lakhdatar Traders,
a registered taxpayer under GST laws, was transporting goods from Patna
(Bihar) to Gurugram (Haryana).
Sequence of Events:
- Vehicle No. DL1 MA-8846
carrying the goods was intercepted on 04.10.2024 at Mathura (U.P.)
around 11 PM.
- The driver's statement was
recorded (Form GST MOV-01), and physical verification of goods
was done.
- No discrepancy
was found between goods physically verified and documents produced.
- However, authorities issued a notice
on 08.10.2024 (Form GST MOV-07) stating that the registration of
Lakhdatar Traders had been suspended on 03.10.2024 by jurisdictional
officers in Bihar.
- Penalty order dated 16.10.2024
was passed demanding ₹14,81,490 under Section 129(1)(b) of
the CGST Act.
Key Facts:
- All documents
including tax invoice and e-way bill were present at the time of
interception.
- The suspension of registration
occurred after dispatch but before interception.
3. Legal
Issues Raised
The central questions
before the Court were:
1. Whether
suspension of registration after dispatch affects the validity of
transportation accompanied by proper documents?
2. Whether
detention and penalty under Section 129 are justified when no
discrepancy exists in goods and documentation?
3. Whether
the responding officers in U.P. had jurisdiction to assess the validity
of GST registration granted by Bihar authorities?
4.
Submissions by the Petitioner
Shri Aditya Pandey,
counsel for the petitioner, strongly contended:
- The vehicle carried all necessary
documents: proper tax invoice and e-way bill dated 01.10.2024.
- The suspension of GST registration
was initiated by Bihar authorities after dispatch (on 03.10.2024).
- There was no discrepancy in the
goods as per physical verification.
- The respondent officers in U.P.
lacked jurisdiction to adjudicate upon the validity of registration
granted by another State (Bihar).
- Cited judgments:
- Halder Enterprises vs. State of U.P.
(Writ Tax No. 1297 of 2023, decided 11.12.2023).
- M/s Sahil Traders vs. State of U.P.
- M/s Sanjay Sales Agency vs. State of
U.P.
These precedents
emphasized that when goods are properly documented, mere technical
issues about registration status cannot justify penalty.
5.
Submissions by the Respondent
The Standing Counsel
for the State submitted:
- The registration of the petitioner
was suspended on 03.10.2024.
- Thus, goods transported under
documents issued by a suspended dealer should be treated as unauthorized,
justifying penalty under Section 129(1)(b).
However, the State
could not dispute:
- Goods were accompanied by valid
tax invoice and e-way bill.
- No discrepancy was found upon physical
verification.
- Suspension of registration occurred after
dispatch.
6. Relevant
Legal Framework
Section 129 of CGST Act,
2017
- Deals with detention, seizure, and
release of goods and conveyances in transit.
- Requires intent to evade tax
or absence of valid documents for attracting penalty.
CBIC Circular Dated
31.12.2018
- States that where goods are
accompanied by a valid tax invoice and e-way bill, the owner of
goods must be deemed, and seizure should be avoided unless gross
violation is apparent.
7. Court’s
Analysis and Findings
The Bench (Justice Arun
Bhansali and Justice Vikas Budhwar) held:
- No discrepancy
was found in the physical goods vis-à-vis the accompanying documents.
- Registration suspension
was initiated after the dispatch of goods, not at the time of
invoice generation.
- Respondents’ reasoning that the
registration was suspended does not hold because:
- Goods were dispatched prior to
suspension.
- Registration status after dispatch
is irrelevant for goods already en route.
The Court referred
extensively to Halder Enterprises, where it was held:
"Once the goods were
accompanied by valid tax invoice and e-way bill, subsequent issues regarding
suspension do not justify penalty under Section 129."
The Bench emphasized:
- The circular dated 31.12.2018
binds authorities to treat a properly documented transporter as owner
for release under Section 129(1)(a).
- The action of State authorities in
imposing penalty under Section 129(1)(b) was arbitrary and without
jurisdiction.
8. Judgment
and Final Order
The Court concluded:
- The penalty order dated 16.10.2024
is quashed.
- The writ petition is allowed.
- Authorities are directed to release
the goods in terms of Section 129(1)(a) within two weeks.
Thus, Lakhdatar
Traders succeeded in getting the penalty and detention order set aside.
9.
Conclusion
This judgment reiterates
fundamental GST principles:
- Mere suspension of registration after
dispatch is no ground for penalizing
transporters or detaining goods.
- Proper documentation at the time of
dispatch safeguards transporters and
consignors.
- Jurisdictional authority matters—officers
in one State cannot adjudicate on actions initiated by another State’s
authorities.
- Section 129 must be interpreted
strictly, not expansively, to protect
legitimate business operations.
The ruling provides
significant protection to honest traders facing arbitrary actions during
interstate goods movement.
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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