GST Vidhi | GST Case Law

Mere Physical Variation without Tax Rate Mismatch Cannot Justify Penalty under Section 129 of GST Act

Summary of the Case

In an important judgment dated 19 November 2024, the Allahabad High Court quashed the penalty proceedings initiated against M/s A.N. Enterprises, observing that mere physical differences between transported goods and invoice description, without any mismatch in HSN Code or tax rate, does not justify detention and penalty under Section 129 of the CGST Act, 2017. The Court noted that all relevant documents—e-way bill, tax invoice, and GR—were present and correct. Further, it rejected the Revenue’s argument of undervaluation, emphasizing that under the GST Circular dated May 9, 2018, undervaluation cannot be a ground for detention. This decision strengthens the principle that tax compliance should be judged on substantive factors, not technical interpretations or assumptions.

1. Case Overview

• Case Name: M/s A.N. Enterprises vs. Additional Commissioner and 2 Others
• Case Number: Writ Tax No. 366 of 2021
• Neutral Citation: 2024:AHC:180850
• Date of Judgment: 19 November 2024
• Court: High Court of Judicature at Allahabad

2. Background and Facts

The petitioner, M/s A.N. Enterprises, is a registered dealer (GSTIN No. 09BOCPA6668F1ZX) engaged in the business of trading scrap materials.

Transaction details:

• On 29.09.2019, the petitioner sold aluminum cable.
• The goods were dispatched under:
• Tax Invoice No. 55 dated 29.09.2019
• E-Way Bill No. 451087481110 dated 29.09.2019
• Goods Receipt (G.R.) No. 371 dated 29.09.2019

During transit, the consignment was intercepted by the authorities. Upon physical verification, it was found that instead of "pure aluminum cable," the consignment contained PVC Aluminum Mixed Cable (Feeder Cable).

Grounds for detention:

• Goods allegedly mismatched with the description in documents.
• Later during appeal, a new ground of undervaluation was introduced.

Key Observations:

• HSN Code 8544 was correctly mentioned in the e-way bill.
• The tax rate applicable to aluminum cables and PVC mixed cables was the same.

Nonetheless, a penalty order was passed under Section 129 of the CGST Act, which the petitioner challenged.

3. Legal Issues Raised

The following critical questions were raised before the Court:

1.    Whether minor variation in the physical composition of goods without a change in HSN Code or tax rate warrants detention and penalty under Section 129?

2.    Whether the allegation of undervaluation raised for the first time at the appellate stage was legally sustainable?

3.    Whether detention solely on suspicion of undervaluation is permissible under GST laws and circulars?

4.    Whether the authorities followed due process before penalizing the petitioner?

4. Submissions by the Petitioner

Mr. Suyash Agarwal, counsel for the petitioner, made the following submissions:

• All the required documents—invoice, e-way bill, GR—were valid and accompanied the consignment.
• HSN Code 8544 and tax rates matched between the invoice and the goods actually being transported.
• Physical nature (pure aluminum vs. mixed PVC aluminum cable) does not affect tax liability since tax rates were identical.
• There was no intent to evade tax; hence, invocation of Section 129 was illegal.
• In the appeal, new grounds of undervaluation were introduced without issuing a show cause notice, violating principles of natural justice.
• As per the Commercial Tax Department Circular dated 09.05.2018, goods should not be detained on grounds of undervaluation.
• Heavy reliance was placed on M/s Shamhu Saran Agarwal & Co. vs. Additional Commissioner (Writ Tax No. 33 of 2022, decided on 31.01.2024), where the High Court ruled in favor of the taxpayer in similar circumstances.

5. Submissions by the Respondent

The Additional Chief Standing Counsel (ACSC) Mr. Ravi Shanker Pandey, defending the State, argued:

• During physical verification, goods did not precisely match the description in the invoice.
• The price mentioned in the invoice appeared lower than the market value, raising suspicion of undervaluation.
• Thus, detention and penalty under Section 129 were justified.

However, no clear rebuttal was made regarding the correctness of HSN Code or tax rate uniformity.

6. Relevant Legal Framework

Section 129 of CGST Act, 2017

• Empowers tax authorities to detain goods in transit if accompanied by invalid/incomplete documents or suspicion of tax evasion.

Circular dated 09.05.2018 by Commissioner, Commercial Tax, U.P.

• Clearly states that goods should not be detained merely on allegations of undervaluation.
• Such issues should be dealt with through assessment proceedings under Section 73 or 74.

7. Court’s Analysis and Findings

Justice Piyush Agrawal systematically examined the facts and law and made the following key observations:

• Complete documentation was present—tax invoice, e-way bill, GR.
• The HSN Code (8544) and tax rate mentioned matched the goods transported.
• No evidence was produced by the department to show that tax liability differed due to alleged composition variation.
• The introduction of undervaluation allegations at appellate stage without issuing a show cause notice was illegal.
• Physical appearance differences (aluminum cable vs. PVC aluminum mixed cable) do not affect the taxability, especially when there is no change in classification or tax rate.
• Detention on the ground of undervaluation is specifically prohibited by the Circular dated 09.05.2018.

The Court cited the case of Hindustan Coca Cola Pvt. Ltd. vs. Assistant State Tax Officer (Kerala High Court, 2020 NTN (73)-58), wherein it was held that minor classification disputes or valuation disputes should not result in detention, but should be settled through assessment proceedings.

Thus, the Court held:

"In the event of under valuation, appropriate notice under Sections 73 or 74 of the Uttar Pradesh GST Act is required. Detention under Section 129 cannot be justified merely on suspicion of undervaluation."

8. Judgment and Final Order

The Hon’ble Court concluded:

• The impugned penalty order dated 26.11.2020 was unsustainable.
• It quashed the penalty proceedings initiated under Section 129.
• Directed that any amount deposited by the petitioner during proceedings be refunded within four weeks.

Thus, the writ petition was allowed.

9. Conclusion

This judgment serves as a major victory for honest taxpayers and establishes the following principles:

• Physical variation in goods without change in HSN Code or tax rate is not sufficient ground for penalty under Section 129.
• Undervaluation allegations must be handled through proper assessment proceedings, not through arbitrary detention.
• Departmental Circulars are binding and must be followed by field officers.
• Due process of law is paramount before imposing penalties under GST.

The ruling strongly discourages abuse of discretionary powers by GST authorities and provides much-needed procedural safeguards to businesses engaged in the transportation of goods.

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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