GST Penalty Set Aside Where Valid Documents Ignored: Allahabad
High Court (Lucknow Bench)
By Adv. (CS) Yogesh Verma / Mob. No. 9571206611
Introduction
In an important judgment,
the Allahabad High Court has held that GST authorities cannot ignore valid
documents like invoice, e-way bill and consignment note without any concrete
evidence of fraud. The Court made it clear that suspicion alone cannot be the
basis for imposing penalty under GST law. Where documents are proper and there
is no discrepancy in goods, the action of detention and penalty becomes
arbitrary and unsustainable.
CASE DETAILS:
· M/s
Aviraj Trading vs State of U.P. & Others
· WRIT
TAX No. - 1561 of 2025
· Date
of Order: 16.01.2026
Facts of
the Case
The case arose from a
transaction involving M/s Aviraj Trading, which was the consignee of goods
transported from Raipur (Chhattisgarh) to Shimla (Himachal Pradesh). The goods
were being transported with all necessary documents including a valid tax invoice,
e-way bill and consignment note.
During transit, the
vehicle was intercepted by the GST authorities in Hardoi, Uttar Pradesh. The
driver produced all relevant documents, and the authorities also carried out
physical verification of the goods. Importantly, no discrepancy was found in
the quantity or nature of goods during inspection.
Despite this, the
authorities issued a notice under Section 129(3) of the GST Act and proceeded
to impose a penalty.
Ground
Taken by the Department
The department mainly
relied on the statement of the driver, wherein it was allegedly indicated that
the goods were not loaded from Raipur as declared, but from Lucknow. Based on
this statement, the authorities concluded that the movement of goods was doubtful
and imposed a penalty.
Another argument raised
later by the department was that the GST registration of the petitioner as well
as the supplier had been cancelled.
Contentions
of the Petitioner
The petitioner strongly
challenged the action of the department by stating that the goods were
genuinely transported from Raipur to Shimla and all documents in support of the
transaction were duly produced before the authorities.
It was argued that the
invoice, e-way bill and consignment note clearly established the movement of
goods and there was no material on record to contradict these documents. The
petitioner further submitted that the authorities had ignored these documents
without any valid reason and had passed the order merely on assumptions.
The petitioner also
contended that the cancellation of registration, which was relied upon by the
department, had taken place after the date of transaction and therefore had no
relevance to the case.
Failure of
the Authorities
The authorities failed to
properly appreciate the documents placed on record. Even though the goods were
released in favour of the petitioner by treating him as the owner, the same
authorities proceeded to impose penalty by treating him as a different person
under the GST provisions.
The orders passed by the
authorities were found to be vague and not supported by proper reasoning. The
findings recorded were not in line with the material available on record, which
clearly established the genuineness of the transaction.
Observations
of the Court
The Allahabad High Court
observed that when valid documents such as invoice, e-way bill and consignment
note are available, and there is no allegation of fraud or falsification, the
authorities cannot ignore such documents without strong evidence.
The Court further noted
that the goods had already been released to the petitioner treating him as the
owner, and therefore, there was no justification for initiating proceedings
under Section 129 by treating him differently.
It was also observed that
the cancellation of registration took place after the transaction and hence
could not be used as a ground to justify the penalty.
The Court held that the
entire approach of the authorities was arbitrary and not supported by material
evidence.
Decision of
the Court
The Allahabad High Court
set aside both the original order as well as the appellate order. The matter
was remanded back to the adjudicating authority with a direction to reconsider
the case after properly examining the facts and documents on record and after
giving an opportunity of hearing to the petitioner.
Conclusion
This judgment reinforces
the principle that GST authorities must act on the basis of evidence and not
mere suspicion. Proper documents such as invoice and e-way bill cannot be
brushed aside without any proof of fraud or discrepancy. The decision serves as
a strong reminder that arbitrary exercise of power under Section 129 is not
permissible and that fairness and reasoned decision-making are essential in GST
proceedings.
Disclaimer: All the Information is based on the notification, circular advisory 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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