Analysis of GST Detention & Penalty Cases – Goods in Transit

Under the Goods and Services Tax regime in India, the movement of goods is strictly regulated through the requirement of generating and carrying an e-way bill during transportation. Failure to comply with provisions of the GST law, especially during transit, can lead to detention and seizure of goods and vehicles, along with penalties. This article delves into the legal framework, common grounds for detention, analysis of relevant case laws, and best practices to avoid penalties.

Legal framework under GST for Goods in transit—The key provisions governing detention and penalties during transit are as follows—

• Section 129 of the CGST Act, 2017: Deals with detention, seizure, and release of goods and conveyances in transit.

• Section 130 of the CGST Act, 2017: Relates to confiscation of goods or conveyance and levy of penalty.

• Rule 138 of the CGST Rules, 2017: Pertains to the e-way bill mechanism.

Mandatory Documents for Transit:

• E-Way Bill (Form GST EWB-01)

• Tax Invoice or Bill of Supply

• Transporter ID and other prescribed documents

Grounds for Detention—The GST authorities may detain goods and impose penalties in the following situations:

As per circular No. 64/38/2018, in case a consignment of goods is accompanied with an invoice or any other specified document and also an e-way bill, proceedings under section 129 of the CGST Act may not be initiated, inter alia, in the following situations:

1. Spelling mistakes in the name of the consignor or the consignee but the GSTIN, wherever applicable, is correct;

2. Error in the pin-code but the address of the consignor and the consignee mentioned is correct, subject to the condition that the error in the PIN code should not have the effect of increasing the validity period of the e-way bill;

3. Error in the address of the consignee to the extent that the locality and other details of the consignee are correct;

4. Error in one or two digits of the document number mentioned in the e-way bill;

5. Error in 4 or 6 digit level of HSN where the first 2 digits of HSN are correct and the rate of tax mentioned is correct;

6. Error in one or two digits/characters of the vehicle number.

Penalty Structure under Section 129

Relevant case laws—

Non generation of E-way bill

• In case of Falguni steels v/s State of U.P. and Others [2024] 68 TAXLOK.COM 111 (Allahabad), although the petitioner failed to generate the E-way bill on time, the Tax Invoices issued contained all the relevant details including the detail of the vehicle transporting the goods. ALLAHABAD HIGH COURT directed the Respondent to refund the amount of tax and penalty deposited by the petitioner.

• In M/s Hindustan Herbal Cosmetics v. State of U.P. and Others (Writ Tax No.1400 of 2019 decided on January 2, 2024) [2024] 68 TAXLOK.COM 010 (Allahabad), the court held that mens rea to Evade tax is essential for imposition of penalty. The factual aspect in the present case clearly does not indicate any mens rea whatsoever for evasion of tax.

Discrepancy in invoice and e-way bill

• A mere omission to mention the address of delivery where the same is different from the place of supply in the E-way bill, cannot be a ground for the respondent to presume that there is an intention to violate the law or to evade tax. It is important to note that interpretation of taxing statutes should be done in a way to facilitate business and inter-State trading, and not in a perverse manner which would result in impediment of the same by harassing business persons. [2020] 30 TAXLOK.COM 018 (Telangana)

• The vital Contention urged by the petitioner that the so called error pointed out by the respondent, that the address shown in the invoice is different from the address shown in the E Way bill is only a clerical mistake and is not a serious mistake which should justify the Detention and penalty proceedings. [2020] 20 TAXLOK.COM 174 (Kerala)

• In this Writ Petition, the petitioner has challenged the impugned order of demand of tax and penalty under Section 129 of the CGST Act. There is a post facto inclusion of the address, which was mentioned in the tax invoice raised by the supplier and in the E-way bill. This court inclined to quash the impugned order, as there is no attempt to evade tax. [2022] 47 TAXLOK.COM 010 (Madras)

Intentional undervaluation to evade tax

• If there was a huge difference between MRP and Invoice value and clearly reflect the extent of undervaluation of the goods, penalty cannot be avoided. Ganesh Ceramics V/s The Assistant Commissioner [2020] 20 TAXLOK.COM 183 (CGST-Appeals, Jaipur) Radha Fragrance V/s Union of India And 4 Others [2023] 57 TAXLOK.COM 023 (Allahabad)

Common Compliance Mistakes & How to Avoid Them

Recommendations & Best Practices

• Conduct regular training for logistics and compliance staff.

• Implement internal audits for e-way bill compliance.

• Use technology solutions to track expiry and documentation.

• Maintain clear communication with transporters and vendors.

• Seek advance rulings on ambiguous classifications.

Conclusion

While GST has streamlined the indirect tax regime, compliance during goods movement remains a critical and sensitive area. Businesses must proactively ensure correct documentation and procedural adherence to avoid punitive actions under Section 129.

Judicial interpretations have shown a balanced approach, emphasizing the need for proportionality and intent in enforcement actions. Nevertheless, prevention through robust compliance remains the most effective solution.