Seizure of goods and vehicle for missing E-way bill before GST implementation ruled illegal

The Allahabad HC held that seizure of goods and vehicle for lack of E-way bill on 17.12.2017 was illegal as no such requirement existed pre-GST implementation. The court noted conflicting judgments from coordinate benches regarding validity of UP state notification dated 21.07.2017 prescribing documentation for interstate goods movement. Following precedents from Kerala, Madras, Telangana and Andhra Pradesh HCs, the court held states lack jurisdiction to prescribe documentation for interstate trade covered under IGST Act. Due to contradictory coordinate bench decisions, the matter was referred to a larger bench for definitive ruling on notification validity while ordering immediate release of seized goods and vehicle upon furnishing indemnity bond.

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Issues Involved:
1. Authority of the State of U.P. to issue notification under Rule 138 of the U.P. GST Rules.
2. Jurisdiction of the State to prescribe documents for inter-State transactions under the IGST Act.
3. Legality of seizure and penalty imposed for not carrying E-way bill-01.
4. Validity of the notification dated 21.07.2017.
5. Conflict between judgments of different Coordinate Benches.

Detailed Analysis:

1. Authority of the State of U.P. to Issue Notification under Rule 138 of the U.P. GST Rules:
The petitioners challenged the State of U.P.'s authority to issue a notification dated 21.07.2017, which mandated the use of E-way bill-01 for goods valued over Rs. 50,000/- being imported into U.P. from outside the state. The petitioners argued that under Rule 138 of the U.P. GST Rules, the State could only regulate intra-State transactions, not inter-State ones, which fall under the IGST Act and are governed by the Central Government.

2. Jurisdiction of the State to Prescribe Documents for Inter-State Transactions under the IGST Act:
The petitioners contended that the State of U.P. lacked jurisdiction to prescribe any documentation for inter-State transactions. They argued that the IGST Act and CGST Act authorize only the Central Government to specify the documents required for inter-State movement of goods. This argument was supported by the definitions of "Government" under Section 2(9) of the IGST Act and Section 2(53) of the CGST Act, which refer to the Central Government.

3. Legality of Seizure and Penalty Imposed for Not Carrying E-way Bill-01:
The petitioners argued that the seizure and penalty imposed by the Mobile Squad Officials for not carrying E-way bill-01 were illegal. They pointed out that the E-way bill was generated immediately after the interception, and all supporting documents were provided. The penalty was based solely on the absence of the E-way bill at the time of interception, which the petitioners claimed was not a valid ground for such severe action.

4. Validity of the Notification Dated 21.07.2017:
The court examined conflicting judgments from other High Courts, including Kerala, Madras, and Telangana, which had held that State Governments could not regulate inter-State movement of goods. The court also referred to a Division Bench decision of the Allahabad High Court in Satyendra Goods Transport Corporation, which invalidated the seizure and penalty based on the notification dated 21.07.2017.

5. Conflict Between Judgments of Different Coordinate Benches:
The court noted a conflict between two Coordinate Bench judgments: one in U.P. Kar Adhivakta Sangathan, which upheld the State's notification, and another in Satyendra Goods Transport Corporation, which invalidated the seizure and penalty based on the same notification. The court recognized the need for a larger Bench to resolve this conflict and provide a definitive ruling on the validity of the notification and the State's authority to prescribe documents for inter-State transactions.

Conclusion:
The court directed the matter to be placed before a larger Bench to address the following questions:
- Whether the judgment in U.P. Kar Adhivakta Sangathan, which upheld the State's notification, is correct and constitutes a binding precedent.
- Whether the judgment in Satyendra Goods Transport Corporation, which invalidated the seizure and penalty, correctly nullified the impact of the State's notification.
- Whether the State Government is empowered under Rule 138 of the U.P. GST Rules to issue a notification prescribing documents for inter-State movement of goods.

The court also ordered the release of the seized goods and vehicle upon the petitioners furnishing appropriate security.

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