High Court Overturns Tax Invoice Penalty, Ruling Technical Error Does Not Constitute Intentional Tax Evasion

HC quashed penalty orders for E Tax Invoice non-compliance, finding no evidence of tax evasion intent. Despite technical error due to recent turnover threshold reduction, all other documentation was accurate. Court determined the omission was a genuine mistake without mens rea. Penalty orders were set aside, and deposited amounts were to be returned within one month.

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Issues:
Challenge to penalty imposition for not generating E Tax Invoice as per GST Rules.

Analysis:
The petitioner sought to quash the penalty order and the appellate order confirming it, arguing that the goods were detained due to the absence of an E Tax Invoice, despite compliance with other documentation requirements. The petitioner contended that there was no provision for carrying an E Tax Invoice under Rule 138A of the Goods and Services Tax Rules, and that the authorities erred in seizing the goods without evidence of tax avoidance intent. It was highlighted that the annual turnover was below the threshold for E Tax Invoice issuance, and a recent reduction in the turnover limit from Rs. 20 crores to Rs. 10 crores led to a genuine mistake due to lack of awareness. The petitioner emphasized the absence of any finding on tax evasion intent.

The standing counsel countered, citing Section 129(3) of the UPGST and CGST Act 2017, which mandates the issuance of a tax invoice as per Rule 48(4) of the Rules. The counsel argued that the petitioner's failure to comply justified the authorities' actions and requested the dismissal of the writ petition.

The Court acknowledged that all required documents were present during transit, with only the E Tax Invoice missing due to a technical error. Notably, there were no discrepancies in the documentation regarding the goods' quality and quantity. The Court recognized the recent reduction in the turnover threshold for E Tax Invoice issuance and deemed the petitioner's omission a human error. Critically, the Court noted the absence of any evidence or finding indicating an intent to evade tax, crucial for initiating proceedings under section 129(3) of the Act. The Court questioned the lack of any recorded finding on mens rea for tax evasion by the authorities. Consequently, in the absence of evidence of mens rea, the Court quashed the penalty orders and allowed the writ petition.

As a result of the judgment, any amount deposited during the proceedings was directed to be returned to the petitioner within one month of the order's certified copy production.

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