Order imposing tax and penalty under Sec. 129(3) of GST quashed for lack of hearing opportunity

The HC quashed and set aside the order imposing tax and penalty under Sec. 129(3) of the GST Act due to violation of natural justice, as no opportunity of hearing was provided before passing the order on the same day of interception. The court noted the authorities failed to allow the petitioner the statutory seven-day period to respond to the show-cause notice. Without addressing the merits of the levy, the matter was remanded to the authorities for reconsideration after affording a proper hearing. The petition was allowed accordingly.

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1. ISSUES:

1.1 Whether the impugned order passed under Section 129(3) of the GST Act, demanding tax and penalty for transportation of goods without a complete e-way bill, violates the principles of natural justice by not granting an opportunity of hearing.

1.2 Whether Section 129 of the GST Act mandates automatic levy of tax and 100% penalty upon breach of Rule 138 of the GST Rules without discretion to reduce or waive penalty.

1.3 Whether the absence of Part B of the e-way bill due to technical glitches can justify exemption from penalty under Section 129 of the GST Act.

1.4 Whether the appellate authority erred in confirming the penalty order without considering the petitioner's submissions and relevant judicial precedents.

1.5 Whether the impugned order is sustainable despite the petitioner having deposited the demanded tax and penalty and goods being released.

2. RULINGS / HOLDINGS:

2.1 The impugned order under Section 129(3) of the GST Act is quashed and set aside solely on the ground of "flagrant breach of principles of natural justice" as no opportunity of hearing was granted before passing the order on the same day of interception.

2.2 Section 129(1) of the GST Act mandates levy of tax and penalty where goods are transported without a valid e-way bill as prescribed under Rule 138, and the authorities have no discretion to reduce or waive the penalty once breach is established.

2.3 Technical glitches causing non-generation of Part B of the e-way bill do not exempt the transporter or consignor from liability under Section 129 of the GST Act, as the e-way bill is a mandatory document for lawful movement of goods.

2.4 The appellate authority erred in failing to consider the petitioner's submissions regarding absence of mala fide intent and technical glitches, as well as relevant judicial precedents, before confirming the penalty order.

2.5 The petitioner's deposit of tax and penalty and subsequent release of goods does not preclude challenge to the order under Article 227 of the Constitution, particularly when the order suffers from procedural infirmity.

3. RATIONALE:

3.1 The Court applied the legal framework under Section 129 of the Central and State GST Acts and Rule 138 of the GST Rules, which regulate detention, release, and penalty for transportation of goods without valid e-way bills.

3.2 The Court emphasized the mandatory nature of the e-way bill under Rule 138 and the statutory requirement under Section 129(1) for levy of penalty upon breach, leaving no discretion to authorities to mitigate penalty.

3.3 The Court recognized the principle of natural justice as a fundamental procedural safeguard requiring opportunity of hearing before passing adverse orders, which was violated by issuing the penalty order on the same day as the show-cause notice.

3.4 The Court noted that while remanding the matter for reconsideration was an option, the appellate authority had already confirmed the order without addressing natural justice concerns, justifying quashing the penalty order outright.

3.5 The Court left open all other substantive contentions on merits for consideration in appropriate proceedings, focusing solely on procedural fairness in this judgment.

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