2025 (7) TMI 1699 - HC - GST

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

Tractors And Farm Equipment Ltd. & Anr. Versus Union Of India & Ors.

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 ... Levy of tax and penalty u/s 129(3) of GST Act - failure to generate Part B of the e-way bill - intent to evade tax present or not - opportunity of hearing not provided - violation of principles of natural justice - HELD THAT:- Having considered the facts of the case, it is not in dispute that the respondent authorities have passed the impugned order under Sec. 129(3) of the GST Act in flagrant breach of the principles of natural justice - It is pertinent to note that interception of the goods in question happened on 04.10.2018 which has resulted into passing of the impugned order on the same day i.e. 04.10.2018. The impugned order of levy of tax and penalty under Sec. 129(3) was passed on 04.10.2018. The provision of Section 129 clearly provides the time limit of seven days for passing the order of levy of penalty and interest. However, the respondent authorities appears to have taken a very harsh view of not granting any further time to the petitioner, by calling upon the petitioner to give reply to the show-cause notice in Form GST MOV-07 on the same day i.e. 04.10.2018 and by recording that the petitioner failed to raise any objections, has passed the impugned order of levy of tax and penalty. Therefore, without going into the merits as to whether such order is justified or not, the impugned order is quashed and set aside only on the ground that such order is not sustainable in the eyes of law due to flagrant breach of principles of natural justice - it is deemed appropriate that the matter could have been remanded to the respondent authorities for reconsidering for giving an opportunity of hearing to the petitioner. Petition allowed by way of remand. 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.