E-way bill expiry penalty moderated where supply is zero-rated due to export; penalty quashed and refund with interest ordered.

Where an interstate export was zero-rated and no tax was payable, the court held that imposing the full statutory penalty for expiry of an e-way bill was inconsistent with the GST scheme; limited e-way extension was factually impossible due to vehicle breakdown and procedural contravention did not justify a harsh penalty. The HC applied principles moderating penalties where no tax liability arises and quashed the penalty order, setting aside the impugned orders and directing repayment of the amount with applicable interest to the respondent within twelve weeks.

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Issues: (i) Whether penalty under Section 129(1)(a) of the Central Goods and Services Tax Act, 2017 is imposable for expiry of an e-way bill in respect of exported (zero-rated) goods where no tax is payable and the e-way bill could not be extended due to conveyance breakdown; and whether the impugned orders imposing and upholding the penalty should be quashed and the amount refunded with interest.

Analysis: The issue concerns the application of the GST scheme to interstate supplies that are zero rated by virtue of the Integrated Goods and Services Tax Act, 2017 and the CGST Rules, 2017, including the availability of refund or adjustment under Rule 89 and Rule 96 of the Central Goods and Services Tax Rules, 2017 and the relevant provisions of the IGST Act (Sections 5(1), 7(5), 16(1) and 17(1)). Rule 138(10) of the Central Goods and Services Tax Rules, 2017 permits limited extension of an e-way bill; factual findings show the e-way bill expired and the vehicle was intercepted shortly thereafter and that extension was not possible due to breakdown. Section 129 provides for levy of penalty for contraventions, but where the supply is zero rated and no tax is payable, computation and imposition of a harsh penalty under Section 129(3) is inconsistent with the statutory scheme. Prior decisions applying these legal principles treat procedural contraventions in contexts where no tax is payable as requiring moderation of penalty, and permit relief including reduction or quashing of penalty and direction for refund where appropriate.

Conclusion: The penalty imposed under Section 129(1)(a) and the subsequent order upholding it are quashed. The respondent orders dated 29.11.2025 and 02.12.2025 are set aside and the amount of Rs. 18,00,140/- shall be refunded with applicable interest within twelve weeks. Relief is therefore in favour of the assessee.

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