Transit-State GST powers allow inspection and verification, but not penalty where the supply has no tax nexus in that State.

In an inter-State transit through Uttar Pradesh, GST officers may intercept and verify goods in movement, but they cannot impose penalty where the supply originated and ended outside the State and no tax nexus arose in Uttar Pradesh. The court's reasoning treated inspection and detention powers as regulatory only; they do not create jurisdiction to levy penalty when the transaction is not taxable in the transit State. A missing e-tax invoice was treated as an irregularity, not a sufficient basis for detention or penalty where a valid e-way bill and physical tax invoice existed. The goods and vehicles were therefore directed to be released.

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Issues: (i) Whether the State GST authorities of Uttar Pradesh had jurisdiction to detain goods and impose penalty in respect of an inter-State transaction where the goods merely transited through Uttar Pradesh from one State to another outside Uttar Pradesh. (ii) Whether the provisions relating to inspection, detention, cross-empowerment and e-way invoice requirements conferred such jurisdiction on the transit-State authorities.

Issue (i): Whether the State GST authorities of Uttar Pradesh had jurisdiction to detain goods and impose penalty in respect of an inter-State transaction where the goods merely transited through Uttar Pradesh from one State to another outside Uttar Pradesh.

Analysis: The statutory scheme of the GST enactments permits interception, inspection and verification of goods in movement, and such regulatory action may be taken by the transit-State authorities. However, the levy and collection of tax under the IGST regime depend upon the place of supply and the taxable event, which in the facts found did not arise in Uttar Pradesh. Where the goods originated outside Uttar Pradesh and were destined outside Uttar Pradesh, and there was no allegation that the goods were different or that the documents were bogus, no tax liability arose in Uttar Pradesh. In such circumstances, the transit State could not convert a mere regulatory interception into a power to impose penalty for a transaction having no tax nexus in that State.

Conclusion: The State GST authorities of Uttar Pradesh had no jurisdiction to impose penalty on the admitted facts and could only communicate the detected discrepancy to the competent authorities of the State where the supplier was registered.

Issue (ii): Whether the provisions relating to inspection, detention, cross-empowerment and e-way invoice requirements conferred such jurisdiction on the transit-State authorities.

Analysis: The provisions authorising officers of one tax administration to act for another operate within the framework of the same taxable territory and do not create inter-State cross-empowerment between different State tax administrations for transactions having no taxable incidence in the transit State. Sections governing inspection and detention in transit regulate movement of goods and can justify stoppage and verification, but not penal action where no levy arises in Uttar Pradesh. The absence of an e-tax invoice was treated as an anomaly, but not as a basis to detain or penalise goods that were otherwise supported by a valid e-way bill and physical tax invoice and were not shown to be taxable in Uttar Pradesh.

Conclusion: The cited provisions did not confer authority on the Uttar Pradesh GST officers to detain the goods for penalty purposes or to sustain the impugned penalty orders.

Final Conclusion: The writ petitions succeeded because the goods were in pure transit through Uttar Pradesh, the penalty orders lacked jurisdictional foundation, and the petitioners were entitled to release of the goods and vehicles.

Ratio Decidendi: In an inter-State supply passing through a transit State with no tax nexus there, the transit-State GST authorities may intercept and verify goods, but they cannot impose penalty under transit provisions unless a levy arises in that State or the transaction is shown to have a taxable connection there.

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