2025 (4) TMI 1307 - HC - GST

Levy of penalty u/s 129(1)(a) of the GST Actfailure to generate Part-B of the E-Way Bill - non-application of mind - violation of principles of natural justice - HELD THAT - It appears that it is not in dispute that the petitioner has issued the Delivery Challan for job work dated 07.08.2018 and E-Way Bill was also generated but only Part-B of the E-Way Bill was not generated by the petitioner which stipulates for mentioning of the vehicle number in which the goods were to be transported. From bare perusal of the reasons assigned by the Appellate-Authority it is opined that the same are totally without application of mind in the facts of the case and the petitioner who is not a supplier as defined under Section 2(105) of the GST Act and who has only transported the goods other than by way of supply for job work could not have been saddled with the penalty of Rs.7, 36, 490/- for not generating Part-B of the E-Way Bill - the respondent-Authorities have passed the impugned order without considering the facts of the case that the contravention of the Rule 138 of the GST Rules is lineal and technical for not generating Part-B of the E-Way Bill more particularly when the goods (in question) were accompanied by a valid Delivery Challan for job work which is not in dispute and only non-generation of Part-B of the E-Way Bill by the petitioner stating the vehicle number cannot be considered as a gross negligence on part of the petitioner and the penalty as prescribed in clause (a) of Section 129(1) of the GST Act could not have been levied but the same as per the Circular No.64 of 2018 dated 14th September 2018 issued by the CBIC. Considering the above circular issued by the CBIC it is true that the case of the petitioner does not fall in any of the situations specified in clauses (a) to (f) of the paragraph No.5 of the said Circular. However in the facts of the case as the petitioner has generated Part-A of the E-Way Bill which also contains the GST Number and name of the transporter accompanied by the Delivery Challan for job work stating the vehicle number which is not disputed by the respondent-Authorities it is opined that the benefit of the Circular No.64/38/2018-GST is required to be given to the petitioner too. Conclusion - The petitioner who is not a supplier as defined under Section 2(105) of the GST Act and who has only transported the goods other than by way of supply for job work could not have been saddled with the penalty of Rs.7, 36, 490/- for not generating Part-B of the E-Way Bill. The impugned order passed in Form GST MOV-9 is hereby modified by reducing the penalty to Rs.25, 000/- only and the respondents are directed to refund the balance amount paid by the petitioner either in Electronic Cash Ledger or by Electronic Credit Ledger in accordance with the provisions of the Act and Rules - the petition is partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the petitioner, engaged in transporting goods for job work, violated the provisions of Rule 138 of the Central/State Goods and Services Tax Rules, 2017 (GST Rules) by not generating Part-B of the E-Way Bill?

- Whether the penalty imposed under Section 129(1)(a) of the GST Act, amounting to 200% of the value of goods, is justified in the facts of the case?

- Whether the petitioner, who is not a 'supplier' under Section 2(105) of the GST Act and transported goods for job work accompanied by a valid Delivery Challan, is liable for the full penalty for non-generation of Part-B of the E-Way Bill?

- Whether the impugned order passed without granting an opportunity of hearing to the petitioner is legally sustainable?

- Whether the Circular No.64/38/2018-GST dated 14th September, 2018 issued by the CBIC, which provides guidelines for penalties in case of errors in E-Way Bill generation, is applicable to the petitioner's case?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Rule 138 of the GST Rules by non-generation of Part-B of the E-Way Bill

The legal framework under Rule 138 of the CGST Rules mandates the generation of an E-Way Bill for the movement of goods exceeding a prescribed value. The E-Way Bill comprises Part-A and Part-B, with Part-B requiring details such as the vehicle number used for transportation.

The petitioner admitted to generating Part-A of the E-Way Bill but failed to generate Part-B, which is a mandatory requirement under Rule 138(1). The respondent authorities contended that this omission constituted a violation attracting penalty under Section 129(1)(a) of the GST Act.

The petitioner argued that the omission was a clerical mistake, contending that Part-B was to be generated by the transporter, not the petitioner, and that the goods were accompanied by a valid Delivery Challan for job work, which exempts the transaction from being treated as a supply under Section 143 of the GST Act.

The Court noted that the petitioner's failure to generate Part-B was undisputed and acknowledged the statutory requirement. However, the Court also recognized that the petitioner was not a supplier but was transporting goods for job work, accompanied by a Delivery Challan, which is a valid document under the GST regime.

Thus, while the petitioner technically violated Rule 138 by not generating Part-B, the nature of the goods' movement and accompanying documentation reduced the severity of the contravention.

Issue 2: Justification of penalty under Section 129(1)(a) of the GST Act

Section 129(1)(a) prescribes detention, seizure, and penalty at 200% of the value of goods if goods are transported in contravention of the GST Act or Rules.

The respondent authorities imposed a penalty of Rs.7,36,490/- (200% of the goods' value) on the petitioner for non-generation of Part-B. The petitioner paid the penalty under compulsion but contested its validity, asserting that the penalty was excessive and unjustified given the circumstances.

The Court examined the Circular No.64/38/2018-GST issued by the CBIC, which clarifies that penalties under Section 129 should not be invoked for certain minor errors in E-Way Bill generation and that in such cases a nominal penalty of Rs.500/- per consignment under Section 125 is appropriate.

The Court observed that although the petitioner's case did not fall within the specific exceptions listed in the Circular (such as spelling mistakes or minor errors), the petitioner had generated Part-A of the E-Way Bill and provided a Delivery Challan, which is significant in the context of job work.

Given that the goods were not supplied but sent for job work and accompanied by valid documentation, the Court held that the penalty of 200% was disproportionate and not justified in the facts of the case.

Issue 3: Liability of the petitioner as a non-supplier transporting goods for job work

Section 2(105) defines 'supplier' under the GST Act. The petitioner contended that it was not a supplier but merely transporting goods for job work, which is governed by Section 143 of the GST Act.

The Court agreed that the petitioner was not a supplier and that the goods were not 'supplied' but transported for job work purposes, accompanied by a valid Delivery Challan. This fact diminished the petitioner's liability for the penalty under Section 129(1)(a), which is generally aimed at penalizing tax evasion or unauthorized movement of goods.

The Court emphasized that the contravention was technical and lineal, relating to a clerical lapse rather than an intention to evade tax.

Issue 4: Legality of the impugned order passed without opportunity of hearing

The respondent No.3 passed the order confirming the penalty on 13.08.2018 under Section 129(5) of the GST Act without waiting for the scheduled hearing on 14.08.2018. The petitioner's objections were submitted before the hearing date.

The Court held that passing an order without affording the petitioner an opportunity of hearing violated principles of natural justice and was without application of mind. The appellate authority also failed to consider this procedural lapse in dismissing the appeal.

This procedural irregularity weighed against the respondent authorities' case.

Issue 5: Applicability of Circular No.64/38/2018-GST dated 14th September, 2018

The Circular clarifies the circumstances under which penalty proceedings under Section 129 should not be initiated for errors in E-Way Bill generation and prescribes nominal penalties for minor mistakes.

The respondent authorities contended that the Circular was not applicable as the petitioner's case did not fall within the exceptions.

The Court acknowledged this but found that the petitioner's generation of Part-A of the E-Way Bill and valid Delivery Challan for job work warranted application of the Circular's spirit, if not letter, to mitigate the penalty.

The Court thus applied the principle of proportionality and fairness embodied in the Circular to reduce the penalty significantly.

3. SIGNIFICANT HOLDINGS

- "The petitioner, who is not a 'supplier' as defined under Section 2(105) of the GST Act and who has only transported the goods other than by way of supply for job work, could not have been saddled with the penalty of Rs.7,36,490/- for not generating Part-B of the E-Way Bill."

- "The respondent-Authorities have passed the impugned order without considering the facts of the case that the contravention of the Rule 138 of the GST Rules is lineal and technical for not generating Part-B of the E-Way Bill, more particularly, when the goods (in question) were accompanied by a valid Delivery Challan for job work which is not in dispute."

- "The penalty as prescribed in clause (a) of Section 129(1) of the GST Act could not have been levied but the same as per the Circular No.64 of 2018 dated 14th September, 2018 issued by the CBIC, ought to have been resorted."

- "The impugned order dated 13th August, 2018 passed in Form GST MOV-9 is hereby modified by reducing the penalty to Rs.25,000/- only and the respondents are directed to refund the balance amount paid by the petitioner."

- The Court underscored the importance of affording an opportunity of hearing before passing orders under Section 129(5) of the GST Act, emphasizing adherence to principles of natural justice.