No penalty on goods with valid tax invoice & e-way bill despite suspended registration

Introduction

Taxation laws, particularly under the GST regime, aim to ensure compliance while avoiding undue hardship for taxpayers. A recent judgment by the Allahabad High Court in the case of M/s Lakhdatar Traders v. State of Uttar Pradesh sheds light on the validity of penalties imposed when goods in transit are supported by proper documentation, even if the supplier’s GST registration is temporarily suspended.

Case Background: M/s Lakhdatar Traders

The case revolved around the interception of a vehicle transporting goods from Patna, Bihar, to Gurugram, Haryana. On October 4, 2024, the vehicle was stopped in Mathura, Uttar Pradesh. During the inspection:

• Documentation: The goods were accompanied by a valid tax invoice and an e-way bill.
• Action by Authorities: Despite proper documentation, the vehicle was detained based on the suspension of the supplier’s GST registration.
• Notice Issued: A penalty demand of ₹14,81,490 was raised under Section 129(1)(b) of the CGST Act.

Key Arguments by the Petitioner

1. Proper Documentation: The goods were fully compliant with GST requirements, including a tax invoice and e-way bill.
2. Jurisdiction Issues: The suspension of GST registration occurred in Bihar, but the action was taken by authorities in Uttar Pradesh without jurisdiction over the matter.
3. Invalid Basis for Penalty: Penalty was imposed solely because the supplier’s GST registration was suspended, which the petitioner argued was unjustified.

Issue at Hand

Can a penalty be imposed under Section 129 of the CGST Act if goods in transit are accompanied by proper documentation, but the supplier’s GST registration is suspended?

Court’s Decision

The Allahabad High Court ruled in favor of the petitioner, dismissing the penalty imposed by the authorities. The court observed:

1. Precedent Set by Halder Enterprises
   Referring to Halder Enterprises v. State of Uttar Pradesh, the court reiterated that when goods are accompanied by valid documents, suspension of registration cannot be the sole ground for imposing penalties.
2. Circular Applicability
   The court highlighted a circular issued on December 31, 2018, which deems goods to belong to the documented owner if they are accompanied by valid documents.
3. Jurisdictional Concerns
   The penalty was imposed by authorities in Uttar Pradesh, while the registration suspension occurred in Bihar. The court noted that jurisdictional overreach invalidates the action taken.
4. Fair Treatment of Taxpayers
   The judgment emphasized that the GST regime is designed to promote compliance and ease of doing business. Penalizing taxpayers for technical issues unrelated to compliance is counterproductive.

Implications for Taxpayers

This judgment provides significant relief to taxpayers, particularly businesses dealing with inter-state transactions. Key takeaways include:

1. Valid Documentation Protects Taxpayers: As long as goods are accompanied by proper invoices and e-way bills, authorities cannot impose penalties solely based on registration issues.
2. Importance of Jurisdiction: Actions must align with the jurisdictional authority overseeing the taxpayer.
3. Judicial Precedents Favoring Fairness: The judiciary continues to uphold taxpayer rights in cases of undue penalties.

Practical Advice

• Maintain Compliance: Ensure all goods in transit are accompanied by valid tax invoices and e-way bills.
• Monitor GST Registration: Regularly check the status of GST registration to avoid disruptions.
• Seek Legal Remedies: If faced with unjust penalties, judicial precedents like this one provide a robust defense.

Conclusion

The Allahabad High Court’s decision underscores the importance of balancing compliance enforcement with fairness to taxpayers. By reaffirming that valid documentation shields businesses from penalties, the judgment promotes a taxpayer-friendly interpretation of GST laws.