Delivery Challan Is Not a Shield: GSTAT Rejects E-Way Bill defence

Case Summary ;The Lucknow Bench of the Hon’ble GST Appellate Tribunal (“GSTAT”) has delivered an important judgement emphasizing upon consequences of transporting goods without an e-way bill, particularly where the taxpayer seeks to contend that the movement was not in connection with a supply of goods but fails to establish through documentation. In D.S. Traders v. Commissioner, SGST, Lucknow, the Tribunal rejected the taxpayer’s appeal and upheld the penalty imposed under Section 129 of the CGST Act, principally on account of the taxpayer’s failure to substantiate its defence with adequate documentary evidence and statutory backing. The ruling carries an important message for taxpayers in respect of importance of corroboratory evidence. A plausible explanation is not enough. A GST defence must be supported by documents and the relevant statutory provision.

Facts of the Case

M/s D.S. Traders had transported excavators from its client’s work site to its own place of business. The movement was undertaken under the cover of a Delivery Challan, but no e-way bill was generated.

During transportation, the vehicle was intercepted by the authorities and proceedings were initiated under Section 129 of the CGST Act on the ground that the goods were being transported without the requisite e-way bill, resulting in a contravention of Rule 138 of the CGST Rules.

The taxpayer challenged the levy of penalty before the Tribunal.

The Defence Raised by the Taxpayer

The taxpayer’s principal contention was that the movement of the excavator did not constitute a supply of goods.

According to the taxpayer, the excavator had been used at the client’s site for providing site-preparation services and was merely being returned to the taxpayer’s own place of business after completion of the work.

The taxpayer argued that there was:

• no intention to make a taxable supply of the excavator;
• no tax evasion in respect of the goods; and
• therefore, no basis for invoking Section 129 merely because an e-way bill had not been generated.

The taxpayer also raised an additional contention that the movement was within 20 kilometres within the State of Uttar Pradesh and claimed that such movement was exempt from the requirement of generating an e-way bill, provided the goods were transported under a Delivery Challan.

Taxpayer also placed reliance on various High Court decisions where relief had allegedly been granted in cases involving non-generation of e-way bills.

The Question Before the Tribunal

The dispute essentially required consideration of whether the taxpayer could escape the consequences of non-generation of an e-way bill by establishing that:

1. The goods were being moved for a purpose other than supply; and

2. The movement fell within an alleged distance-based exemption from e-way bill requirements.

The Applicable Legal Framework

Movement of goods without supply

Section 31 of the CGST Act contemplates issuance of a tax invoice by a person supplying taxable goods before or at the time of removal of goods.

However, where goods are moved for reasons other than supply, Rule 55 of the CGST Rules permits such movement under the cover of a Delivery Challan.

But there is an important qualification. The taxpayer claiming that the movement was otherwise than by way of supply must be able to establish the factual basis of such claim. In present case, an invoice raised for supply of service.

Requirement of an e-way bill

Section 68 of the CGST Act, read with Rule 138 of the CGST Rules, requires generation of an e-way bill for transportation of goods above the prescribed threshold.

While the threshold of ₹50,000 applies uniformly in the case of inter-State movement, the position may vary for intra-State movement depending upon the State-specific provisions.

Significantly, the distance-based concession is limited to the circumstances specifically contemplated under the law. It cannot simply be assumed to apply to every movement of goods merely because the distance involved is short.

What Went Wrong?

This is where the case assumes significance.

The taxpayer had an explanation for why the excavator was being transported without an e-way bill.

However, the explanation was not substantiated by corroborative evidence.

The service transaction was not adequately documented

The taxpayer contended that the excavator had been used for providing services at the customer’s site.

Yet, as noted in the proceedings, the taxpayer failed to place on record the service invoices which could have demonstrated that:

• Services had actually been provided to the customer;
• The excavator had been used in connection with those services; and
• GST had been charged and discharged on the consideration received for such services.

The absence of such documents weakened the taxpayer’s fundamental argument that the movement was for a purpose other than supply of goods.

The alleged exemption had no statutory foundation

The taxpayer also sought to rely upon an alleged Uttar Pradesh exemption for movement of goods within 20 kilometres.

However, the taxpayer was unable to place on record the relevant notification issued by the State Government establishing such exemption.

Thus, what was presented as a legal defence remained unsupported by the very statutory instrument on which the defence was purportedly based.

Earlier judicial decisions could not substitute for facts

The taxpayer also relied upon various High Court decisions granting relief in e-way bill-related matters.

However, the Tribunal distinguished those decisions from the facts of the present case.

Findings of the Hon’ble Tribunal

After considering the submissions of both sides and the applicable legal position, the Tribunal found that the taxpayer had failed to adequately substantiate its case.

In particular, the Tribunal took note of the taxpayer’s failure to disclose the tax treatment of the consideration received for the site work and its failure to produce sufficient documentary evidence regarding the arrangement with the customer.

According to the Tribunal, these deficiencies were material in determining whether the movement was genuinely for a purpose other than supply and whether there was any element of tax evasion.

The Tribunal also took note of the absence of the notification allegedly providing an exemption from the e-way bill requirement.

The judicial precedents relied upon by the taxpayer were also found distinguishable on facts.

Accordingly, the Tribunal rejected the appeal and upheld the penalty imposed under Section 129 of the CGST Act.

Conclusion

At first glance, the dispute may appear to be merely another case of non-generation of an e-way bill. But the larger lesson is far more significant. The taxpayer may genuinely have transported the excavator without an intention to supply it. The omission to generate the e-way bill may even have been inadvertent.

Yet, when the transaction was questioned, the taxpayer was unable to support its explanation with sufficient documentary evidence and could not establish the statutory basis for the exemption it sought to rely upon and that made all the difference.