E-Invoice Lapse And Section 129: Reading The GSTAT Ruling In VLM Group

Summary: The GST Appellate Tribunal, Lucknow Bench, in M/s VLM Group v. Additional Commissioner, Grade II (Appeal) 3rd, Kanpur (APL/98/LCK/2026), decided on 28 September 2026, set aside a penalty of Rs. 63,72,000 imposed under Section 129(3) for generating an e-invoice after commencement of goods movement. The appellant transported machinery valued at Rs. 2,08,86,000, including IGST of Rs. 31,86,000, supported by a tax invoice, E-Way Bill and transport documents. Although the e-invoice was generated after interception, the Tribunal found no discrepancy in the goods, value, documents or transaction particulars and no evidence of intention to evade tax. Relying on the Allahabad High Court decisions in Nancy Trading Company, Kumar Cargo Solution and Hindustan Herbal Cosmetics, along with the Supreme Court’s ruling in Hindustan Steel Ltd., the Tribunal held that a procedural lapse alone did not justify such a substantial penalty. It also observed that payment made to secure release of detained goods could not be treated as an admission of wrongdoing. The article examines the ruling’s implications for Section 129, unresolved questions concerning Rules 48(5) and 138A, the possibility of a lesser penalty under Section 125, and the consequential refund of the deposited amount under Sections 54 and 56 of the GST law.

Introduction

A missing IRN on an otherwise genuine invoice does not, by itself, justify a penalty under Section 129. That is the clear message of the Lucknow Bench of the GST Appellate Tribunal in M/s VLM Group v. Additional Commissioner, Grade II (Appeal) 3rd, Kanpur, APL/98/LCK/2026, decided on 28.09.2026. The Tribunal deleted a penalty of Rs. 63,72,000 that had been imposed only because the e-invoice was generated after the goods began to move.

Since e-invoicing was extended to smaller taxpayers, mobile squads have treated the absence of a QR code as a ground for detention in its own right. Penalties at 200% of the tax are levied even where the tax invoice, the E-Way Bill and the transport document are all in order. The ruling is among the first reasoned decisions of the Tribunal on this recurring dispute, and it deserves close reading by dealers and practitioners alike.

The Facts And The Chronology

The appellant, a Maharashtra partnership firm, manufactures FFS and BFS machines. It despatched four FFS machines and parts, valued at Rs. 2,08,86,000 including IGST of Rs. 31,86,000, from Bhiwandi to a buyer in Barabanki. The goods moved under a tax invoice, an E-Way Bill and a TCI Express LR, all dated 03.10.2024.

The mobile squad intercepted the vehicle at Barajore Toll Plaza on 06.10.2024. The invoice carried no IRN or QR code under Rule 46(r) and no declaration under Rule 46(s). Treating the invoice as invalid under Rule 48(5), the officer detained the goods and imposed penalty at 200% of the IGST under Section 129(3). The firm paid and secured release. Its first appeal was rejected ex parte on 09.04.2025.

The decisive feature is the gap between the fourth and fifth rows. The e-invoice existed, with an IRN and acknowledgement, two days before the penalty order was passed.

The Rival Contentions

The appellant conceded that the e-invoice was not generated before movement. Its case was that the lapse was procedural. Every particular of the supply was on the documents, the E-Way Bill disclosed the movement, and the IRN was obtained soon after. It relied on Nancy Trading Company v. State of U.P., Writ Tax No. 892 of 2023, and argued that no Section 129 action lies without a finding on intent to evade.

The Department took a stricter line. E-invoicing under Rule 48(4) was mandatory for the appellant, so a manual invoice was no substitute. An IRN obtained after interception could not cure a movement that had already begun. Pressure of work on the accounts staff was an internal matter. The judgments cited, it said, turned on their own facts and did not hold that a missing e-invoice can never attract Section 129.

What The Tribunal Held

The Tribunal did not excuse the lapse. It accepted in terms that the Department had proved a breach of the e-invoicing procedure (para 4.27). What it refused to accept was that this breach, standing alone, carried a penalty of over Rs. 63 lakh.

The reasoning moves in four steps.

1. The movement was documented. The invoice, E-Way Bill and LR identified the supplier, the recipient, the goods, the value and the tax (paras 4.4 and 4.7). Nobody alleged that any of them was false (para 4.8).

2. The later e-invoice matters. It cannot wipe out the original lapse, but it is relevant to whether the dealer was hiding the supply or simply late with an electronic step (para 4.12). The Department produced nothing to show it related to a different transaction (para 4.11).

3. Section 129 needs more than a lapse. The provision is attracted where the irregularity comes with a substantive defect: goods not matching the papers, a fake invoice, undervaluation, a fictitious party, an invalid E-Way Bill, or other signs of tax avoidance (para 4.21). None was shown here (paras 4.22 and 4.29).

4. Payment is not admission. Money deposited to release detained goods cannot be read as a confession of evasion, particularly when the dealer has contested the levy throughout (para 4.24).

On this footing the Tribunal concluded that neither the proper officer nor the first appellate authority had proved evasion (para 4.30). It set aside the appellate order and allowed the appeal with consequential relief.

The Authorities Relied On

The Tribunal built its conclusion on three decisions of the Allahabad High Court and one of the Supreme Court.

Of these, Kumar Cargo Solution is the closest on facts and carries the weight of a Division Bench. The Tribunal rightly treated it as the principal authority (para 4.32).

Critical Appraisal: Strengths

The order has several features that will make it useful well beyond its own facts.

A decision on merits. The first appeal had gone ex parte. A remand would have been the easy course. The Tribunal decided the matter finally, sparing the dealer another round of litigation over a penalty already paid.

A ready checklist. Para 4.14 lists eight facts found in the appellant’s favour, from the existence of the invoice to the absence of any discrepancy in goods or value. Practitioners can use it as a template for pleading similar cases.

A workable test. Para 4.21 states, in plain terms, the circumstances in which Section 129 is properly attracted. That gives first appellate authorities a standard to apply rather than a bare rule.

Restraint on a weak argument. The appellant had pressed the 30 day reporting window in the GSTN advisory of 13.09.2023. The Tribunal did not rest on it. That was sound, because the window concerns reporting to the IRP and says nothing about movement without an IRN.

Para 4.24. The finding that a deposit made for release is not an admission will be of value in almost every detention matter.

Critical Appraisal: Questions Left Open

The order is sound in result, but it leaves gaps the Department may exploit in an appeal to the High Court under Section 117.

Rule 48(5) is not directly confronted. The rule says that an invoice not issued in the manner of Rule 48(4) shall not be treated as an invoice. Rule 138A requires an invoice to accompany the goods. On the Department’s reading, the goods therefore moved without any valid invoice at all. The Tribunal treats the paper invoice as existing (para 4.4) but does not explain why the deeming fiction does not reach it. The better answer, which the order implies but does not state, is that Rule 48(5) settles the character of the document and not the exercise of penal discretion.

The text of Section 129. After the Finance Act, 2021, effective 01.01.2022, Section 129(1) speaks of any contravention of the Act or the Rules. Intent to evade appears expressly in Section 130, not in Section 129. The Department will say the Tribunal read in a condition the legislature left out. The reply lies in the High Court decisions applied, which were rendered after the amendment and bind the Tribunal, and in the principle of Hindustan Steel.

No word on a lesser penalty. Having found a breach, the Tribunal deleted the penalty altogether. It did not consider whether a general penalty under Section 125, or the minor discrepancy treatment in Circular No. 64/38/2018 GST dated 14.09.2018, would have been the proportionate course. That circular was not cited by either side, and its absence leaves room for a remand on quantum.

Drafting. Para 4.16 ends without completing its sentence. Para 4.15 reads “mens era”. The Supreme Court decision is cited without a citation. The summary in Form APL-04A dates the appellate order 15.04.2025 while the body gives 09.04.2025. None of these touches the ratio, but each invites comment.

The Refund That Follows

The operative direction on the deposit is cautious. The Rs. 63,72,000 is to be dealt with in accordance with law, subject to verification of payment records. There is no timeline and no mention of interest. The dealer must therefore take the refund forward itself.

The refund is claimed in Form GST RFD-01 under the category for refunds arising from an appellate or Tribunal order, here against the temporary ID 092400037458TMP.

Under Explanation 2 to Section 54, the relevant date is the date of communication of the Tribunal’s order. The two year limit runs from then.

Under the second proviso to Section 56, interest at 9% runs if the refund is not paid within 60 days of the application.

If the Department files an appeal, it may try to withhold the amount under Section 54(11). Prolonged delay can be met by a writ for refund with interest.

Conclusion

VLM Group restores proportion to Section 129. The Tribunal accepted that e-invoicing is mandatory and that the appellant failed to comply. It nonetheless held that a procedural default, unaccompanied by any false document, mismatch or concealment, cannot carry a penalty of 200% of the tax.

The order would have been stronger had it dealt squarely with Rule 48(5) and with the question of a lesser penalty. Those gaps may yet be tested before the High Court. Until then, the ruling stands as the clearest statement from the Tribunal that detention law in transit is aimed at evasion, not at clerical delay.

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Ravindra Kumar Rastogi | Advocate, High Court, Allahabad | Chamber No. 5 | Mobile No. 9897493155