Failure to generate e-invoice not constitute tax evasion if e-way bill is present

Nancy Trading Company Vs State of U.P. And 3 Others (Allahabad High Court)

The recent Allahabad High Court ruling in the case of Nancy Trading Company Vs State of U.P. And 3 Others has significant implications for the interpretation of tax compliance under the GST regime. The court addressed the issue of whether the failure to generate an e-invoice constitutes an attempt to evade tax, especially when an e-way bill has been duly generated.

Background of the Case

Nancy Trading Company filed a writ petition challenging the orders passed by the authorities under Section 129(3) of the CGST Act, 2017, which imposed penalties due to the absence of an e-invoice during the transportation of goods. Despite having all other requisite documents, including the e-way bill, the petitioner was penalized for not generating the e-invoice as per Rule 48 of the GST Rules, 2017.

Arguments Presented

1. Petitioner’s Arguments:

• The petitioner argued that the goods were accompanied by all necessary documents such as the tax invoice, goods receipt (GR), and e-way bill.
• There is no provision under Rule 138A of the GST Rules that mandates carrying an e-invoice during transit.
• The e-way bill generation indicates the authorities were aware of the movement of goods, negating any intent to evade tax.
• The turnover requirement for mandatory e-invoicing was reduced from ₹20 crores to ₹10 crores effective August 1, 2022, which was a recent change that the petitioner was unaware of.
• The absence of mens rea (intent to evade tax) should exempt the petitioner from penalty under Section 129(3).

2. Respondent’s Arguments: The authorities have the power to initiate proceedings under Section 129(3) if the tax invoice is not generated as required. Compliance with Rule 48(4), which mandates e-invoicing for specified turnovers, is essential.

Court’s Findings

The court acknowledged the presence of all required documents and recognized the failure to generate an e-invoice as a technical error. It found no discrepancies regarding the quality and quantity of the goods being transported. The court also noted the absence of any intention to evade tax by the petitioner, deeming the failure to generate the e-invoice a bona fide mistake. Additionally, the court recognized recent amendments reducing the e-invoicing threshold, which contributed to the petitioner’s error.

Judgment

The Allahabad High Court quashed the orders imposing penalties, stating that in the absence of any mens rea, proceedings under Section 129(3) of the Act should not have been initiated. The court ordered the return of any amount deposited by the petitioner in connection with these proceedings within one month.

Conclusion

The Allahabad High Court’s decision in the case of Nancy Trading Company Vs State of U.P. And 3 Others underscores the importance of intent in tax evasion cases. The ruling clarifies that mere technical non-compliance, such as the failure to generate an e-invoice, does not constitute tax evasion if an e-way bill is present and there is no intent to deceive. This judgment provides significant relief to businesses by emphasizing the importance of mens rea and aligning penalty provisions with the actual intent of the taxpayer. It sets a precedent for similar cases, ensuring that honest taxpayers are not unduly penalized for technical errors.

FULL TEXT OF THE ORDER OF ITAT ALLAHABAD

1. Heard Sri N.C.Gupta, learned counsel for the petitioner and learned standing counsel for the respondents.

2. By means of the present writ petition the petitioner has prayed for issuing a direction for quashing the order dated 26.12.2022 passed by respondent no.4 by which penalty has been imposed as well as the appellate order dated 26.5.2023 passed by respondent no.3 confirming the order dated 26.12.2022.

3. Learned counsel for the petitioner submits that the goods in question were in transit along with tax invoice, GR’s, E waybills. The said goods were detained on the ground that E Tax Invoice was not generated as per Rule 48 of the Goods and Services Tax Rules, 2017 (for short the Rules). He further submits that as per Rule 138A of the Rules there is no provision for carrying E Tax Invoice, hence it was not correct on the part of the authorities to seize the goods and pass the impugned orders against the petitioner. He further submits that once the E Waybill was generated, it was within the knowledge of the authorities about the movement of the goods, hence there was no intention to avoid payment of tax. He further submits that the authorities have not recorded any finding with regard to any intention to avoid tax. He further submits that the annual turn over of the petitioner was much less than the prescribed limit for generating the E Tax Invoice. He further submits that the dealers who were having annual turn over above Rs. 20 crores was required to issue E Tax Invoice. He further submits that now the said limit has been reduced to annual turn over of Rs. 10 crores by notification dated 1^st August, 2022. He further submits that there was a bona fide mistake as the petitioner was not aware that the said limit has been reduced from Rs. 20 crores to Rs. 10 crores. He prays for allowing the writ petition.

4. Per contra, learned standing counsel submits that Section 129(3) of the UPGST and CGST Act 2017 empowers the authorities to initiate proceedings and the petitioner is duty bound to issue tax invoice as per Rule 48 (4) of the Rules which has not been done in the present case, therefore the action taken by the authorities is justified. He prays for dismissal of the writ petition.

5. After hearing the learned counsel for the parties, the Court has perused the records.

6. It is admitted that while transiting the goods in question all documents as required under Rule 138 A of the Rules were accompanying with the goods. Only a technical error has been committed by the petitioner for not generating E Tax Invoice before movement of goods in question. It is not in dispute that Waybill was generated. It is not the case of the Revenue that there was any discrepancy with regard to quality and quantity of the goods as mentioned in Tax Invoice, E Waybill as well as G.Rs accompanying the goods. The error committed by the petitioner for not generating E Tax Invoice before movement of goods is a human error. It is also not in dispute that prior to 1^st August, 2022 the dealers who were having annual turn over of more than Rs. 20 crores was required to issue E Waybill. The said limit has now been reduced with effect from 1^st August, 2022 to Rs. 10 crores, hence there was bona fide mistake on the part of the petitioner for not generating E Tax Invoice but in absence of any specific finding with regard to mens rea for evasion of tax, the proceeding under section 129 (3) of the Act should not have been initiated. On the pointed query to the learned standing counsel as to whether any finding was recorded by the authorities at any stage with regard to mens rea for evasion of tax has been recorded, the answer was very fairly in negative.

7. In view of the above, in absence of any finding with regard to mens rea the proceeding under section 129(3) of the Act cannot be initiated. The impugned order dated 26.12.2022 passed by respondent no.4 as well as the order dated 26.5.2023 passed by respondent no.3 are hereby quashed. The writ petition is allowed.

8. Any amount deposited in the said proceeding shall be returned back to the petitioner within a period of one month from the date of production of a certified copy of the order.