As Rule of E-way bill has been made effective since April 2018 in case of Inter-State movement of goods and States have also made e-way bill mandatory for intra-state movement of goods. Nowadays GST authorities are intercepting vehicles and detaining goods along with vehicle in absence of e-waybill or incomplete e-way bill, i.e. Part-B is not filled. The absence of document/incomplete document may be deliberate or due to mistake or GSTN glitches. After interception, detention/seizure order under section 129(3) is passed, thereafter SCN is issued under section 129(3) and goods are released only on payment of GST and penalty equivalent to GST liability.
Now the question is whether Section 129(3) should be made applicable to all cases where e-way bill is not prepared or incomplete e-way bill is prepared. Whether owner should be held liable for 100% penalty under section 129 for mistake of employee or failure of GST infrastructure.
Relevant provisions in case of inadvertent mistake/technical glitches:
Section 122(1) (xiv), section 126, section 129(3) & section 130 of CGST Act, 2017 needs to be critically analysed to check the legality of 100% penalty against non-compliance of E-way Rules. Section 122(1) (xiv) imposes maximum penalty of Rs. 10,000/- if goods are transported without the cover of documents. Language of section 122(1) (xiv) is reproduced as under:
“(1) Where a taxable person who”
(xiv) transports any taxable goods without the cover of documents as may be specified in this behalf;
he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.”
Section 126 mandates that no penalty shall be levied for minor breaches of tax regulations or procedural requirements. Accordingly, non-mentioning of vehicle no. in part-B of E-way bill should be treated as minor breach specially where goods are carried with proper tax invoice, bilty no. showing vehicle No. and RC of vehicle etc. similarly where website doesn’t allow certain information to be filled in Part-B, absence of information should be treated as minor breach. For example, in case of Delhi based vehicle, e-way bill system does not allow vehicle no. ‘DL1AB123’ and shows error ‘invalid format’ and requires no. to be entered as ‘DL01AB0123’ and in absence of knowledge on the part of employee /assessee /transporter, part- B which GSTN is not allowing, may not be downloaded and goods are transported without downloading Part-B of e-way bill. Language of section 126 is reproduced as under:
“Section 126: General disciplines related to penalty. (1) No officer under this Act shall impose any penalty for minor breaches of tax regulations or procedural requirements and in particular, any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence.”
Now comes the part of deliberate evasion of taxes where applies section 129 & 130 of CGST Act, 2017. If we don’t distinguish the deliberate and non-deliberate non-compliance of e-way bill rules, the innocent shall have the same burnt as a willful defaulter which doesn’t and cannot be justified.
Relevant provisions in case of deliberate evasion of taxes
Section 129(1) provides detention or seizure of goods in case of contravention of the provisions of GST Act or the rules made thereunder. Section 129(6) provides that proceedings shall in initiated as per section 130 of CGST Act, 2017 where GST along with penalty is not paid within 7 days of dentention/seizure. The language of which is reproduced as under:
“(1) Notwithstanding anything contained in this Act, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure …………………………
(6) where the person transporting any goods or the owner of the goods fails to pay the amount of tax and penalty as provided in sub-section (1) within seven days of such detention or seizure, further proceedings shall be initiated in accordance with the provisions of section 130”
Reference of section 130 under section 129(6) clarifies the intention of the legislature regarding providing two different provisions under section 122 and section 129. Section 130 (1) provides the conditions in which confiscation of goods or conveyance is allowed. Section 130(1) uses the words ‘with intent to evade payment of tax’, ‘does not account for any goods on which he is liable to pay tax’, ‘supplies any goods liable to tax under this Act without having applied for registration’ which indicates that section 130 allows detention where person has willfully contravened the GST provisions with intent to evade payment of tax. The usage of these words in section 130, reference of which is given in section 129 indicates and clears the intention of the legislature that section 129 applies in cases where willful default and intent to evade payment of taxes is present not when merely mistakes or technical glitches are there. Language of section 130(1) is reproduced as under:
“1) Notwithstanding anything contained in this Act, if any person’
(i) supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or
(ii) does not account for any goods on which he is liable to pay tax under this Act; or
(iii) supplies any goods liable to tax under this Act without having applied for registration; or
(iv) contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or
(v) uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance,
then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122.”
Kerela High Court has very aptly determined in M/s Indus Towers Limited Versus The Assistant State Tax Officer And State Tax Officer (Intelligence), 2018(01)LCX0010 that the invocation of section 129 can only be done when ingredients of section 130 are present.
“A combined reading of Sections 129 and 130, especially the provision contained in sub section (6) of Section 129 indicates that the detention of the goods is contemplated under the statutes only when it is suspected that the goods are liable to confiscation. This aspect is seen clarified by the Central Board of Excise and Customs in the FAQs published by them on 31.3.2017 also. Section 130 dealing with the confiscation of goods indicates beyond doubt that the confiscation of goods is contemplated under the statutes only when a taxable supply is made otherwise than in accordance with the provisions contained in the statutes and the Rules made thereunder with the intent to evade payment of tax. If that be so, mere infraction of the procedural Rules like Rules 55 and 138 of the State GST Rules cannot result in detention of goods, though they may result in imposition of penalty. In other words, detention of goods merely for infraction of the procedural Rules in transactions which do not amount to taxable supply, is without jurisdiction.”
Hence, detention or seizure under section 129(1) and issuance of SCN under section 129(3) in absence of intention to evade payment of tax is illegal and doesn’t justify the intention of legislature to penalize the willful defaulters.