Summary: A mobile squad officer intercepting goods in transit may inspect the conveyance and documents, but a serious jurisdictional issue arises where the officer temporarily registers an out-of-State supplier merely to impose penalty under Section 129(3) of the CGST Act. Section 25(8) read with Rule 16(1) permits temporary registration only where a person liable to registration has failed to obtain it. A supplier already registered in the State from which supplies are made, and having no liability to register in the transit State, does not satisfy that jurisdictional condition. Rule 87(4) provides machinery for payment through a temporary identification number but does not itself enlarge territorial jurisdiction. Notification No. 07/2025-Central Tax inserted Rule 16A for granting a temporary identification number to a person not liable to registration but required to make payment; however, its commencement was deferred to a separately notified date. More fundamentally, the Allahabad High Court’s decision in Maruti Enterprises v. State of U.P. supports the proposition that inspection powers of a transit State do not necessarily carry penal jurisdiction over an inter-State transaction originating and terminating elsewhere. Therefore, temporary identification machinery cannot independently create substantive jurisdiction to impose a Section 129 penalty where such jurisdiction is otherwise absent.
Can a Mobile Squad Officer of Another State Register a Registered Supplier on a Temporary Basis Merely to Levy Penalty under Section 129(3) of the CGST Act, 2017?
Introduction
Mobile squads of State tax departments routinely intercept conveyances in transit and, on finding some defect in the accompanying documents, initiate proceedings under section 129 of the CGST Act, 2017. A practice that has come to notice is that where the supplier is not registered in the State of the intercepting officer, a temporary identification number is generated for that supplier, he is registered suo motu in that State, and the notice, order and penalty payment are then processed on that footing. This article examines whether an officer of one State has the jurisdiction to do so where the supplier, the buyer and the transporter are all registered in other States.
Facts Assumed
Mr. S is a supplier registered in Haryana. Mr. B is the buyer, registered in Rajasthan. Mr. T is the transporter, registered in Madhya Pradesh. Goods move from Haryana to Rajasthan. While the conveyance is in transit, a mobile squad officer of Uttar Pradesh intercepts it and finds an error, for instance in the vehicle number shown on the invoice or the e-way bill. Treating the buyer as the owner of the goods, the officer proposes penalty on Mr. S under section 129(3). For that purpose he generates a temporary ID and registers Mr. S in Uttar Pradesh, issues notice, considers the reply and passes the order. Mr. S pays the penalty and the goods and conveyance are released.
The question is whether the officer had jurisdiction to create a registration for Mr. S in Uttar Pradesh solely in order to levy this penalty.
The Statutory Position
Section 25(8) of the Act provides that where a person liable to be registered under the Act fails to obtain registration, the proper officer may, without prejudice to any other action, proceed to register such person in the prescribed manner. The manner is prescribed in rule 16(1) of the CGST Rules, 2017, under which the proper officer, pursuant to a survey, enquiry, inspection, search or any other proceedings, may register on a temporary basis a person liable to registration who has failed to apply, and issue an order in FORM GST REG-12.
Both provisions operate on a single precondition, namely that the person is liable to be registered and has failed to obtain registration. Liability to registration is not at large. Under section 22 it arises where aggregate turnover exceeds the threshold, in respect of the State from which the taxable supply is made, and under section 24 it arises in the cases enumerated there irrespective of turnover. Neither provision makes a person liable to registration in a State simply because the State’s officer has intercepted his goods.
Application to the Facts
Mr. S has not failed to obtain registration. He makes his supplies from Haryana and holds a registration there. He makes no supply from Uttar Pradesh and is therefore not a person liable to be registered in that State at all. The jurisdictional fact on which section 25(8) and rule 16(1) depend does not exist, and an officer cannot supply it by his own act. Those provisions are meant to bring into the tax net a person who ought to have registered but did not. They are not a device to create a registration whose only purpose is to give the officer a taxpayer against whom a penalty order can be raised and recovered.
Rule 87(4) points the same way. It provides that a payment required to be made by a person who is not registered under the Act shall be made on the basis of a temporary identification number generated through the common portal. The rule is a facility for an unregistered person to make payment. It does not confer on any officer a power to register a person already registered elsewhere, nor does it enlarge his territorial jurisdiction. A person who holds a Haryana registration is registered under the Act, and the temporary ID route contemplated by rule 87(4) is not the occasion for treating him as unregistered in every State through which his goods happen to pass.
It is also worth recalling that the order under section 129(3) is itself preceded by a notice under that sub-section, and the power to issue it, like every power under the Act, must be exercised by the proper officer within the territorial limits of his own jurisdiction. If the registration on which the proceeding is hung is without authority, the notice and order that follow stand on no firmer ground.
Rule 16A of the CGST Rules: A Provision Yet to Come into Force
A further aspect needs to be noticed. By Notification No. 07/2025-Central Tax dated 23.01.2025, rule 16A has been inserted in the CGST Rules, 2017, and rule 87(4) has been correspondingly amended so as to provide that payment by an unregistered person shall be made on the basis of a temporary identification number generated through the common portal as per rule 16A. The new rule reads: “Where a person is not liable to registration under the Act but is required to make any payment under the provisions of the Act, the proper officer may grant the said person a temporary identification number and issue an order in Part B of FORM GST REG-12.” The amendment, however, is to take effect from a date yet to be notified. Till that date it forms no part of the law that can be applied, and a mobile squad officer can draw no authority from it.
Even when it is brought into force, the rule will not carry the officer far on the facts assumed here. It speaks of a person who is “not liable to registration under the Act”, which Mr. S is not, since he is a registered person in Haryana. It speaks also of a person “required to make any payment under the provisions of the Act”, which presupposes that a liability to pay has already been validly fastened on him. The rule is thus a piece of machinery that supplies an identification number so that a payment may be made. It neither creates the liability nor confers the jurisdiction to levy it. Should it be urged that Mr. S is not liable to registration in Uttar Pradesh and therefore falls within the rule, the answer is that the rule would at best enable him to pay what is lawfully demanded; whether the intercepting State can demand a penalty under section 129(3) at all must be answered by section 129 itself and by the principle laid down in Maruti Enterprises. A rule framed under section 164 cannot enlarge the territorial reach of the statute.
The insertion of rule 16A also gives rise to a question of its own. Rule 16 empowers the officer to register on a temporary basis only a person who is liable to registration and has failed to apply. The Rules, as they stand, nowhere authorise an officer to grant an identification number to a person who is not liable to registration; rule 87(4) merely refers to a number generated through the common portal and names no officer who may grant it. It is precisely for this reason that a separate rule, with a separate Part B in FORM GST REG-12, has been thought necessary. If a mobile squad officer already possessed the power to generate a temporary identification number, whether under section 25(8) read with rule 16 or under rule 87(4), there was no occasion to frame rule 16A. The rule-making authority, having considered it necessary to confer the power expressly, and having deferred its operation, has in effect acknowledged that no such power exists today. The practice of generating a temporary ID in the interim therefore rests on no express authority at all. It may be said on behalf of the Revenue that the rule is merely clarificatory. That is not an easy submission to accept, for a rule is subordinate legislation, it cannot operate retrospectively unless the statute so permits, and nothing in the notification describes it as declaratory.
The Judgment of the Allahabad High Court in Maruti Enterprises
The reasoning above receives strong support from the recent decision of the Allahabad High Court in Maruti Enterprises v. State of U.P. and Another (Writ Tax No. 1423 of 2026, decided on 14 May 2026, reported as 2026-VIL-515-ALH). A Division Bench comprising Hon’ble Mr. Justice Saumitra Dayal Singh and Hon’ble Mrs. Justice Swarupama Chaturvedi decided a batch of writ petitions concerning consignments of areca nuts moving from West Bengal and other States to Delhi and Nagpur. The consignments were intercepted by the Uttar Pradesh authorities while passing through that State, and penalty under section 129 was imposed on the footing that they were not accompanied by an e-invoice as required by rule 48(4) of the CGST Rules.
The Court quashed the penalty orders and directed release of the goods and vehicles. In doing so it drew a clear line between the power to inspect and the power to penalise. Section 68 and the related rules permit the officers of a transit State to stop a conveyance, inspect the goods and verify the documents. That regulatory power, the Court held, does not carry with it a power to detain the goods and levy penalty under section 129 where the goods originate outside the State, are destined outside the State and no tax is payable in that State. Relying on the Supreme Court’s understanding of the expression tax payable in J.K. Synthetics Ltd. v. Commercial Taxes Officer, the Court reasoned that the foundation of penal jurisdiction is absent where no tax liability arises within the State of the intercepting officer.
The Court also rejected the Revenue’s reliance on cross-empowerment under section 6 of the CGST Act and section 4 of the IGST Act. Following the line of G.K. Trading v. Union of India, as noticed by the Supreme Court in Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East, it held that cross-empowerment operates between the Central and State authorities within the same State. It does not let the authorities of one State exercise penal jurisdiction over a transaction that belongs to other States. The Court further observed that if every transit State could penalise the same consignment for a documentary defect, the guarantee of free inter-State trade under Article 301 of the Constitution would be seriously impaired. It agreed with the view of the Andhra Pradesh High Court in Golden Traders v. Deputy Assistant Commissioner of State Tax that a transit State, on noticing a discrepancy, should report it to the authorities of the originating and destination States rather than proceed against the consignment itself.
It should be said plainly that Maruti Enterprises was concerned with the competence of a transit State to levy penalty under section 129, and, so far as the reports available to me show, did not decide the specific question of a temporary registration under section 25(8) read with rule 16. The connection is nonetheless direct. A temporary ID created in the transit State serves one purpose only, which is to give the transit State’s officer a person on whom to levy the very penalty that the High Court has held he has no jurisdiction to levy. A registration created to enable an act that is itself beyond jurisdiction cannot validate that act. If the transit State cannot penalise a transaction with no tax nexus to it, it cannot achieve the same result indirectly by registering the supplier in its own territory.
Conclusion
Where the supplier, the buyer and the transporter are all registered in States other than that of the intercepting officer, and the goods move between those other States, the officer has no power under section 25(8) read with rule 16(1) to register the supplier in his State on a temporary basis for the sole purpose of levying penalty under section 129(3). The supplier is not a person liable to registration in that State, rule 87(4) is no source of jurisdiction, rule 16A is yet to come into force and, even when it does, will be a facility for payment and not a source of jurisdiction, and the decision in Maruti Enterprises confirms that a transit State may inspect and report but may not penalise a transaction in which no tax is payable in that State. A penalty order passed on such a footing is, in my view, without jurisdiction. Taxpayers facing such proceedings would do well to raise the jurisdictional objection at the first opportunity, in the reply to the notice, and, if necessary, in a writ petition before the High Court.
The above are the personal views of the author. This is not a legal opinion. Readers may or may not agree with the views expressed, and comments are welcome.
