2025 (6) TMI 662 - HC - GST

Validity of the impugned order - detention of goods alongwith vehicle - Under valuation of the goods - Possession of an e-way bill raised without any corresponding movement of goods - HELD THAT - Section 129 of CGST Act 2017 is a penal provision. It provides for detention of goods and conveyances. In construing penal statues the Courts have to apply strict rules of interpretation. A reading of the aforesaid provision leads me to the conclusion that the provision will kick in only when there is transportation of goods in contravention of the statutory provisions. It is a sine qua non. Only in that event the goods and conveyance used as a means of transport as well as the related documents shall be liable to detention or seizure. In the case on hand the vehicle has been detained only for the reason that the driver was in possession of a document without there being any corresponding movement of goods. When even according to the respondents there was no movement of goods Section 129(1) of the Act cannot be invoked for detaining the vehicle. The primary ingredient necessary to attract the statutory provision is absent in this case. There has been no seizure of goods. What was seized was only an e-way bill whose contents have given rise to a genuine doubt if some fraud had been committed. On the strength of a mere recovery of an e-way bill which appears to have been raised without any movement of the goods from the driver of the vehicle the vehicle could not have been impounded. Conclusion - The very detention of the vehicle is without jurisdiction. The respondents shall forthwith release the petition mentioned vehicle. Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this judgment are:

• Whether the impugned order levying penalty for (a) under-valuation of goods and (b) possession of an e-way bill without corresponding movement of goods is valid.
• Whether the detention of the vehicle under Section 129 of the Central Goods and Services Tax (CGST) Act, 2017, is lawful when the vehicle was detained solely on the basis of possession of an e-way bill allegedly raised without movement of goods.
• The scope and applicability of Section 129 of the CGST Act, 2017, particularly whether detention or seizure of goods and conveyances can be effected without actual transportation of goods in contravention of the Act.
• The procedural and substantive requirements for detention or seizure of goods and conveyances under the CGST Act, including the necessity of an order of detention or seizure and payment or security for release.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of penalty levied for under-valuation of goods and possession of an e-way bill without movement of goods

The impugned order dated 01.04.2025 imposed two penalties: one for under-valuation of goods and another for possession of an e-way bill that did not correspond with the vehicle carrying the goods. The penalty for under-valuation was paid and the goods were released, but the penalty for possession of a mismatched e-way bill remained unpaid, resulting in continued detention of the vehicle.

The Court noted that the penalty for under-valuation was uncontested and settled. The critical question was the validity of penalty and detention related to the second ground, i.e., possession of an e-way bill without actual movement of goods.

Issue 2: Lawfulness of vehicle detention under Section 129 of the CGST Act, 2017

Section 129 of the CGST Act authorizes detention, seizure, and release of goods and conveyances in transit if goods are transported or stored in contravention of the Act or rules. The provision explicitly requires that the goods be in transit and that there be contravention of statutory provisions for detention or seizure to be valid.

The Court emphasized that Section 129 is a penal provision and must be strictly construed, referencing the precedent that penal statutes are to be interpreted narrowly. The Court found that the fundamental condition for invoking Section 129 is the transportation of goods in contravention of the law.

In the present case, the vehicle was detained because the driver possessed an e-way bill that did not correspond with the vehicle number, and there was no actual movement of goods. The Court held that since no goods were being transported in contravention, the statutory precondition for detention under Section 129 was absent.

The Court further clarified that mere possession of an e-way bill, even if fraudulent or raised without movement of goods, does not justify detention of the vehicle under Section 129. The absence of seizure of goods and the lack of transportation in contravention meant that the detention was without jurisdiction.

Issue 3: Interpretation of procedural safeguards and requirements under Section 129

The Court reiterated that Section 129 requires an order of detention or seizure to be served on the person transporting the goods. The provision also sets out conditions for release upon payment of tax and penalty or furnishing security.

However, since the vehicle was detained without the essential ingredient of transportation of goods in contravention, the procedural safeguards could not validate the detention. The Court underscored that the power to detain is conditional and cannot be exercised arbitrarily.

Treatment of competing arguments

The respondents argued that the vehicle was liable for detention because the driver was in possession of an invoice and an e-way bill with mismatched vehicle numbers, indicating a fraudulent attempt to evade tax. They contended that this justified the penalty and detention.

The Court acknowledged the suspicion of fraud but distinguished between penal consequences on the goods and conveyance and the mere possession of documents. It held that suspicion arising from documents alone cannot justify detention of the vehicle absent actual movement of goods in contravention.

3. SIGNIFICANT HOLDINGS

The Court held that:

"The provision will kick in only when there is transportation of goods in contravention of the statutory provisions. It is a sine qua non. Only in that event, the goods and conveyance used as a means of transport as well as the related documents shall be liable to detention or seizure."

"When even according to the respondents, there was no movement of goods, Section 129(1) of the Act cannot be invoked for detaining the vehicle."

"On the strength of a mere recovery of an e-way bill, which appears to have been raised without any movement of the goods from the driver of the vehicle, the vehicle could not have been impounded."

"The very detention of the vehicle is without jurisdiction."

Core principles established include:

• Strict interpretation of penal provisions under the CGST Act, particularly Section 129.
• Detention or seizure of goods and conveyances under Section 129 requires actual transportation of goods in contravention of the Act.
• Possession of fraudulent or mismatched documents alone does not justify detention of the vehicle.
• Procedural safeguards such as serving an order of detention are mandatory but cannot cure the absence of substantive jurisdiction.

Final determinations:

• The penalty levied for under-valuation of goods, having been paid, was valid and the goods were rightly released.
• The penalty and detention based solely on possession of an e-way bill without movement of goods was invalid.
• The vehicle detained on this ground must be released forthwith as the detention was without jurisdiction.