2025 (7) TMI 265 - HC - GST

Dropping of penalty - petitioner has voluntarily paid the payment of penalty - HELD THAT - The facts are not disputed that the petitioner had violated the conditions prescribed under Section 129 of the respective GST enactments. Therefore the petitioner was indeed liable to be proceeded under Section 129 of the respective GST enactments and however the question is as to whether the penalty that is imposed is to be justified or lesser penalty is to be imposed. Reading of the Section 129 indicates that lesser penalty can be imposed. Considering the fact that there is no dispute that the petitioner has indeed exported the goods it is opined that the export incentive cannot be denied for technical and venial breach of provisions of Section 129 of the respective GST enactments as held by the Hon ble Supreme Court in Hindustan Steel Ltd vs. State of Orissa 1969 (8) TMI 31 - SUPREME COURT Under these circumstances although the petitioner has an alternate remedy this Court is of the view that there is no point in relegating petitioner to work out its remedy by the Appellate Authority under Section 107 of the respective GST enactments as export incentives are not to be denied although there may be certain technical and venial breach by exporter. This Writ Petition is allowed by directing the respondents to appropriate Rs. 25, 000/- itself from the amount that was already paid by the petitioner and to allow the petitioner to adjust the balance amount against the future tax liability of the petitioner.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

• Whether the penalty imposed under Section 129 of the respective GST enactments for transporting goods without generating an E-Invoice and E-Way Bill is justified.
• Whether the voluntary payment of penalty by the petitioner precludes the dropping of penalty proceedings or any further relief.
• Whether the export incentives can be denied on account of technical or venial breaches of the provisions of Section 129 of the GST enactments.
• The scope and interpretation of Section 129 of the GST enactments, particularly regarding the imposition of penalty and release of goods.
• The applicability of precedent decisions, including the principle that export incentives should not be rendered illusory due to minor procedural breaches.
• The availability and relevance of alternate remedies under Section 107 of the GST enactments.
• The operation of estoppel under Section 129(5) of the GST enactments against the petitioner.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Penalty under Section 129 of the GST Act for Non-Generation of E-Invoice and E-Way Bill

Legal Framework and Precedents: Section 129 of the respective GST enactments empowers authorities to detain or seize goods and conveyances if transported in contravention of the Act or rules. It prescribes penalties, including a penalty equal to 200% of the tax payable on the goods or a fixed amount for exempted goods. The Court relied on a recent precedent from this High Court in Pulkit Metals Private Ltd., which elucidated the scope of Section 129 and the gradation of penalties.

Court's Interpretation and Reasoning: The Court acknowledged that the petitioner had violated the statutory requirement to generate an E-Invoice and E-Way Bill before transporting goods. The impugned order correctly held the petitioner liable under Section 129. However, the Court emphasized that the breach was technical and venial rather than deliberate tax evasion.

Key Evidence and Findings: The petitioner transported 72 MT of Cocochips-Washed 8 to 20 mm without generating the required E-Invoice and E-Way Bill. Two consignments reached the port without detection, while one was intercepted and seized. The petitioner voluntarily paid the penalty of Rs. 2,71,458/-.

Application of Law to Facts: The Court applied Section 129 provisions, noting that the penalty was justified due to the breach. However, given the export nature of the goods and the absence of tax evasion intent, the Court found scope for reducing the penalty.

Treatment of Competing Arguments: The respondents argued for strict application of Section 129 and estoppel against the petitioner for accepting the penalty. The petitioner contended that export incentives should not be denied due to minor procedural lapses.

Conclusion: The Court held that while the penalty was justified, the penalty amount could be moderated considering the nature of the breach and the fact that the goods were indeed exported.

Issue 2: Effect of Voluntary Payment of Penalty on Relief and Penalty Proceedings

Legal Framework and Precedents: Section 129(5) of the GST enactments provides that acceptance of penalty by the owner of goods may estop further proceedings. The respondents relied on this provision to assert that the petitioner cannot seek relief after voluntarily paying the penalty.

Court's Interpretation and Reasoning: The Court acknowledged the estoppel principle but observed that it does not preclude judicial review of the penalty quantum or the denial of export incentives. The Court noted that the petitioner had accepted the penalty under compulsion to release the goods but retained the right to challenge the penalty's proportionality and the denial of export incentives.

Key Evidence and Findings: The petitioner paid the penalty voluntarily on 09.05.2025, leading to the release of the seized goods.

Application of Law to Facts: The Court balanced the estoppel effect with the need to ensure that penalties do not become punitive beyond statutory intent or cause unjust denial of export benefits.

Treatment of Competing Arguments: Respondents urged dismissal on estoppel grounds; petitioner sought relief on proportionality and export incentive grounds.

Conclusion: The Court permitted judicial intervention despite voluntary payment, allowing adjustment of penalty amount and restoration of export incentives.

Issue 3: Denial of Export Incentives on Account of Technical Breaches under Section 129

Legal Framework and Precedents: The Court referred to the Supreme Court decision in Hindustan Steel Ltd. vs. State of Orissa, which held that export incentives should not be rendered illusory by technical or minor breaches. The Court also relied on its own prior decisions emphasizing that export incentives are substantive rights and should not be negated for venial procedural lapses.

Court's Interpretation and Reasoning: The Court found that the petitioner's breach was technical and did not indicate tax evasion or fraudulent intent. Since the goods were actually exported, the denial of export incentives was disproportionate and unjust.

Key Evidence and Findings: The petitioner exported the goods covered by the original commercial invoice, and two consignments reached the port without issue. The intercepted consignment was also intended for export and was subsequently cleared.

Application of Law to Facts: The Court applied the principle that export incentives should not be denied for venial breaches and directed that the export incentives be preserved.

Treatment of Competing Arguments: The respondents argued for strict compliance and denial of incentives; the petitioner argued for protection of export incentives despite procedural lapses.

Conclusion: The Court held that export incentives cannot be denied for minor breaches under Section 129 and ordered appropriate adjustment of penalty to ensure incentives are preserved.

Issue 4: Availability of Alternate Remedy under Section 107 of the GST Act

Legal Framework and Precedents: Section 107 provides for appeal against orders passed under GST enactments. Respondents contended that the petitioner should pursue this remedy instead of invoking writ jurisdiction.

Court's Interpretation and Reasoning: The Court acknowledged the availability of alternate remedy but declined to insist on it, given the substantive nature of the relief sought relating to export incentives and penalty mitigation.

Key Evidence and Findings: The petitioner approached the Court promptly after penalty payment and release of goods.

Application of Law to Facts: The Court exercised discretion to entertain the petition to prevent injustice and to uphold the principle that export incentives should not be made illusory.

Treatment of Competing Arguments: Respondents emphasized procedural propriety; petitioner stressed substantive injustice.

Conclusion: The Court allowed the petition without relegating the petitioner to appellate remedy.

3. SIGNIFICANT HOLDINGS

The Court held:

"Section 129 of the respective GST enactments states that notwithstanding anything contained in the 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 and after detention or seizure, shall be released- (a) On payment of penalty equal to two hundred per cent of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty."

The Court established the core principle that export incentives are substantive rights and cannot be denied on account of technical or venial breaches under Section 129 of the GST Act, particularly where there is no intention to evade tax and the goods were genuinely exported.

It was determined that although the petitioner was liable for penalty under Section 129, the penalty amount could be moderated to Rs. 25,000, with the balance amount to be adjusted against future tax liability.

The Court also clarified that voluntary payment of penalty does not preclude judicial review of penalty quantum or denial of export incentives.

Finally, the Court allowed the writ petition, directing the respondents to appropriate Rs. 25,000 from the already paid penalty and permit adjustment of the balance amount, thereby preserving the petitioner's export incentives and mitigating the penalty imposed.