The Hon’ble Gujarat High Court in Tractors and Farm Equipment Ltd. & Anr v. Union of India & Ors [R/Special Civil Application No. 22073 of 2019 dated July 03, 2025] held that a penalty order passed under Section 129(3) of the GST Act on the same day as issuance of the show cause notice, without granting adequate time to respond, is liable to be quashed for flagrant breach of principles of natural justice.
Facts:
Tractors and Farm Equipment Ltd. (“the Petitioner”) is engaged in the business of manufacturing and sale of tractors, with its head office in Tamil Nadu. In the course of business, the Petitioner supplied two tractors from its depot in Gujarat to a customer in Bhavnagar after generating tax invoices in its SAP system and an e-way bill with Part A only. The Petitioner instructed its transporter to generate Part B of the e-way bill, but the transporter faced technical glitches and could not do so before movement commenced on October 3, 2018 at night.
The Revenue – Union of India and others (“the Respondent”) intercepted the goods in the early hours of October 4, 2018 for physical verification, citing absence of Part B of the e-way bill. Following the procedure under Rule 138 of the GST Rules, the Respondent issued GST MOV-1, MOV-2, and MOV-4, then a detention order in MOV-6, and a show cause notice in MOV-7, all on the same day and passed an ex-parte order in MOV-9 demanding tax and penalty under Section 129(1).
The Petitioner, in urgency to secure release, paid the tax and penalty on October 6, 2018 and obtained release under MOV-5. An appeal before the First Appellate Authority was dismissed on August 2, 2019, holding that a complete e-way bill was mandatory and absence of Part B attracted Section 129(1). The Petitioner contended before this Court that the orders in MOV-6 and MOV-9 were passed on the same day as the MOV-7 notice without granting any opportunity of hearing, despite the absence of mala fide intent to evade tax.
The Respondent contended that the Petitioner had the option to secure release under Section 129(1) after detention, but did not avail it, and that penalty under Section 129(3) was lawfully imposed. Thus, the Petitioner approached the High Court under Article 227 challenging the levy of penalty on grounds of breach of natural justice.
Issue:
Whether passing a penalty order under Section 129(3) of the GST Act on the same day as issuance of the show cause notice, without affording reasonable time to reply, violates principles of natural justice?
Held:
The Hon’ble Gujarat High Court in R/Special Civil Application No. 22073 of 2019 held as under:
- Observed that, interception of goods took place on October 04, 2018, and the impugned order under Section 129(3) was also passed on the same day.
- Noted that, Section 129 provides a time limit of seven days for passing the penalty order, yet the authorities adopted a harsh approach by requiring reply to the show cause notice on the same day and recording failure to respond.
- Held that, the impugned order was passed in breach of the principles of natural justice, rendering it unsustainable in law.
- Further noted that, although ordinarily the matter could have been remanded for fresh consideration, in the facts of this case, where the First Appellate Authority also failed to consider breach of natural justice, the Court directly quashed the penalty order.
- Directed that the levy of penalty be quashed and set aside; all other contentions of the Petitioner were kept open for appropriate cases.
Our Comments:
The approach adopted by the Gujarat High Court in the present case aligns with its earlier decision in Landmark Cars Pvt. Ltd. v. Union of India [R/Special Civil Application No. 1487 of 2020, order dated June 14, 2024], where the Court set aside an order of detention and penalty in Form GST MOV-09 as being without jurisdiction in the absence of any finding of intent to evade tax. In that case, the mismatch between the vehicle number mentioned in the e-way bill and the actual vehicle was treated as a minor procedural lapse falling within the ambit of para 5 of CBIC Circular No. 64/38/2018 dated September 14, 2018, warranting only a nominal penalty under Section 125 of the CGST Act.
In the instant case, although the facts pertained to non-filing of Part B of the e-way bill due to technical glitches, the Court similarly held that the order passed under Section 129(3) on the same day as the interception, without affording reasonable opportunity of hearing, was in flagrant breach of the principles of natural justice and therefore unsustainable. Both rulings reaffirm that procedural lapses without mala fide intent cannot justify harsh penal action, and that adherence to principles of natural justice remains paramount.
Relevant Provisions:
Section 129(3), CGST Act, 2017
Section 129. Detention, seizure and release of goods and conveyances in transit.
“(3) The proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).
(4) No penalty shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard.”
CBIC’s Circular No. 64/38/2018-GST dated September 14, 2018:
“Para 4. Whereas, section 129 of the CGST Act provides for detention and seizure of goods and conveyances and their release on the payment of requisite tax and penalty in cases where such goods are transported in contravention of the provisions of the CGST Act or the rules made thereunder. It has been informed that proceedings under section 129 of the CGST Act are being initiated for every mistake in the documents mentioned in para 3 above. It is clarified that in case a consignment of goods is accompanied by an invoice or any other specified document and not an e-way bill, proceedings under section 129 of the CGST Act may be initiated.”
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