Penalties Like Seizure, Detention Of Goods In Transit U/S 129 CGST Act Shouldn't Be Imposed To Penalise Minor Breaches: Delhi High Court

The Delhi High Court has held that Section 129 of the Central Goods & Services Tax Act, 2017 which pertains to detention, seizure and release of goods while in transit cannot be invoked for imposing penalties for minor breaches, like incomplete e-way bill.A division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar further held that Section 129 cannot, merely by virtue of its non-obstante clause, be construed to have an overriding effect on Section 126 which interdicts tax officers from imposing any penalty for minor breaches of tax regulations or procedural requirements.The Court observed that Section 129 commences with a non-obstante clause because it deals with a subject (detention and release of goods) which is not factored for in any other provision placed in the Chapter.“In our considered view, the non-obstante clause in Section 129 cannot possibly be interpreted as being intended to override what had been specifically provided in Section 126 or annihilate the rules of guidance which stood embodied therein,” it added.The Court was dealing with a company's petition challenging the GST Department's demand under Section 129. It was alleged that the Petitioner's goods were being transported under an incomplete E-way Bill.The Petitioner contended that since there was no allegation of tax evasion or furnishing of false information, the levy of penalty is wholly arbitrary and illegal. It was their case that the breach would fall in the category of 'minor breaches' and would consequently be governed by Section 126 (general disciplines related to penalty).The Department on the other hand contended that Section 129 prescribes 'statutory penalty' that necessarily entails a levy and demand of tax. It laid emphasis on the non-obstante clause of the Section and contended that the absence of mens rea/ intent to evade tax, would not preclude a demand of tax where goods are sought to be transported in contravention of the Act.FindingsAt the outset, the High Court expressed disagreement with the Department's contention that Section 129 creates a statutory penalty. It relied on HDFC Bank Ltd. v. Commr. of Value Added Tax (2023) where the Supreme Court held that factors like 'guilt, dishonest conduct or acting in conscious disregard of a binding obligation' constitute circumstances in which the levy of a penalty in terms of a statutory provision would be justified.Next, the Court turned down the Department's contention that Section 129 is intended to override Section 126, by virtue of its non-obstante clause. Section 126 , the Court said, removes from the scope of Section 129 mistakes of minor character, failure to comply with procedural requirements or a rectifiable mistake in documentation.“We find ourselves unable to read Section 129 as embodying an intendment of the Legislature to either override or completely supersede and obliterate Section 126. Accepting such an interpretation would clearly amount to depriving a person of the benefit of the principles of moderation and modulation which Section 126 introduces and enjoins to be borne in consideration while considering the levy of a penalty...The statute also enjoins officers under the Act to desist from imposing a penalty in cases where the omission or mistake in documentation is found to be easily rectifiable and was one which was not tainted by a fraudulent intent or the outcome of gross negligence,” the Court observed.Coming to the purpose of the non-obstante clause in Section 129, the Court relied on the decision rendered by a three-Judge Bench of the Supreme Court in Central Bank of India v. State of Kerala (2009) where it was held that when the section containing the non-obstante clause does not refer to any particular provisions which it intends to override but refers to the provisions of the statute generally, it is not permissible to hold that it excludes the whole act and stands all alone by itself.The High Court then referred to the expression “contravention of the provisions of this Act” as appearing in Section 129, which the Department contended would encompass minor breaches. However, disagreeing, the High Court said, “The expression “contravention” as appearing in Section 129 would have to be understood bearing in mind the special provisions which are contained in Section 126 and which indubitably carves out an exception with respect to minor breaches as well as mistakes and omissions which could be easily rectified.”It relied on a Circular issued by the Central Board of Indirect Taxes and Customs on 14 September 2018, clarifying that the CGST Act does not contemplate the imposition of an inevitable levy of penalty under Section 129.Accordingly, the Court allowed the petition and set aside the demand of tax and penalty.Case title: Kamal Envirotech Pvt. Ltd. v. Commissioner Of Gst And AnrCitation: 2025 LiveLaw (Del) 61Case no.: W.P.(C) 12142/2022Click here to read order

Penalties Like Seizure, Detention Of Goods In Transit U/S 129 CGST Act Shouldn't Be Imposed To Penalise Minor Breaches: Delhi High Court

Kapil Dhyani

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