Gujarat HC Quashes GST Penalty for E-Way Bill Part-B Lapse: Upholding the Core of Natural Justice
Introduction
The Gujarat High Court has once again reinforced the importance of audi alteram partem—the foundational principle of natural justice—while adjudicating GST disputes. In Tractors and Farm Equipment Ltd. v. Union of India [2025(07)LCX0356], the Court set aside a penalty imposed under Section 129 of the CGST Act, 2017, solely on the ground that the order was passed without granting the assessee a meaningful opportunity to be heard.
The judgment clarifies that while e-way bill compliance is a statutory requirement, the power to levy heavy penalties under Section 129 cannot be exercised mechanically, especially in cases involving procedural or technical lapses without intent to evade tax.
Brief Facts of the Case
1. Business & Transaction - The petitioner, Tractors and Farm Equipment Ltd., a tractor manufacturer with its head office in Tamil Nadu, supplied two tractors from its Gujarat depot to a customer in Bhavnagar. Tax invoices and an e-way bill (Part A only) were generated.
2. The Lapse - Part B of the e-way bill, which contains vehicle details, was not generated due to alleged technical glitches faced by the transporter.
3. Interception & Detention - On 04.10.2018, the vehicle was intercepted in the early hours. Authorities issued Form GST MOV-6 (detention order) and Form GST MOV-7 (SCN) on the same day, citing violation of Rule 138 of the CGST Rules for not carrying a complete e-way bill.
4. Same-Day Adjudication - An ex parte order in Form GST MOV-09 was passed on the same day, demanding 100% penalty along with tax under Section 129(1).
5. Payment Under Protest & Appeal - The petitioner, needing urgent release of goods, deposited the demanded amount on 06.10.2018. The First Appellate Authority upheld
the penalty, reasoning that a complete e-way bill was mandatory.
6. High Court Petition - The petitioner approached the Gujarat High Court under Article 227, challenging the penalty on grounds of breach of natural justice and reliance on precedent where technical lapses were treated as minor errors.
Petitioner’s Arguments
Violation of Natural Justice - Issuing the SCN and passing the penalty order on the same day left no time for the petitioner to respond.
No Malafide Intent - The Part B details were updated later on the same day when the goods were still under detention; there was no attempt to evade tax.
Circular 64/38/2018-GST - The CBIC circular dated 14.09.2018 clarifies that minor errors in e-way bills should attract a nominal penalty of Rs.500 under Section 125 of the CGST Act and Rs.1,000 under the IGST Act, not full confiscation/penalty under Section 129.
Reliance on Precedents - Multiple High Court judgments where penalties for similar lapses were quashed.
Assessee-Favouring Precedents Cited
1. M/s. Raj Iron & Building Materials v. State of U.P. [2017(12)LCX0022]- Writ Tax No. 826 of 2017 (Allahabad HC) - Penalty quashed where goods were accompanied by valid invoices but procedural lapses existed in transit documentation.
2. M/s. Bhumika Enterprises v. State of U.P. [2018(04)LCX0046] - Held that minor clerical errors in e-way bills should not result in harsh penal consequences when there is no intent to evade tax.
3. M/s. VSL Alloys (India) Pvt. Ltd. v. State of U.P. [2018(04)LCX0060] - Emphasized that genuine transactions backed by tax invoices should not be penalized solely for e-way bill technicalities.
4. Landmark Cars Pvt. Ltd. v. Union of India & Anr [2024(06)LCX0250] - Special Civil Application No. 1487 of 2020, decided on 14.06.2024 (Gujarat HC) - The Court quashed a penalty for absence of a valid e-way bill, holding that Circular 64/38/2018 mandates treating minor lapses with nominal fines.
Respondents’ Stand
Mandatory Requirement - Part B of the e-way bill is compulsory; absence constitutes a clear breach of Rule 138.
No Discretion - Once non-compliance is established, Section 129(1) leaves no room for reducing penalties.
Opportunity Was Provided - The petitioner was summoned for a hearing at 16:30 hrs on the same day via MOV-07 but did not respond, and instead opted to pay the penalty.
High Court’s Observations
1. Breach of Natural Justice
The Court noted that Section 129(3) grants a seven-day period for adjudication after detention.
Passing the order on the same day as issuing the SCN was a “flagrant breach” of natural justice, as it deprived the assessee of adequate time to present its case.
2. Harsh & Mechanical Approach
The respondents took a rigid view by not granting even minimal time to respond, ignoring the absence of malafide intent.
3. Relevance of Circular 64/38/2018
Although the Court did not adjudicate on merits regarding minor error classification, it acknowledged that such procedural lapses may fall under the scope of the circular in appropriate cases.
4. No Need for Remand
Given that the First Appellate Authority also failed to address the natural justice breach, and the GST Tribunal was not functional, the Court directly quashed the penalty instead of remanding the matter.
Judgment
Penalty Quashed - The order dated 04.10.2018 imposing tax and 100% penalty was set aside solely on the ground of violation of natural justice.
Other Contentions Open - The Court left the substantive questions on penalty merits open for future consideration in an appropriate case.
Legal Significance
1. Natural Justice Prevails Over Procedural Rigidities
Even in strict compliance regimes like GST, the right to a reasonable opportunity of hearing cannot be overridden by administrative convenience.
2. Section 129 Timelines Are Not Ornamental
The statutory seven-day window is meant to be honoured; same-day SCN and adjudication are impermissible.
3. Support for CBIC Circular Interpretation
Though indirectly, the judgment reinforces the principle in Circular 64/38/2018 that minor lapses should be dealt with leniently, avoiding draconian penalties.
4. Strengthens Precedent Chain
This ruling aligns with a series of High Court decisions across states protecting taxpayers from disproportionate penalties for bona fide lapses.
Practical Takeaways for Businesses
1. Document Lapses May Still Attract Detention - Businesses must ensure complete e-way bill compliance (both Parts A & B) to avoid disputes.
2. Invoke Circular 64/38/2018 - In minor error cases, always rely on this CBIC directive to argue for nominal penalties.
3. Challenge Same-Day Orders - Such orders are vulnerable to being set aside for breach of natural justice.
4. Keep Proof of Technical Glitches - If claiming portal-related issues, maintain screenshots, error logs, or correspondence.
Conclusion
The Gujarat High Court’s ruling in Tractors and Farm Equipment Ltd. [2025(07)LCX0356] reaffirms that procedural fairness is as vital as substantive tax compliance. While GST authorities are empowered to act against document deficiencies, their actions must be tempered with fairness, proportionality, and adherence to statutory timelines.
By relying on assessee-favouring precedents such as Raj Iron, Bhumika Enterprises, VSL Alloys, and Landmark Cars, the Court has further cemented the principle that no taxpayer should be penalized punitively for bona fide procedural lapses, especially without being heard.
Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.