Detention Under Section 129 CGST Not Sustainable for Mere Technical Infractions
The Goods and Services Tax (GST) regime, introduced in India in 2017, aimed at simplifying the indirect tax structure and streamlining inter-state trade. However, its implementation has often been fraught with challenges, particularly concerning the interpretation and application of provisions related to the movement of goods. One such provision, Section 129 of the Central Goods and Services Tax (CGST) Act, 2017, which deals with the detention, seizure, and release of goods and conveyances in transit, has been a recurring point of contention. While designed to curb tax evasion, its broad application by tax authorities, even for minor or technical infractions, has led to significant harassment for businesses. Fortunately, recent pronouncements by various High Courts, particularly the Allahabad High Court, have consistently held that detention under Section 129 CGST is not sustainable for mere technical infractions where there is no intent to evade tax. This article delves into the nuances of Section 129 and analyzes key judicial decisions that reinforce this crucial principle.
Understanding Section 129 of the CGST Act
Section 129 of the CGST Act grants powers to tax authorities to detain or seize goods and conveyances if they are transported or stored in transit in contravention of the Act or its rules. The original intent behind this section was to ensure compliance with GST provisions and prevent clandestine movement of goods aimed at evading tax.
Prior to the amendments introduced by the Finance Act, 2021 (effective from January 1, 2022), Section 129(1) stipulated that detained or seized goods could be released upon:
Payment of tax and penalty equal to 100% of the tax payable on such goods (or 2% of the value for exempted goods) where the owner came forward.
Payment of penalty equal to 50% of the value of the goods (or 5% of the value for exempted goods) where the owner did not come forward.
The 2021 amendment simplified these options, providing for:
200% of the tax payable as penalty for taxable goods (or 2% of the value/Rs. 25,000, whichever is less, for exempted goods) if the owner comes forward.
50% of the value of goods or 200% of the tax payable, whichever is higher, as penalty for taxable goods (or 5% of the value/Rs. 25,000, whichever is less, for exempted goods) if the owner doesn't come forward.
Crucially, Section 129(3) mandates that the proper officer issue a notice within seven days of detention/seizure, specifying the penalty, and pass an order within seven days from the date of service of such notice. Furthermore, Section 129(4) ensures that no penalty shall be determined without giving the concerned person an opportunity of being heard.
While these provisions empower tax authorities to act against tax evaders, the challenge arises when they are applied indiscriminately to situations involving minor clerical errors or technical glitches, without establishing any intent to evade tax.
The Paramountcy of 'Intent to Evade Tax'
A cornerstone of natural justice and a fundamental principle in tax jurisprudence is that a mere procedural lapse or a technical error, without any underlying intent to defraud the exchequer, should not lead to severe penal consequences. This principle has been consistently upheld by various courts in the context of GST as well.
The essence of the judicial pronouncements on Section 129 is that the drastic power of detention and seizure, coupled with the imposition of heavy penalties, should be reserved for cases where there is a clear and demonstrable mala fide intention to evade payment of tax. If the discrepancy is minor, a technical oversight, or due to a system error, and the tax liability is not in doubt, then proceedings under Section 129 are often deemed disproportionate and unsustainable.
Landmark Judgments from the Allahabad High Court
The Allahabad High Court has been at the forefront of protecting businesses from arbitrary application of Section 129. Several judgments have underscored the importance of 'intent to evade tax' and the invalidity of detention for minor technical errors.
Citykart Retail Pvt. Ltd. vs. The Commissioner Commercial Tax U.P. [2022(09)LCX0083]
In the case of Citykart Retail Pvt. Ltd. vs. The Commissioner Commercial Tax U.P. Gomti Nagar Lko And Anr. (WRIT - C No. - 22285 of 2019, decided on September 6, 2022), the Allahabad High Court addressed a situation where the petitioner's goods were detained because Part-B of the e-way bill was not available. The petitioner argued that this was due to a technical error related to vehicle number entry for Delhi-registered vehicles, a fact even acknowledged by the department through a clarificatory circular dated March 18, 2018.
Key takeaways from the judgment:
The Court noted that there was no allegation that the goods were being transported without payment of tax.
The explanation provided by the petitioner regarding the technical glitch in filling Part-B was supported by departmental circulars, which themselves highlighted such issues.
Crucially, the Court emphasized that prima facie no intent to evade duty could be ascertained solely on the allegation of an unfilled Part-B of the e-way bill, especially when the vehicle had a Delhi number plate, a known issue.
The Court relied on its own prior judgment in VSL Alloys India Pvt. Ltd. vs. State of U.P. and another (Writ Tax No.637 of 2018, dated April 13, 2018), [2018(04)LCX0060] which dealt with similar circumstances.
The penalty and demand orders were set aside, and a refund of the deposited amount was directed.
This judgment clearly establishes that a mere technical error in the e-way bill, without any evidence of tax evasion, does not warrant detention under Section 129.
Agarwal Steels vs. Additional Commissioner [2025(02)LCX0296]
The principle was further reinforced in Agarwal Steels vs. Additional Commissioner (WRIT TAX No. - 884 of 2024, decided on February 17, 2025). Here, goods were detained because the e-tax invoice was not accompanying the goods, despite the petitioner having tax invoices, e-way bills, and transporter bilty. The petitioner explained that the e-tax invoice could not be generated due to a technical glitch in the GST portal.
Highlights of the Court's decision:
The Court found no discrepancy in the goods or their quantity. The sole ground for detention was the absence of the e-tax invoice.
The petitioner's explanation of a technical glitch was not disputed by the authorities.
Significantly, none of the authorities below recorded any finding that the petitioner had an intention to evade tax.
The Court cited its previous judgments in Shyam Sel & Power Limited Vs. State of U.P. & Others [2023(10)LCX0007] and Galaxy Enterprises Vs. State of U.P. & Others [2023(11)LCX0017], which held that if a deficiency is cured before the detention order is passed, no penalty is justified.
Both the order imposing penalty and the appellate order were quashed, with directions for a refund.
This case further solidifies the position that technical difficulties, especially those acknowledged as system-wide issues, cannot be a basis for detention under Section 129, provided there's no intent to evade tax.
T.K. Printers vs. Additional Commissioner [2025(05)LCX0528]
The most recent judgment, T.K. Printers vs. Additional Commissioner (WRIT TAX No. - 1486 of 2023, decided on May 21, 2025), reiterates the same principle with additional factors. In this instance, 4 MPD machines (Petrol and Diesel delivery machines) were being transported for installation at a BPCL petrol pump. The e-way bill could not be generated at the time of loading due to a technical glitch at the BPCL office. While the goods were intercepted without the e-way bill, it was generated and produced before the detention order was passed.
Key aspects of the ruling:
The Court noted that the goods were for installation and not for trade, meaning their value couldn't be determined for open market sale, reducing the likelihood of evasion.
It was undisputed that the goods were on stock transfer, further negating the intent to evade tax on a sale.
Crucially, the e-way bill was generated prior to the passing of the detention order and produced before the authorities.
Similar to the previous cases, none of the authorities recorded any finding regarding tax evasion.
The Court relied on its judgments in M/s Vacmet India Ltd. Vs. Additional Commissioner Grade -2 and another [2023(10)LCX0049] and M/s Goverdhan Oil Mill Vs. Additional Commissioner and another (Neutral Citation No. 2024:AHC:63409).
The impugned orders were quashed, and a refund was ordered.
This case adds another layer by considering the nature of the goods (not for trade), the type of transaction (stock transfer), and the generation of documents before the final detention order, all pointing away from an intent to evade tax.
Modern Traders vs. State Of Up And 2 Others [2018(05)LCX0006]
Even earlier, in M/S Modern Traders vs. State Of Up And 2 Others (WRIT TAX No. - 763 of 2018, decided on May 9, 2018), the Allahabad High Court addressed a situation where the e-way bill was not generated initially but was produced after interception but before the seizure order was passed.
The Court's observations:
The Court found that the tax authority had deliberately not mentioned the time of passing the seizure and penalty orders, implying an attempt to bypass the fact that the e-way bill was furnished beforehand.
The Court explicitly stated that "Once the E-way bill is produced and other documents clearly indicates that the goods are belongs to the registered dealer and the IGST has been charged there remains no justification in detaining and seizing the goods and asking the penalty."
The seizure and penalty orders were quashed, and immediate release of goods and vehicle was directed.
This early judgment set a strong precedent for cases where documents are produced post-interception but pre-seizure, highlighting the need to consider all available information before imposing penalties.
Departmental Circulars Supporting the Judicial Stance
It is noteworthy that the judiciary's stance is often aligned with clarificatory circulars issued by the government itself. For instance, the Ministry of Finance's circular dated September 14, 2018, highlighted that powers under Section 129 should not be invoked in case of minor errors, specifically mentioning "an error in one or two digits/characters of the vehicle number are missing." The clarificatory circular dated March 18, 2018, (as referenced in the Citykart Retail case) also addressed technical glitches in e-way bill generation for certain vehicle numbers.
These circulars serve as a guide for tax authorities, emphasizing a pragmatic approach rather than a rigid adherence to procedural technicalities. When these advisories are disregarded, courts have rightly intervened to protect taxpayers.
Implications for Businesses and Tax Authorities
The consistent judicial stance offers several critical implications:
For Businesses:
Documentation is key: While technical glitches can occur, businesses must strive to maintain complete and accurate documentation. Any available supporting evidence for a technical error (e.g., system screenshots, official circulars) should be readily available.
Prompt action: If goods are intercepted, immediate steps should be taken to rectify any technical errors and provide the correct documents to the authorities before a detention or seizure order is formally passed.
Knowledge of rights: Businesses should be aware that mere technical infractions, without an intent to evade tax, should not lead to punitive action under Section 129.
They have a strong legal basis to challenge such actions.
Legal recourse: In cases of arbitrary detention, seeking legal recourse through writ petitions has proven to be an effective remedy.
For Tax Authorities:
Focus on intent: Authorities must shift their focus from mere procedural lapses to establishing a clear intent to evade tax. The objective of Section 129 is to curb actual evasion, not to penalize minor administrative errors.
Adherence to circulars: Departmental circulars are binding and should be strictly followed. Ignoring them can lead to quashing of orders and unnecessary litigation.
Opportunity to rectify: A reasonable opportunity should be provided to rectify minor errors or technical glitches, especially when the taxpayer demonstrates a willingness to comply and there is no intent to evade tax.
Due diligence: Before imposing harsh penalties, a thorough investigation into the circumstances of the "contravention" is necessary to ascertain whether it is a technical error or a deliberate attempt at evasion.
Conclusion
The judgments from the Allahabad High Court, particularly the recent decisions in Citykart Retail, Agarwal Steels, and T.K. Printers, along with the earlier ruling in Modern Traders, provide much-needed clarity and relief for businesses operating under the GST regime. They unequivocally establish that detention and penalty under Section 129 of the CGST Act are not sustainable for mere technical infractions or minor procedural lapses in documentation, especially when there is no demonstrable intent to evade tax.
These rulings reinforce the principle of proportionality in tax administration and serve as a vital check against arbitrary exercise of power by tax authorities. For the GST regime to be truly "good and simple," its enforcement must prioritize substance over form, focusing on genuine tax evasion rather than penalizing inadvertent technical errors. As these judicial precedents continue to shape the legal landscape, businesses can operate with greater certainty, knowing that minor glitches, when devoid of malafide intent, should not lead to severe consequences.
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.