The Allahabad High Court recently held that GST authorities of a transit state cannot assume jurisdiction to detain goods or impose penalties merely on account of technical documentation discrepancies when the movement of goods is part of genuine inter-state trade. A Division Bench comprising Justice Saumitra Dayal Singh and Justice Swarupama Chaturvedi, while deciding a batch of writ petitions led by M/s Maruti Enterprises vs. State of U.P. and Another, quashed penalty proceedings initiated by the Uttar Pradesh GST authorities against consignments moving from West Bengal to Delhi. The Court pointed out that:

“A technical defect in documentation, without any allegation of local diversion or tax evasion within the transit State, cannot confer jurisdiction upon the authorities of such State to levy penalty under Section 129.”

The petitioners, including M/s Maruti Enterprises and other traders dealing in Areca nuts (Supari), challenged seizure and penalty orders passed under Section 129(3) of the CGST/UPGST Act. The consignments originated from suppliers located in West Bengal and were destined for purchasers in Delhi. During transit through Uttar Pradesh, the vehicles were intercepted by mobile squad officers, who detained the goods primarily on the ground that no proper electronic tax invoice (e-Invoice) had been generated, though the consignments were accompanied by valid tax invoices and e-Way Bills.

Before the High Court, the petitioners contended that Uttar Pradesh merely acted as a transit corridor and no part of the sale transaction occurred within the State. They argued that in the absence of any allegation regarding diversion of goods, mismatch in quantity, fake documents, or intended local sale, the U.P. authorities lacked territorial jurisdiction to invoke penal provisions under Section 129.

The High Court accepted the contention of the petitioners and observed that the Revenue authorities themselves did not dispute that the consignments originated in West Bengal and were meant for Delhi-based consignees. The Court noted that the alleged discrepancy regarding the absence of an e-Invoice may amount to a procedural anomaly, but such defect by itself did not establish any intent to evade tax within Uttar Pradesh.

“No tax consequence arose within the State of Uttar Pradesh merely because the goods passed through its territory in the course of inter-state movement.”

The Bench further clarified that where transit authorities notice any discrepancy in documents relating to inter-state consignments, the proper course would be to record the anomaly and communicate the same to the jurisdictional GST authorities of the originating or destination State for appropriate action. However, such transit authorities cannot independently impose tax or penalties unless there is material to indicate local tax evasion or diversion of goods within the State.

Thus, the Court quashed the seizure and penalty orders passed against the petitioners and directed immediate release of the detained goods and vehicles.