GSTAT Quashes ₹7.75 Lakh Penalty Over One-Day Stock-Transfer Invoice Mismatch, Says UP Could Not Penalise Properly Documented Karnataka-Bound Goods

In brief

The question

Whether U.P. tax authorities, acting in a transit State, could invoke Section 129 to seize the goods and impose a penalty on a transaction originating outside U.P. and destined outside U.P.

The court held

The Tribunal answered both issues against the department.

It also directed

It allowed the second appeal, set aside the first appellate and original orders, and quashed the consequential penalty demand.

Any penalty amount or security collected from the appellant was directed to be refunded with interest as provided by law.

01Facts

The appellant supplied machinery to a Karnataka customer under tax invoices and e-way bills dated 27 September and 3 October 2024. The goods travelled from Haryana through Uttar Pradesh to Karnataka.

¶ 1–3

On 7 October 2024, U.P. authorities intercepted the vehicle at Agra. Although they found no discrepancy in the goods, invoices or e-way bills, they objected that an inter-unit stock-transfer invoice between the appellant’s registrations had been issued on 4 October, after dispatch on 3 October.

¶ 1–3

The proper officer imposed a penalty of ₹7,75,240 under Section 129 of the CGST/UPGST Acts. The first appellate authority dismissed the appellant’s appeal; the appellant then filed this second appeal under Section 112(1).

¶ 1–3

02Issues

i.Whether U.P. tax authorities, acting in a transit State, could invoke Section 129 to seize the goods and impose a penalty on a transaction originating outside U.P. and destined outside U.P.

¶ 6(i)

ii.Whether the one-day mismatch between the dispatch documents and the inter-unit stock-transfer invoice justified a penalty under Section 129 when the goods were otherwise covered by the relevant documents.

¶ 6(ii)

03Law Applied

The Tribunal considered Sections 107, 112(1) and 129 of the CGST/UPGST Acts and Article 301 of the Constitution.

¶ 7

It relied on M/s Maruti Enterprises v. State of U.P., 2026-VIL-515-All, for the proposition that a transit State may inspect and verify goods but cannot impose a penalty under Section 129 where the supply originates and terminates outside that State and no tax incidence arises there; the transit authority may instead notify the jurisdictional GST authorities.

¶ 7

The Tribunal also treated Section 129 as directed at transit-related contraventions involving matters such as tax evasion or unaccounted goods, rather than a technical invoice-dating discrepancy in an inter-unit transfer.

¶ 8

Provisions in the judgment · 3 · Linked ones open on LawLens

Central Goods and Services Tax Act, 2017 Section 112 Section 129 Section 107

04Reasoning

The goods were travelling from Haryana through U.P. to Karnataka, and the Tribunal found that the required outward supply invoices and e-way bills accompanied them. Since U.P. was only a transit State and no tax incidence arose there, the Tribunal held that its authorities lacked penal jurisdiction under Section 129 in these circumstances.

¶ 7

It further characterized the one-day difference in the stock-transfer invoice date as a revenue-neutral accounting-sequence mismatch, not evidence of evasion or unaccounted goods warranting a penalty.

¶ 8