Allahabad High Court Strikes Down Penalty Order for Stock Transfer Within State

Allahabad High Court Strikes Down Penalty Order for Stock Transfer Within State

The Allahabad High Court has ruled that there is no provision for taxing the transportation of goods (stock transfer) from one unit of a business to another within the state of Uttar Pradesh. The Court also held that the movement of goods from one unit to another cannot be attributed to an intention to evade tax.

The petitioner's goods were transported from one unit to another in Uttar Pradesh but were intercepted and detained because the transporter had failed to fill out Part B of the e-way bill. The petitioner rectified the error but was still penalised under Section 129(3) of the UPGST Act. The petitioner's appeal was also dismissed.

The petitioner's lawyer argued that as soon as the error was discovered, the e-way bill was completed and submitted to the authorities. Moreover, there was no intent to evade tax, as the goods were being transported between the petitioner's own units within the same state. Therefore, no tax liability arose from the movement of the goods. Finally, the lawyer argued that the authorities should have considered the petitioner's contention that there is no provision in law for taxing the interstate movement of goods between different units of the same dealer.

In response, the respondent's lawyer argued that since the required documentation was not complete and accurate at the time the goods were intercepted, proceedings against the petitioner were justified.

The bench of Justice Piyush Agrawal observed that the petitioner had submitted a complete e-way bill with its reply. Therefore, in the facts of the present case, the authorities should have taken a more lenient view.

Additionally, the Court observed that the authorities had not considered the petitioner's contention that the goods were being transported between units within the same state, and therefore, no tax liability arose from the movement of the goods.

Referring to the Allahabad High Court's decision in Shyam Sel & Power Limited v. State of U.P. and the Telangana High Court's decision in M/s Same Deutzfahr India P Limited v. State of Telangana, the Court held: “Since the goods in question were stock transfer from one Unit to another within the State of Uttar Pradesh (Agra to Mathura) and in absence of any provision being pointed out by the learned ACSC or any authority below that the goods (stock transfer) in transit were liable for payment of tax, no evasion of tax could be attributed to the goods in question. Once there was no intention to evade payment of tax, the entire proceedings initiated against the petitioner are vitiated and are liable to be set aside.”

Accordingly, the Court dismissed the penalty order.