GST penalty quashed as authority relied on unverified claim of non-existence of firm and ignored CBIC clarification mandating penalty under Section 129(1)(a).

Case Details

• Title: GST penalty demand quashed as authority wrongly ignored CBIC clarification and firm’s valid GSTIN status

• Court: High Court of Judicature at Allahabad

• Case No.: Writ Tax No. 1875 of 2024

• Petitioner: M/s Vridhi Enterprises

• Respondents: State of U.P. and Another

• Date of Judgment: 06.11.2024

• Bench: Hon’ble Arun Bhansali, CJ and Hon’ble Vikas Budhwar, J.

• Category of Dispute: Penalty under detention of goods – Section 129 CGST Act

• Relevant Sections: Section 129(1)(a), Section 129(1)(b) of the CGST Act, Clarification by CBIC dated 31.12.2018

Facts (Paras 1–4)

The petitioner challenged a penalty order in Form GST MOV-09 dated 17.09.2024 passed under Section 129(1)(b) of the CGST Act. The petitioner argued that as per CBIC clarification dated 31.12.2018, only Section 129(1)(a) applied in this case, and this was not disputed by the petitioner. The authority, however, refused this benefit by relying on a communication dated 10.09.2024 from CGST Delhi (North) stating that the petitioner-firm was “non-existent” and cancellation proceedings were initiated. The petitioner rebutted this, showing GSTIN status reports and proof of filing September returns on 20.10.2024, thereby establishing continuing existence. Reliance was also placed on M/s Margo Brush India v. State of U.P. (2023) and M/s Singh Traders v. State of U.P. (2024), which had upheld levy under Section 129(1)(a).

Questions before Court

• Whether penalty should have been levied under Section 129(1)(a) instead of Section 129(1)(b), in light of CBIC clarification and precedent?

• Whether reliance on the unverified claim of “non-existence” of the firm was legally sustainable?

Observations (Paras 5–8)

The Court noted that the CBIC clarification dated 31.12.2018 and earlier Allahabad High Court rulings in Margo Brush India and Singh Traders required penalty under Section 129(1)(a). The refusal to apply these was based only on a communication from CGST Delhi regarding alleged cancellation proceedings. However, no record was placed showing initiation of such proceedings, while the GSTIN status produced by the petitioner showed active status and regular filing of returns. The Court held that reliance on such an unsupported finding was unsustainable.

Judgment (Para 9)

The Court quashed the penalty order dated 27.09.2024. The matter was remanded to the competent authority to pass a fresh order in line with the Court’s observations and CBIC clarification, within two months.

Table of Cases Referred

Between Fine Lines

For businesses, this ruling emphasizes that authorities cannot impose harsher penalties under Section 129(1)(b) when CBIC’s clarification and precedents mandate Section 129(1)(a). Also, reliance on unverified third-party communications about GSTIN status cannot override actual returns filed and GST portal status. Traders should maintain evidence of filings to contest such allegations.

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