In a significant ruling with far-reaching implications for inter-State trade under GST, the Allahabad High Court has drawn a clear distinction between verification powers and penal jurisdiction of GST authorities in transit States. The judgment in M/s Maruti Enterprises & Ors. vs State of U.P. (dated 14.05.2026) reinforces that procedural lapses alone cannot justify detention or penalties when goods merely pass through a State.
Background of the Case
The petitioners, registered dealers under GST in Delhi, had purchased goods from a supplier located in West Bengal. The goods were transported from Falakata (West Bengal) to New Delhi, passing through Uttar Pradesh. The consignment was accompanied by a valid tax invoice and e-way bill, ensuring compliance with documentation requirements under GST law.
However, while the goods were in transit through Uttar Pradesh, State GST authorities intercepted the vehicle for inspection. During verification, authorities alleged that the supplier had failed to issue an e-invoice as required under Rule 48(4) of the CGST Rules, considering that the supplier’s turnover exceeded the prescribed threshold.
Further allegations were made that:
- The supplier had procured goods from dealers with cancelled or suspended registrations.
- The purchasing dealer was not authorised to deal in areca nuts.
Based on these observations, the authorities detained the goods and imposed penalties under Section 129 of the CGST/SGST Acts.
Key Legal Issues
The case raised important questions regarding the jurisdiction and powers of GST authorities in a transit State:
- Can GST authorities in a transit State detain goods and impose penalties for inter-State transactions not originating or ending within that State?
- Do provisions under Sections 6, 68, and 129 of the CGST/SGST Acts, along with Sections 4 and 20 of the IGST Act, empower such authorities to initiate penal action?
- Does the absence of an e-invoice justify detention and penalty during transit?
Court’s Observations and Ruling
The Allahabad High Court delivered a well-reasoned judgment, striking a balance between regulatory oversight and jurisdictional limits.
1. Power to Inspect vs Power to Penalise
The Court acknowledged that under Section 68 and relevant e-way bill rules (Rules 138A to 138C), GST authorities are empowered to intercept, inspect, and verify goods in transit. However, this power is regulatory in nature and does not automatically extend to detention or penal action.
The Court made it clear that inspection does not equate to adjudication.
2. No Tax Jurisdiction in Transit State
A crucial factor in the case was that:
- The goods originated in West Bengal.
- The destination was New Delhi.
- There was no intended supply within Uttar Pradesh.
Since no part of the transaction was taxable in Uttar Pradesh, the Court held that no IGST, CGST, or SGST liability could arise in the transit State. Consequently, Uttar Pradesh authorities lacked jurisdiction to impose penalties under Section 129.
3. Limits of Cross-Empowerment under GST
Interpreting Section 6 of the CGST/SGST Acts and Section 4 of the IGST Act, the Court clarified that cross-empowerment is confined within the same State between Central and State GST authorities. It does not allow authorities of one State to adjudicate transactions belonging to another State.
This interpretation prevents jurisdictional overreach and ensures federal balance within the GST framework.
4. E-Invoice Non-Compliance is Procedural
The absence of an e-invoice was treated as a procedural lapse, not a substantive violation warranting detention. The Court emphasized that such discrepancies should be reported to the appropriate authorities in the originating or destination State, rather than being penalised by the transit State.
5. Buyer Cannot Be Penalised for Supplier’s Default
Importantly, the Court held that a purchasing dealer cannot be penalised for the supplier’s failure to issue an e-invoice. Since e-invoicing applicability depends on the supplier’s turnover, it remains within the supplier’s exclusive knowledge. Imposing liability on the buyer in such cases would be unjust.
6. Distinction from Earlier Judgments
The Court distinguished earlier rulings such as M/s Armour Security (India) Ltd. and M/s ASP Traders, noting that those cases did not address the specific issue of transit-State jurisdiction in inter-State trade.
Final Outcome
The Allahabad High Court quashed the penalty orders and directed the immediate release of goods and conveyances, providing much-needed relief to the petitioners.
Key Takeaways for Businesses
This judgment offers critical guidance for businesses engaged in inter-State trade:
- Transit States can inspect but not penalise without jurisdiction.
- Procedural lapses like missing e-invoices do not automatically justify detention.
- Liability for compliance failures rests primarily with the responsible party.
- GST authorities must act within defined jurisdictional boundaries.
Conclusion
The ruling in M/s Maruti Enterprises & Ors. vs State of U.P. strengthens the principle that substance prevails over form in GST enforcement. By limiting the powers of transit-State authorities, the Allahabad High Court has reinforced legal certainty and eased the compliance burden on businesses operating across State borders.
For taxpayers and professionals alike, this decision serves as an important precedent in safeguarding against arbitrary detention and penalties during the movement of goods under GST.