Gujarat HC Quashes GST Penalty on Expired E-Way Bill

Gujarat High Court judgment delivered today (July 8, 2025) in the case of Marcowagon Retail Pvt. Ltd. & Anr. v. Union of India & Ors

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⚖️ Case Overview

• Parties & Supply Context:
  Marcowagon Retail exported goods (sports apparel) from Gurugram to Mundra Port for shipment to the UAE, under a zero-rated supply covered by a Letter of Undertaking (LUT).
• E‑Way Bill Situation:
  The e-invoice and e-way bill were correctly generated, but the e-way bill expired during transit (due to a vehicle breakdown and Diwali festival delay) before goods reached a check post.
• GST Authority’s Action:
  Authorities intercepted the vehicle, issued forms MOV‑1, MOV‑2, MOV‑7, and in Form MOV‑9 (dated Nov 19, 2024) imposed a 200% penalty on the tax “payable” under Section 129(1)(a) of the CGST Act.

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📝 Legal Issues Addressed

1. Can a penalty under Section 129(1)(a) be applied when no tax is payable due to zero-rated supply under LUT?
2. Does an expired e-way bill amount to a taxable offense warranting such a penalty?

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✅ What Did the Gujarat HC Decide?

1. Zero-Rated Supply = No Tax Payable
   Under Section 16(1) of the IGST Act, exports under LUT qualify as zero-rated supplies—tax is leviable but not payable, due to either LUT or refund mechanism Penalty Must Be Based on ‘Tax Payable’.
2. Since no tax was payable on this transaction, the foundation for a 200% penalty collapsed; the penalty was thus without jurisdiction.
3. Expired E‑Way Bill ≠ Evading Tax
   The bench ruled that an expired e-way bill is merely a procedural lapse, not substantive tax evasion, especially in absence of malafide or revenue loss.
4. Penalty Limited to Exempt Supply Standard
   Drawing parallels from CBIC Circular 64/2018 and related case law, court held that where no revenue loss occurs, penalty should align with that for exempted goods—capped at ₹25,000 or 2% of consignment value.

🔍 Court Order & Relief

• The punitive 200% penalty was quashed.
• Court reduced the penalty to ₹25,000, treating the situation akin to exempt supplies.
• Bank guarantee furnished by the exporter was ordered to be released.

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🧩 Broader Implications

• Exporters’ Compliance Confidence: Helps exporters under LUT avoid excessive penalties for procedural errors.
• Clarity on “Tax Payable” Interpretation: Reinforces that penalties must link to actual tax liability.
• Procedural Lapse ≠ Malafide Intent: Aligns with HC decisions emphasizing leniency when no revenue harm occurs .

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🔚 Summary Table