In a significant relief for taxpayers, the Himachal Pradesh High Court has quashed a tax-cum-penalty demand imposed under Section 129 of the CGST Act, citing that intent to evade tax (mens rea) is mandatory for such penalties to sustain. The Court also directed the authorities to release the bank guarantee furnished by the assessee along with applicable interest within four weeks.
Background of the Case:
- Date of Incident: 5th November 2020
- A truck transporting aluminium scrap was detained by the department at Dherowal, Himachal Pradesh, on grounds of non-production of a valid e-way bill.
- 20th November 2020: The Proper Officer imposed a tax demand of ₹3.56 lakh along with an equivalent penalty under Section 129 of the CGST Act. The goods were subsequently released against a bank guarantee.
Legal Issue:
The core question before the Court was:
“Can a penalty under Section 129 survive when tax liability is already discharged, and non-generation of an e-way bill is a mere procedural lapse without any intention to evade tax?”
Assessee’s Arguments:
- The aluminium scrap was imported, and all applicable Customs Duty and IGST were paid at the port of entry.
- Failure to generate the e-way bill was an inadvertent, technical mistake, not a deliberate attempt to evade taxes.
- Penalty under Section 129 is quasi-criminal in nature, requiring the presence of mens rea (guilty intent).
- Mere procedural lapses cannot automatically justify imposition of penalties.
Department’s Contentions:
- The absence of an e-way bill itself indicates mala fide intention.
- The fact that the e-way bill was generated only after detention strengthens the suspicion of tax evasion.
High Court’s Observations & Judgment:
- The Court emphasized that mens rea is a sine qua non (essential requirement) for the imposition of penalties under Section 129.
- Upon examining the facts, the Court found no evidence of any intention to evade tax.
- The tax liability had already been discharged at the port, reinforcing the assessee’s bonafide conduct.
- The absence of an e-way bill was deemed a technical lapse, insufficient to attract penalty in the absence of deliberate evasion.
- Consequently, the orders of the Proper Officer and the Appellate Authority were set aside.
- The Court directed the department to release the bank guarantee along with applicable interest within four weeks.
Key Takeaways for Taxpayers:
✅ Intent is Crucial: Penalty under Section 129 cannot be imposed merely on procedural lapses; authorities must establish intent to evade tax.
✅ Substance Over Form: Courts adopt a practical, substance-over-form approach while dealing with e-way bill-related disputes.
✅ Prior Tax Payment is Strong Defence: Discharging tax liability before detention significantly weakens evasion allegations.
✅ Documentary Trail is Vital: Maintaining proper records, payment proofs, and transport documents helps rebut suspicion of evasion.
✅ Relief Against Automatic Penalties: This judgment empowers taxpayers to challenge automatic penalties where procedural lapses occur without mala fide intent.
Conclusion:
This landmark judgment reinforces the principle that procedural errors like non-generation of an e-way bill, when devoid of dishonest intention, cannot invite harsh penalties under GST laws. Taxpayers are advised to remain vigilant with compliance while also asserting their rights against unjustified penalties.
Case: Kunal Aluminium vs State of Himachal Pradesh | CMPMO No. 40/2025 | Date: 26th June 2025