In a significant judgment, the Allahabad High Court ruled that penalty under Section 129 of the CGST Act, 2017 cannot be imposed solely for misclassification of goods, especially when the goods are accompanied by proper documents and there is no dispute regarding their valuation. The Court held that such classification disputes must be adjudicated under Section 73 or 74, not under Section 129, which deals with detention of goods in transit.
⚖️ Case Highlights:
- Issue:
Penalty was imposed under Section 129(3) of the CGST Act alleging misclassification of goods during transit. - Assessee’s Argument:
The goods were transported with valid e-way bill and tax invoice, and there was no dispute about the value of goods. The only ground raised was classification, which is not a sufficient basis for invoking Section 129. - Department’s Stand:
The classification of the goods was alleged to be incorrect, and thus penalty under Section 129 was imposed treating the goods as not transported in accordance with the law. - Court’s Observation:
The Court noted that:- Section 129 is applicable only when goods are transported without proper documents or in contravention of GST provisions.
- Since the goods had all valid documents and there was no suppression of value, the classification issue is a matter of legal interpretation, not a fraud or evasion attempt.
- Therefore, proceedings should have been initiated under Section 73 (non-fraud cases) or Section 74 (fraud/suppression cases), depending on the nature of the dispute.
- Final Verdict:
The penalty imposed under Section 129 was quashed, and the proper course of action was held to be assessment proceedings under Section 73/74 for resolving the classification issue.
🧠 Legal Takeaway:
This ruling reiterates that classification disputes are fundamentally different from violations involving missing documents or undervaluation, which alone can trigger action under Section 129. Businesses facing classification disputes during transit must not be penalized under Section 129 unless there is a clear contravention like lack of documents or intent to evade tax.
📅 Date:
25 July 2025
📚 Citation:
[2025] 176 taxmann.com 526 (Allahabad)