Over Dimensional Cargo Can't Be Penalized For Reaching Earlier Than Estimated Time: Allahabad High Court

The Allahabad High Court has held that Over Dimensional Cargo cannot be penalized by the authorities for reaching its destination in less time than estimated by travelling at a higher speed when there is no intention to evade tax.

Clause 2.4 of the Circular issued by Commissioner, State Tax dated 17.01.2024 provides that Over Dimensional Cargo cannot be detained and penalty cannot be imposed only because the goods have reached the intended place earlier than the estimated time.

“The mere fact that the goods in question were transported at a faster speed does not constitute sufficient grounds for penalization, in light of the departmental circular explicitly excluding transit speed as a criterion for classification. The reliance on speculative assumptions and conjectural reasoning to justify the imposition of penalties is antithetical to the principles of fairness and equity that underpin the rule of law,” held Justice Shekhar B. Saraf.

Case Background

Petitioner was transporting cargo known as Over Dimensional Cargo (ODC). Since the vehicle transporting ODC was travelling at a higher speed, the authorities held that vehicle could not be categorized as ODC and imposed penalty on the petitioner.

Counsel for petitioner argued that the goods were 13.9 feet above the ground and therefore, they were ODC, and the authorities had failed to measure height of the goods. Reliance was placed on circular issued by Commissioner, State Tax dated 17.01.2024 where it was provided that goods above the height of 3.8 meters will be classified as ODC. Since petitioner's cargo was 13.8 ft which is greater than 3.8 meters (12.46 ft), it will be classified as ODC.

Counsel for respondent relied solely on the speed of the vehicle to state that ODC goods cannot be transported at the speed at which they were moved.

High Court Verdict

The Court held that as per the Circular dated 17.01.2024, speed of the vehicle carrying cargo is not the criteria for determining if cargo is Over Dimensional Cargo. The Court observed that there was no discrepancy in the cargo and the documents present with the cargo.

The Court held that the penalty was imposed based on surmises and conjectures and was unsustainable. The Court relied on its earlier decisions in Girish and Company vs. State of U.P. and others and M/s Hindustan Herbal Cosmetics vs. State of U.P. where it held that intention to evade tax is sine qua non (essential) for imposition of penalty.

“The imposition of penalties on the petitioner rests on shaky ground, devoid of any substantive basis or findings indicating an intention to evade tax. This deficiency in evidentiary support undermines the legitimacy of the penalties and raises questions about the procedural fairness of the administrative actions taken against the petitioner. In the absence of concrete evidence demonstrating wilful misconduct or deliberate intent to circumvent tax obligations, the imposition of penalties appears arbitrary and unjustified.”

The Court held that means rea or intention to evade tax serves two purposes: first, it distinguishs between inadvertent errors and intentional misconduct as intentional misconduct ensures that penalty is imposed only on those who deliberately act against the law, and second, it deters tax evasion as non-compliance of law/ non-payment of tax will have severe consequences.

The Court held that the arbitrary exercise by State imposing penalties where there is no willful disobedience will cause undue hardship to innocent taxpayers.

Accordingly, the order imposing penalty as well as the order of appellate authority were quashed.

Case Title: M/S Ace Manufacturing Systems Limited v. State Of U P And 3 Others 2024 LiveLaw (AB) 360 [WRIT TAX No. - 1348 of 2022]

Citation: 2024 LiveLaw (AB) 360

Click Here To Read/Download Order