No Provision For Taxing Stock Transfer From One Unit To Another Within State: Allahabad High Court Quashes Penalty Order

The Allahabad High Court has held that there is no provision for taxing goods (stock transfer) being transported from one unit of the assesee to another within the State of Uttar Pradesh. The Court further held that intention to evade tax cannot be attributed on movement of assesse's goods from one unit to another.

Petitioner's goods were being transported from one unit to another in the State of Uttar Pradesh when they were intercepted and detained as Part-B of the e-way bill was complete. In reply to the show cause notice, petitioner submitted that the transporter had failed to fill Part-B of the e-way bill and it was rectified as soon as it came to the knowledge of the petitioner. However, penalty order under section 129(3) of the UPGST Act was passed against the petitioner. Appeal preferred by the petitioner was also dismissed.

Counsel for petitioner contended that as soon as the discrepancy was brought to the knowledge of the petitioner, the e-way bill was completed and submitted before the authorities. Further, there was no element of intention to evade tax as goods were being transported from petitioner's one unit to another within the State, and as such no tax liability arises from such movement of goods. Lastly, it was contended that the authorities ought to have dealt with the contention that there is no provision in law which creates tax liability on interstate movement of goods from one unit to another of the same dealer.

Per contra, counsel for respondent argued that since genuine and complete documents were not produced in accordance with Rule 138 of the GST Rules at the time of interception of goods. Therefore, proceedings were rightly initiated against the petitioner.

The Court observed that the petitioner along with its reply filed a complete e-way bill. Accordingly, in the facts of the present case, the authorities ought to have taken a lenient view.

Further, the Court noted that authorities had failed to consider the contention of the petitioner the goods were being transported from petitioner's one unit to another within the State, therefore, there was no tax liability arising from movement of such goods.

Noting the decisions of Allahabad High Court in Shyam Sel & Power Limited Vs. State of U.P. and Telangana High Court in M/s Same Deutzfahr India P Limited Vs. State of Telangana, bench comprising of Justice Piyush Agrawal held

“Since the goods in question were stock transfer from one Unit to another within the State of Uttar Pradesh (Agra to Mathura) and in absence of any provision being pointed out by the learned ACSC or any authority below that the goods (stock transfer) in transit were liable for payment of tax, no evasion of tax could be attributed to the goods in question. Once there was no intention to evade payment of tax, the entire proceedings initiated against the petitioner are vitiated and are liable to be set aside.”

Accordingly, penalty order was quashed by the Court.

Case Title: M/S Vacmet India Ltd. vs. Additional Commissioner Grade -2 (Appeal) And Another 2023 LiveLaw (AB) 402 [WRIT TAX No. - 687 of 2019]

Case Citation: 2023 LiveLaw (AB) 402

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