“It is a fact that the burden of proof lies on the petitioner in certain cases to show that there was no evasion of tax. However, when the error in the documents is only that of a clerical or typographical error, the initial burden of proof lies on the department to show there was intention to evade tax” – observed Justice Shekhar B. Saraf of Allahabad High Court.
The petitioner, a company engaged in manufacturing artist brushes and materials, registered under the GST regime, encountered a legal dispute arising from the transportation of goods from its manufacturing unit in the Noida Special Economic Zone ( SEZ ) to a Domestic Traffic Area ( DTA ).
In the normal course of business, the petitioner sold 102 boxes of artist brushes to M/s Pidilite Industries Ltd., charging Integrated Goods and Service Tax ( IGST ) at the applicable rate of 18%. Since the transaction in question was from a SEZ unit to a Domestic Traffic Area hence, petitioner also charged customs duty and SWS ( customs ) at the rate of 10% each and also filed a Bill of Entry in respect of the transaction in question.
Following the preparation of the tax invoice and bill of entry, the petitioner engaged the transporter for the transportation of goods. The transporter agreed to transport the goods using a vehicle registered under number UP14DT-8219. Relying on the information provided by the transporter, the petitioner generated e-way bill no. 4110 1410 2307, including all pertinent transaction details.
Subsequent inquiries made by the petitioner revealed that, due to the unavailability of the vehicle registered as UP14DT-8219, the transporter substituted it with another vehicle registered as UP14BT8220. Due to an oversight, the petitioner loaded the goods onto the alternative vehicle without verifying the vehicle number against the GST e-way bill.
Despite the goods being accompanied by all necessary documents, including tax invoices and bills of entry, they were detained by GST authorities for verification. The petitioner argued that the error in the e-way bill was inadvertent and submitted a letter from the transporter explaining the situation.
The petitioner’s counsel submitted that since the goods were in compliance and there were no inconsistencies with the e-way bill, invoices, and packing list, there was no basis for imposing a penalty in this instance. He also cited various judgments of this Court, including the case of Falguni Steels Vs. State of U.P. reported in (2024) 15 Centax 67 (All.), to support his contention that penalties should not be imposed in cases where there is no mens rea for tax evasion.
In response, the department contended that the error could not be considered a mere clerical mistake, raising concerns about tax evasion. However, the court found no evidence of intent to evade tax and criticised the department for failing to establish such intent.
The bench noted that “Custom duty and also IGST had been paid on the said goods. The said goods were intercepted only two three hours after the goods have left the SEZ Unit, and therefore, it cannot be said that this e-way bill was wrongly being used.”
The high court further observed that the department did not successfully transfer the burden of proof onto the petitioner, as the only identified error was the incorrect vehicle number on the e-way bill.
Additionally, aside from this single error, the department failed to provide any justification for imposing a penalty under Section 129(3) of the UP GST Act. Moreover, the court found that the impugned order overlooked the document submitted by the petitioner, which detailed the transporter’s explanation for the vehicle number mistake on the e-way bill.
The Allahabad HC also reiterated the principles laid down in the case Falguni Steels, with regard to imposition of penalty. It states as follows:
“Mere technical errors, without having any potential financial implications, should not be the grounds for imposition of penalties. The underlying philosophy is to maintain a fair and just tax system, where penalties are proportionate to the gravity of the offense……….. To conclude, the requirement of intent to evade tax for the imposition of penalties is a fundamental principle that underpins the fairness and integrity of taxation systems. Recognising the distinction between technical errors and intentional evasion is essential for maintaining a balanced and equitable approach to tax enforcement…….”
The High Court, upon the above mentioned principles, concluded that proving intent to evade tax is essential before imposing penalties. However, the department couldn’t establish such intent in this case.
Moreover, the Appellate Authority didn’t fully review all documents provided by the petitioner to counter tax evasion allegations. As a result, orders from June 22, 2019, and June 22, 2018, are annulled.
Consequently, the penalty under Section 129(3) of UPGST was quashed by allowing the writ petition with consequential reliefs to follow. It was also directed to refund the deposited amount by the petitioner within four weeks from.
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