No Tax Evasion on Transfer of Old Machine from Head Office to Branch for Own Use: Allahabad HC [Read Order]

In a significant ruling, the Allahabad High Court has held that the movement of an old machine from the head office of a company to its branch for internal use does not constitute tax evasion under the Goods and Services Tax (GST) framework.  It was noted that the delivery challan clearly indicated that the goods were being transferred for the company’s own use, and not for sale or supply to any third party.

The issue before the Court was whether the transfer of a used machine, without an invoice but accompanied by a delivery challan, amounted to a taxable supply and therefore justified the imposition of penalty under Section 129 of the Central Goods and Services Tax Act, 2017.

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The machine in question was being transported from the company’s head office to its workplace in Uttar Pradesh when it was detained by tax authorities. The authorities imposed a penalty, alleging tax evasion due to the absence of an invoice during transit.

However, Justice Piyush Agrawal, while delivering the verdict, noted that the delivery challan clearly indicated that the goods were being transferred for the company’s own use, and not for sale or supply to any third party. Since no element of sale was involved in the movement of the machine, the Court observed that the essential requirement for invoking tax liability — a “supply” under GST — was not satisfied.

“The transfer of machinery for internal use between different units of the same entity, when accompanied by proper documentation like a delivery challan, does not attract GST liability or warrant a penalty under Section 129,” the Court observed.

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The judgment sets a relief lending precedent for businesses with multi-state operations, reaffirming that the mere movement of goods within an organization’s branches, in the absence of any sale, does not automatically amount to tax evasion.

Accordingly, the Allahabad High Court quashed the impugned penalty order and allowed the writ petition filed by M/s D and D Construction and Developers Company.

To Read the full text of the Order CLICK HERE

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