200% Penalty on Expired E-Way Bill for Zero-Rated Export to UAE: Gujarat HC reduces Penalty to Rs. 25k [Read Order]

In the matter of 200% penalty on the expired e-way bill under Goods and Services Tax (GST) for the zero rated exports to UAE, the Gujarat High Court reduced the penalty amount from 200% to Rs. 25,000.

The petitioner-company, Marcowagon Retail Pvt. Ltd. engaged in export to the UAE, dispatched a consignment of sports apparel and accessories from Gurugram to Mundra Port on 29 October 2024. Though all the necessary documents, including an e-invoice, e-way bill, and shipping bill, were furnished, the goods were intercepted at a checkpoint in Gujarat on 8 November 2024.

The e-way bill had expired on 4 November 2024, leading to a penalty imposition by the State Tax Officer. The officer passed an order in Form GST MOV-9 on 19 November 2024, detaining the goods and imposing a 200% penalty on the premise that the goods were moved in violation of Rule 138 of the CGST Rules, 2017.

The petitioners argued that the goods in question were for export under a Letter of Undertaking ( LUT ) and thus constituted a zero-rated supply under Section 16 of the Integrated Goods and Services Tax (IGST) Act, 2017, attracting nil tax liability.

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Hence, no penalty could be imposed under Section 129(1)(a) which mandates payment of tax and a penalty on the tax "payable". They also cited breakdown of the transport vehicle and Diwali holidays as the reasons for the delay.

The High Court acknowledged that there was a contravention of procedural compliance under Rule 138 due to the expired e-way bill. However, it stressed that no tax was payable on the export transaction itself as it was a zero-rated supply.

The court, referring to past judgments, including the Supreme Court’s ruling in J.K. Synthetics Ltd. v. CTO and Gujarat HC's own judgment in Atul Auto Ltd., drew a legal distinction between tax "leviable" and tax "payable". It noted that just because a tax is theoretically leviable does not mean it becomes payable, especially when the law explicitly treats such supplies as tax-free in practice.

It was also observed that “If the assessee pays the tax on the zero rated supply, the same is refunded as per provision of Rule 96 of the CGST Rules. Therefore, in the facts of the case when it is not in dispute that the goods in question being transported as a zero rated supply no tax was payable by the petitioners on such goods and as such though the tax was leviable as per Section 5(1) read with Section 7(5) of the IGST Act.”

The Court also relied on its earlier decision in Boron Rubber India v. Union of India, where procedural lapses in goods transported for job work were held to attract only minimal penalties when no tax was actually payable. The bench observed that, akin to exempt supplies, zero-rated exports are not taxable in effect, and therefore, the strict imposition of 200% penalty was "without jurisdiction".

Justice Bhargav D. Karia and Justice D.N. Ray observed that “Considering the scheme and the scope of the GST Act and the Rules when there is a contravention of Rule 138 which is procedural in nature, without intention to evade tax, Section 129 provides for levy of penalty whereas in the facts of the case though there is a contravention computation of penalty would fail in absence of any tax payable by the assessee - the petitioner.”

Accordingly, the Court partly allowed the writ petition, modifying the penalty to a token sum of Rs. 25,000. It directed the GST authorities to release the bank guarantee furnished by the petitioner and concluded that while the procedural lapse existed, it did not warrant the disproportionate penalty originally imposed.

However, due to the petitioners' initial suppression of facts regarding routing goods through a sister concern, the Court imposed costs of Rs. 10,000 per petition payable to the respondents.

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