Export Incentive Cannot Be Denied for Technical Breach of GST S.129: Madras HC Orders ₹2.4L Excess Penalty to be Adjusted against Future Tax Liability [Read Order]

The petitioner, M/s. Athiyan Exports is an exporter of coir products. The company had received an export order from a Chinese buyer and had arranged for the transportation of 72 metric tonnes of cocochips-washed-8 to 20 mm for export to Sapphire Premium (Shenzhen) Technology Co. Ltd., China.

However, in their haste to meet the export schedule, the petitioner transported the goods from the place of manufacture without generating the mandatory E-Invoice and E-Way Bills and attempted to effectuate the export with the Commercial Invoice dated 2 May 2025 only.

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Out of the three consignments dispatched, two reached the port without any intervention. The third consignment, however, was intercepted by the GST authorities in Tirunelveli, who issued a notice in Form GST MOV-07 under Section 129 of the GST Act. In response, the petitioner, seeking an expeditious resolution and the release of the goods for export, voluntarily paid a penalty of ₹2,71,458 vide DRC-03 on 9 May 2025 and subsequently generated a supplementary invoice.

The petitioner, represented by A. Mohamed Ismail, challenged the penalty order in the present writ petition, contending that although there had been a technical violation of Section 129, the substantive right to export incentives could not be denied to them, especially as the export was genuine and there was no intent to evade tax on their behalf.

The petitioner further sought a direction for refund or adjustment of the excess penalty paid, arguing that the imposition of the penalty effectively wiped out the export incentives, rendering them merely illusory.

R. Suresh Kumar, Additional Government Pleader appearing for the Respondents contended that the petitioner had an alternate statutory remedy of appeal under Section 107 of the GST Act and was further estopped from seeking relief in terms of Section 129(5) of the GST enactments since they had voluntarily paid the penalty.

The single-judge Bench of Justice C. Saravanan noted that while the petitioner had indeed violated the procedural requirements under Section 129, the breach was technical and venial in nature with the question being whether the penalty that was imposed was justified or lesser penalty is to be imposed.

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The Court referred to its own decision in Pulkit Metals Private Ltd., vs.The State Tax Officer-II (Intelligence) (Adjudication Cell) (Vellore), Villupuram (2022) to note that a lesser penalty can be imposed and the Supreme Court decision in Hindustan Steel Ltd vs. State of Orissa (1969) where it was noted that export incentive cannot be denied for technical and venial breach of provisions of Section 129 of the GST enactments.

Noting no worth in relegating the matter for appellate remedies, the Madras High Court directed the GST authorities to retain only ₹25,000 as penalty out of the amount already paid and to allow the petitioner to adjust the remaining sum of ₹2,46,458 against future tax liabilities.

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