“Flagrant Breach of Principles of Natural Justice”: Gujarat HC quashes GST e-Invoice SCN and Penalty issued on Same Day [Read Order]

In a sharp rebuke to hasty tax enforcement, the Gujarat High Court has quashed a GST penalty order and corresponding show-cause notice issued on the same day as the interception of goods, declaring the action a "flagrant breach of principles of natural justice."

The petitioner company, engaged in the manufacture and sale of tractors, had dispatched two tractors from its Gujarat depot to a customer in Bhavnagar. Although a valid invoice and Part A of the e-way bill were generated, Part B, detailing vehicle particulars was not updated due to alleged technical issues. Consequently, the goods were intercepted in the early hours of October 4, 2018, by respondent authorities who detained the consignment for non-compliance under Rule 138 of the CGST Rules.

On the same day, authorities issued a detention order (Form GST MOV-06), a show-cause notice (Form GST MOV-07), and an ex-parte penalty order (Form GST MOV-09), demanding tax and 100% penalty. Pressed by business urgency, the petitioner deposited the full amount of ₹2,20,336 on October 6, 2018, leading to release of the goods on October 8, 2018.

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The petitioners, represented by Advocate Uchit N. Sheth, challenged the penalty imposition before the First Appellate Authority and subsequently under Article 227 of the Constitution. It was submitted that there was no malafide intention to evade tax, and that the transporter had updated Part B on the portal later the same morning. Mr. Sheth argued that the simultaneous issuance of SCN and penalty order on the same day without granting reasonable opportunity to respond was a grave procedural violation.

On behalf of the respondents, Advocate C.B. Gupta and Assistant Government Pleader Ms. Shrunjal Shah defended the levy, contending that under Section 129 of the GST Act, no discretion exists once a breach is established. They also asserted that the petitioner voluntarily deposited the penalty and did not raise objections at the time.

The division bench comprising Justice Bhargav D. Karia and Justice Pranav Trivedi, however, was unconvinced by the department’s rigid interpretation. It noted that the law allows seven days for a reply to the show-cause notice, but authorities acted with undue haste.

Citing violation of natural justice, the bench refused to remand the matter and instead quashed the orders outright, leaving other issues open for future adjudication.

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