Court rules that UP GST authorities lack jurisdiction to penalize goods in inter-State trade merely passing through the State.
In a significant judgment, the Allahabad High Court has set aside penalties imposed by the GST authorities of Uttar Pradesh on goods being transported through the state, emphasizing the constitutional protection of free inter-State trade. The Division Bench, comprising Mr. Justice Saumitra Dayal Singh and Ms. Justice Swarupama Chaturvedi, ruled that the State GST authorities of Uttar Pradesh exceeded their jurisdiction by detaining and penalizing goods in transit from other states to Delhi.
The case involved multiple petitioners, including M/s Maruti Enterprises, M/s Shiv Shanker Enterprises, and others, who challenged the penalty orders under Section 129(1)(d) of the GST Act, 2017. These penalties were imposed due to the absence of e-Tax Invoices, although the transactions were inter-State, originating from West Bengal and Assam and destined for Delhi and Nagpur, thereby involving no tax incidence in Uttar Pradesh.
The court highlighted that under the current GST laws, while authorities in transit states like Uttar Pradesh can inspect and verify goods, they cannot impose penalties or confiscate goods unless there is a tax liability within the state. The judgment reaffirmed the constitutional protection of inter-State trade under Article 301, noting that the imposition of penalties without tax liability in the transit state constitutes an unreasonable restriction.
The court criticized the UP GST authorities' actions as overreach, emphasizing that any discrepancies should have been communicated to the authorities in the originating or destination states rather than resulting in penalties. The judgment clarified that cross-empowerment provisions under the GST laws do not extend to allowing one state's authorities to impose penalties on inter-State trade involving other states.
The ruling has significant implications for trade and commerce across India, ensuring that the constitutional guarantee of free inter-State trade is upheld, preventing arbitrary restrictions by transit states. The judgment underscores the importance of adhering to the legislative intent of GST laws, focusing on seamless trade across state borders while maintaining reasonable regulatory checks.
Bottom line:-
GST Laws - Jurisdiction of transit State authorities - State GST authorities of a transit State, such as Uttar Pradesh, have limited jurisdiction to inspect and verify goods in transit. They cannot impose penalties or confiscate goods in transactions of inter-State trade where neither the origin nor the destination lies within the transit State.
Statutory provision(s): Goods and Services Tax Act, 2017 Sections 6, 68, 129, 4 (IGST Act); Constitution of India, 1950 Article 301; Rule 138A, 138B, 138C of the Central Rules.
M/s Maruti Enterprises v. State of U.P., (Allahabad)(DB) : Law Finder Doc id # 2902662
