CASE ANALYSIS of M/s.Falguni steels v. State Of Uttar Pradesh and ors. (Writ Tax No. 146 of 2023 dated January 25,2024)

Understanding the difference between a Tax-invoice and an E-way Bill

Before moving to the case analysis it is important to understand the differences between an e-way bill and a tax invoice because both are the subject matters in question and both are often confused to be of similar nature and purpose.

According to CGST Law both E-invoice and E-way Bills are a compulsory requirement during the supply of goods and services, there meaning and differences are as follows-

Facts Of The Case

1. Petitioner falguni steels was a registered dealer of the steel authority of india hereafter referred as SAIL.
2. A consignment of TMT bar was purchased by the petitioner on 17th feb,2019 pertaining invoice numbers OS0020005822 & OS0020005823.

Note -

●        These invoices were issued in accordance with section 31 of CGST Act,2017 to be read with Rule 46 of the CGST Rules,2017.

●       Section 31 mandates the issuance of invoice or a bill of supply whenever a supply of a goods or services or both are initiated. Which when read with rule 46 gives the 30 days rules i.e. after the supply of taxable services is made the invoice for it must be issued within 30 days from the date of supply of service.

1. For transportation of steel the petitioner obtained the services of the transporter vehicle the details of which were mentioned in the tax invoice.
2. Upon generation of tax invoice the petitioner initiated transportation by generating the E-Way Bill from the E-Way Bill portal which was declined due to pertaining glitches and technical errors.
3. Due to the technical glitch the E-Way Bills could not be generated at the time of onset of transportation but were generated later on 20th february,2019.
4. At the time of inspection the inspecting officers declined accepting the E-Way Bill because according to them its generation was after the date of transportation.
5. The respondents refused to take the E-Way Bills into consideration.
6. The respondent issued a show cause notice under section 129(3) of the uttar pradesh GST Act.

Note-

●       Section 129(3) of the UPGST Act states that the officer who detains or ceases goods or conveyances must issue a notice within seven days of such incident stating the tax and fine payable by the accused.

1. In this show cause notice an answer was seeked from the petitioner as to why tax amounting INR 1.29.862/- was not submitted by him and a penalty of additional INR 1,29,862/- was imposed.
2. The petitioner in order to get his goods released deposited the amount of 2,59,734/- via reserve bank of india towards tax and penalty, which resulted in the release of goods.
3. Aggrieved from this penalty the petitioner challenged the penalty imposed upon him by the respondent and filed a writ petition before the high court of allahabad.

Contentions By The Petitioner-

1. According to the petitioner he produced E-Way Bill twice in front of the concerned authorities i.e. first time on 20th feb 2019 and second time on 21st feb 2019 and the reason behind generation of E-Way Bills twice was the technical glitches that occurred on the portal.
2. There was grave fault in the duties conducted by the respondents because the arguments by the petitioner were not even heard mindfully.
3. The date of hearing of the notice was fixed on july 26,2019 in which the counsel of the petitioner was present, later the hearing was adjourned to october 10 on which the counsel of the petitioner couldnt be present due to some unavoidable circumstances the information of which couldn't be passed on to the petitioner.
4. In haste and hurry an ex-parte order was passed against the petitioner on 20th october,2029 which amounts to gross violation of principal of natural justice and are also against section 107(8),107(9), and 107(10) of the CGST Act,2017 and the UPGST Act,2017.

Note-

●       107(8)- The Appellate Authority shall give an opportunity to the appellant of being heard.

●       107(9)- The Appellate Authority may, if sufficient cause is shown at any stage of hearing of an appeal, grant time to the parties or any of them and adjourn the hearing of the appeal for reasons to be recorded in writing: Provided that no such adjournment shall be granted more than three times to a party during hearing of the appeal.

●       107(10)- The Appellate Authority may, at the time of hearing of an appeal, allow an appellant to add any ground of appeal not specified in the grounds of appeal, if it is satisfied that the omission of that ground from the grounds of appeal was not wilful or unreasonable.

1. The ex-parte order was passed against the petitioner on 20th october,2019 i.e. 10 days after the last hearing and the said ex-parte order was served to the petitioner on march 20,2020 i.e. 5 months after passing of such order.
2. Petitioner contended that the order was passed without even considering the considerations raised by the petitioner and there was no ground of appeal nor a reasonable finding.
3. The orders passed are illegal,arbitrary, against the principle of natural justice and contrary to law.
4. The petitioner cited the case of modern traders v. state of UP as precedent in which the allahabad  high court itself established that if E-Way Bill is generated and produced before the authorities passes the order for detention of goods and if the said goods are accompanied by documents citing the payment of tax, which is why the detention and seizure of goods is wholly baseless and defeats the purpose of such laws.
5. Petitioner specified that there was no intention of tax evasion on his part because all the payments were already charged by SAIL and all the payments were duly made along with the vehicle number was mentioned in all the invoices at the time of physical verification which is why the the goods could not be detained because they are not liable for confiscation under section 68,129 and 130 of UPGST Act proving that there was no intention of tax evasion.

Note-

●       Section 68- inspection of Goods in movement

●       Section 129- detention , seizure and release of goods and conveyances in transit

●       Section 130- confiscation of goods or conveyances and levy of penalty.

Contentions by the respondent-

1. Respondent stated that E-Way Bill is a compulsory requirement to be produced at the time of inspection which is missing as it was not generated at the time when the movements of the goods started in the vehicle citing rule 138 of the UPGST Rules.

Note-

●       Rule 138 - compounding of offence

●       Rule 138(1)Any offence under this Act may, either before or after the institution of prosecution, be compounded by the Commissioner on payment, by the person accused of the offence, to the Central Government or the State Government, as the case may be, of such compounding amount in such manner as may be prescribed.

●       Rule 138(1)(a) a person who has been allowed to compound once in respect of any of the offences specified in clauses(a) to (f) of sub-section (1) of section 132 and the offences specified in clause (l) which are relatable to offences specified in clauses (a) to (f) of the said sub-section

1. The reply submitted by the petitioner was not satisfactory resulting in the penalty order.
2. Many opportunities of hearing were provided to the petitioner but not one appeared on the behalf of the petitioner resulting in appellate authority deciding the appeal on the basis of facts and documents available on the record.
3. Appellate authority stated that the order passed by the inspecting officer was just,proper and as per law.

Question before the court-

Whether or not there was any actual intent to evade tax on the part of the petitioner.

Precedents Cited By The Hon’ble Court

1. SL Alloys (India) Pvt. Ltd. v. State of U.P. and Another, SCC OnLine All 6080.
2. M/s. Shyam Sel and Power Ltd. v. State of U.P. and Others 2023:AHC:191074.
3. K. Cement Ltd. v. State of U.P. and Ors, MANU/UP/2812/2023.
4. Roli Enterprises State of UP and Others.
5. Modern Traders v. State of U.P. and Others 2018 SCC OnLine All 6054.
6. Axpress Logistics Pvt v. Union of India and Others 2018.
7. Nagendra Nath Bora and Another The Commissioner of Hills Division and Appeal, Assam and Others.
8. Central Council for Research in Ayurvedic Sciences and Another v. Bikartan Das and Others.

Judgment By The Court

The court taking the note of above listed precedents stated that-

1. Although it is a mistake on the part of the petitioner because he was supposed to fill the details of the vehicle number in the part-B of the eway-bill number which they failed to do but still there was no intention on the part of petitioner to evade tax because the documents accompanying the goods contained all the relevant details hence, the order of seizure was deemed illegal and it was said to the responsibility of the inspecting officer to pass a reasoned order which he failed to do.
2. Although the petitioner failed to generate the E-Way Bill on time, the generated tax-invoices has all the relevant details alongwith the details of the vehicle transporting the goods.
3. The petitioner beforehand paid the CGST and SGST when charged by the SAIL hence,intention to evade tax doesn't seem evident.
4. The petitioner presented the E-Way Bills before passing of the impugned order but the appellate authority didn't take it into consideration which was not a sound decision.
5. In order to prove the intention of tax evasion, presence of mens rea is an important consideration which seems absent in the said case.
6. It was said to be the duty of the appellate authority to correct the misjudgment by the inspecting officer but they without checking the proportionality and reasonableness of the penalties imposed stated the petitioner to be at fault which reflects the arbitrary exercise of the authority and undermining the principles of justice.
7. Hon’ble court specified that the subject of tax evasion is a critical and serious allegation which requires a robust backing and proper legal scrutiny.
8. It is the responsibility of the authorities to maintain a fair and just taxation system in which penalties are imposed keeping the gravity of offence in mind.
9. The taxation laws are designed to punish the actual instances of tax evasion and not to punish the mistakes arising due to technical errors, honest mistakes, administrative errors etc. lacking malicious intention.
10. The petitioner's writ of certiorari was allowed by the court and the penalties by the lower courts were quashed by the hon’ble high court.

What Is The Relevance Of Writ Of Certiorari In This Case ?

●       Writ of certiorari is a legal remedy available under the Indian constitution. Certiorari is a latin term which means“to be fully informed” i.e. it gives power to the superior court to review and quash decisions given by the lower courts, tribunals and administrative bodies.

●       Writ of certiorari plays an important role in establishing checks and balances and acts as a mechanism to correct the errors arising due to judicial oversight.

●       It prevents abuse of power.

●       It is only granted at the discretion of the superior authority only when error of law is apparent on the face of the record.

Conclusion-

This case answers very substantive questions circling around the CGST law and the state GST rules because, it deals with the subject matter of intention to commit tax evasion and the reason behind the introduction of this entire indirect taxation regime was to curb tax evasion, but it must not defeat the very purpose behind the establishment  law which is to aid the citizens and to make taxation like subject matter transparent which is why in this case the court questioned the extraordinary jurisdiction performed by the appellate authority because mere formal and technical errors will obviously commence when digitalization is new in indian legislative realm. By this case the court also established the importance of writ of certiorari even in matters related to taxation. The court didn’t only thoroughly confirm whether or not there is a definite case which denoted absence,excess or failure to exercise law but also dealt with each question of law using precedents and logical explanations.

FAQ’S

1. What happens if an E-Way Bill is not provided during the transportation of goods?

 Penalties and the seizure of commodities may result from transporting items without the necessary E-Way Bill. All three parties involved—the shipper, the sender, and the receiver—may be subject to legal action for tax evasion.

1. Is an E-Way Bill required at all times when shipping goods?

Yes, an E-Way Bill is needed for shipments with a value above a specific threshold. However, depending on the items, the transaction type, and the distance of transportation, there are exceptions to this rule. For example, an E-Way Bill is not necessary for goods that are exempt from the GST.

1. Is it possible to stop an automobile just because it doesn't have an E-Way Bill?

The tax authorities have the authority to detain and confiscate items if a vehicle is discovered to be transporting them without an E-Way Bill. After all fines and taxes are paid, the car can be released.

1.  What consequences can one face if an E-Way Bill is not generated?

If an E-Way Bill is not generated, the penalty might be INR 10,000 (or the amount of tax that was evaded), whichever is greater. Both the specifics of the infraction and the laws of the offending state determine the potential severity of the punishment.

1. If an E-Way Bill was not sent during the shipment of my products, how can I fix this?

It's recommended to voluntarily notify the tax authorities of the omission of an E-Way Bill and pay the corresponding taxes and penalties if the omission was the result of a mistake or misunderstanding. The harshness of fines might be mitigated by this.

1. If the value of the products exceeds the threshold, is an E-Way Bill still required? If so, under what circumstances?

The transportation of goods from a port, airport, air cargo complex, land customs station, or other location to an inland container depot or container goods station for customs clearance is one of the exceptions, according to answer 6. The GST council has also made it clear that certain commodities, irrespective of value, are not required to have an E-Way Bill.

1. What can I do if an E-Way Bill is not available and the products are held?

If your items are held, you need to give the tax authorities the paperwork and details they need to understand what's going on. Release of the items may be contingent upon your payment of the relevant tax plus a penalty.

1. Is it possible to issue an e-Way invoice after the products have been shipped?

It is recommended to generate the E-Way Bill before shipping the items. Nevertheless, in order to minimise penalties in the event of intercept, it should be generated as soon as feasible after dispatch if there were valid reasons why it could not be generated earlier.

1. Can refusing to generate an E-Way Bill be justified by claiming ignorance of the law?

No, you cannot use ignorance of the law as an excuse to avoid paying your E-Way Bill. It is expected that businesses and transporters will be familiar with the GST requirements and will comply with them.

1. What resources are available to help me understand the E-Way Bill requirements?

The official GST portal has further information regarding E-Way Bill requirements, exemptions, and how to generate E-Way Bills. If you need more particular help, you can also see a GST practitioner.