Introduction:

In a significant judgment, the Allahabad High Court has held that the absence of an e-way bill during transit and underreporting of the applicable tax rate indicate a clear intent to evade tax under the Goods and Services Tax (GST) regime. The case arose when M/S Gurunanak Arecanut Traders transported 400 bags of arecanuts from Delhi to Nagpur, and the consignment was intercepted in Mathura. Upon verification, it was found that the goods were not accompanied by an e-way bill at the time of transit, and the applicable tax rate had been wrongly declared as 5% instead of 18%. The e-way bill was generated only after the interception, leading authorities to initiate proceedings under Section 129(3) of the GST Act, culminating in a tax demand and penalty. The petitioner’s appeal was rejected, prompting them to approach the High Court. Justice Rohit Ranjan Agarwal dismissed the writ petition, affirming that the conduct of the petitioner clearly revealed an intent to evade tax, given the discrepancies in tax declaration and non-compliance with e-way bill regulations.

Arguments of Both Sides:

Petitioner’s Arguments:

The petitioner contended that the penalty order was passed without granting an opportunity of hearing. It was argued that the person responsible for generating the e-way bill was absent when the transportation occurred and that the driver had departed with the goods without informing the petitioner. The counsel further asserted that once the mistake was realized, the e-way bill was immediately generated and presented to the authorities. Additionally, the petitioner claimed that the appellate authority had failed to consider these mitigating factors before rejecting the appeal.

State’s Arguments:

The tax authorities countered that the petitioner’s place of business was found non-existent upon inquiry, leading to suo moto cancellation of the GST registration. It was argued that the mismatch between the registered seller and the actual goods owner, coupled with the delayed generation of the e-way bill and the incorrect tax declaration, strongly suggested an intention to evade tax. The standing counsel relied on previous rulings of the Allahabad High Court, particularly in M/s. Akhilesh Traders vs. State of U.P. and M/s. Jhansi Enterprises, Nandanpura, Jhansi vs. State of U.P., where the Court had ruled that failure to carry an e-way bill during transit constituted tax evasion, and the subsequent generation of an e-way bill post-interception could not absolve liability.

Court’s Judgment:

The Allahabad High Court observed that, as per the 14th Amendment to the Uttar Pradesh Goods and Services Tax Rules, 2017, it had been mandatory since April 1, 2018, for all goods in transit to be accompanied by an e-way bill. The Court underscored that failure to comply with this requirement coupled with a misdeclaration of tax rates justified the imposition of a tax demand and penalty. Referring to precedents set in M/s. Akhilesh Traders and M/s. Jhansi Enterprises, the Court reaffirmed that producing an e-way bill after interception does not absolve an assessee from liability. It further noted that the show cause notice had been served both on the petitioner and the truck driver but remained unanswered. Observing the petitioner’s conduct, Justice Rohit Ranjan Agarwal concluded that there was a clear intention to evade tax, given that the goods were transported without an e-way bill and had been wrongly classified under a lower tax rate. Accordingly, the writ petition was dismissed.