GST Penalty Order Time-Barred If Issued Beyond 7 Days: Analysis of GMG Electric vs Commissioner of State Tax (GSTAT Ernakulam)

1. Overview of the Tribunal’s Decision

The GSTAT, Ernakulam, in GMG Electric vs Commissioner of State Tax, has reiterated that penalty orders under Section 129(3) of the KGST/CGST Act must strictly comply with the statutory time limit. Where this timeline is breached, the entire proceeding stands vitiated.

The Tribunal allowed the appeal filed by GMG Electric, a registered assessee dealing in electrical line materials, safety products and hardware, by holding that the demand of tax and penalty raised on account of transportation of goods covered by expired e-way bills was void ab initio. The core basis was that the order under Section 129(3) had been passed 445 days after the issuance of notice, whereas the statute mandates that the order be passed within seven days from the date of service of such notice.

By setting aside the Order-in-Appeal No. GSTA-487/2022 dated 8/12/2022, the Tribunal granted consequential relief to the assessee and underlined that non-adherence to the mandatory timeline under Section 129(3) of the KGST/CGST Act renders the proceedings a nullity.

2. Brief Factual Background

2.1 Nature of Business and Registration

  • The appellant, M/s GMG Electric, is a registered assessee under GST with GSTIN: 32ACYPG2618L1ZB.
  • The business activity consists of trading in:
    • Low Tension and High Tension line materials
    • Safety equipment
    • Hardware items
      within the State of Kerala.

2.2 Interception of Vehicle and Detention of Goods

  • A vehicle bearing No. KL-07-CJ-7593 was transporting:
    • 360 units of V Cross Arm Clamps with bolts and nuts to the Dy. Chief Engineer, Nilambur Electrical Circle, and
    • 1470.600 Kg of LT Stay wire to the Dy. Chief Engineer, Kondoty Electrical Division,
      both consignments being supplied by the appellant.
  • On 16/08/2021, the vehicle was intercepted at Aswini Junction, Thrissur, by the Assistant Sales Tax Officer, Squad No. V, Thrissur.
  • Upon verification, it was noticed that the e-way bills for the goods had expired on 15/08/2021.
  • Consequently:
    • The conveyance and goods were detained by issuing FORM GST MOV-06 dated 16-08-2021.
    • The vehicle was subsequently released upon furnishing a bank guarantee by the appellant.

2.3 Initiation of Proceedings Under Section 129(3)

  • The proper officer thereafter issued:
    • Notice No. VC/V/GST/52/2021-22 under Section 129(3) of the KGST/CGST Act in FORM GST MOV-07 on 16/08/2021.
  • Subsequently, the adjudicating authority passed:
    • Order No. VC/V/GST/52/2021-22 dated 4/11/2022 under Section 129(3) of the KGST/CGST Act, confirming the demand of tax and penalty.
  • This order was challenged before the first appellate authority, which, by Order-in-Appeal No. GSTA-487/2022 dated 8/12/2022, rejected the appeal and upheld the original demand and penalty.
  • Aggrieved, the assessee approached the GSTAT, Ernakulam in Appeal No. APL/ERN/34/2026.

3. Statutory Provision: Section 129(3) KGST/CGST Act

The Tribunal reproduced and relied upon the exact wording of Section 129(3) of the KGST/CGST Act, which provides:

129(3) The proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).

Two distinct time-bound obligations are embedded in this provision:

  1. Issuance of notice within seven days of detention or seizure; and