J&K High Court: GST Penalty Order Invalid When Passed Beyond 7-Day Limit Under Section 129(3)

The Jammu & Kashmir and Ladakh High Court in Mohd Hazzak Lohar Vs Commissioner State Tax has categorically held that the timelines prescribed in Section 129(3) of the J&K Goods and Services Tax Act, 2017 are mandatory. As a result, a penalty order issued even one day after the expiry of the 7‑day statutory window was struck down.

This decision reinforces that where goods and vehicles are detained under Section 129, the proper officer must strictly adhere to the statutory time limits for issuing notice and passing the penalty order. Any deviation, however minimal, can invalidate the entire detention/penalty proceeding, though the department remains free to act under other applicable provisions of the Act.

Background of the Dispute

Interception and Initiation of Proceedings

  • On 11 September 2025, a vehicle bearing registration no. JK02CS-0580, belonging to the petitioners, was intercepted at Heerpora, Shopian by the State Taxes Officer (respondent no. 2).
  • A person named Mohammad Shafi, claiming to represent the transporter and owner of the goods, appeared before the officer but failed to produce any documents relating to the consignment.
  • On the same day, a show cause notice in terms of Section 129(3) was issued, proposing a **penalty of Rs. 15,05,746/-. The notice was intended to provide an opportunity to the assessee to explain why penalty under Section 129(3)` should not be imposed for transporting goods without valid documents.

Assessee’s Reply and Request for Bank Guarantee

  • On 14 September 2025, the first petitioner submitted a reply:
    • He agreed to furnish a bank guarantee equal to the proposed penalty in terms of Section 129(1)(c).
    • He requested details of the authority in whose favour the guarantee should be issued.
  • The department provided the necessary particulars. However, instead of actually furnishing the bank guarantee as indicated in the reply, the petitioner and Mohammad Shafi appeared on 15 September 2025 and:
    • Disputed the valuation of the seized goods.
    • Demanded revaluation and re-computation of penalty.

Revaluation of Goods

  • Acceding to this request, the officer constituted a revaluation team on 17 September 2025.
  • The team verified prevailing market prices of the commodities and submitted its report, which formed the basis for reassessing the value of the goods and the consequential penalty.

Intervention by Pollution Control Board

  • On 18 September 2025, officials from the J&K Pollution Control Board (JKPCB) visited the site where the seized goods were kept.
    • They conducted an inspection and found that certain polythene items among the seized goods were contraband.
    • They requested the State Taxes Officer to withhold the final order until formal communication regarding the contraband status was issued.
  • On 20 September 2025, the JKPCB formally communicated that:
    • The seized polythene was contraband under the Plastic Waste Management Rules, 2016.
    • The State Taxes Department was requested to hand over both the contraband goods and the carrying vehicle.

Final Penalty Order on Remaining Goods

  • In light of this communication, the State Taxes Officer concluded that:
    • Contraband goods, being banned and not legally marketable, could not be subjected to tax or penalty in the usual manner.
    • Consequently, penal proceedings in respect of the banned polythene were dropped.
  • On 22 September 2025, a final penalty order was passed under Section 129(3):
    • Penalty pertaining to the contraband polythene was excluded.
    • Penalty was imposed only on the remaining goods.

Assessee’s Contention

The petitioners challenged:

  • Notice in Form GST MOV‑02 dated 11 September 2025
  • Notice in Form GST MOV‑06 dated 11 September 2025
  • Notice in Form GST DRC‑01 dated 11 September 2025 (Summary of Show Cause Notice)
  • Summary of Order under Section 129(3) dated 22 September 2025

The primary argument was that the penalty order dated 22 September 2025 was time-barred because: