Understanding Judicial Stance on Penalties for Typographical Errors in E-Way Bills: Key High Court Rulings

In recent legal battles across various Indian High Courts, the issue of imposing penalties for typographical errors in e-way bills has sparked considerable debate and judicial scrutiny. Despite several rulings against hefty penalties, Mobile Squad Officers continue to enforce stringent measures for seemingly minor mistakes.

Allahabad High Court

Hindustan Herbal Cosmetics

(2024) 82 GSTL 409

Introduction

The Allahabad High Court, in the case of Hindustan Herbal Cosmetics vs. State of U.P. and 2 Others, delivered a crucial judgment emphasizing that a typographical error in an E-Way bill should not attract a penalty if there is no intent to evade tax. The petitioner, a registered dealer under the Goods and Service Tax (GST) Act, challenged the penalty imposed by tax authorities due to an error in the E-Way bill, asserting that it was merely a typographical mistake without any intent to evade tax.

Facts of the Case

The petitioner, engaged in the sale of cosmetics, supplied goods to another registered dealer in Jharkhand, supported by necessary documentation including a tax invoice, bilty, and E-Way bill, all dated May 23, 2018. During the transit of goods, authorities intercepted the vehicle, citing a discrepancy in the E-Way bill where the vehicle number was incorrectly mentioned as DL1 AA 3552 instead of DL1 AA 5332. Consequently, a penalty was imposed solely based on this error.

Issue

The primary issue before the court was whether a typographical error in the E-Way bill, devoid of any intention to evade tax, warranted the imposition of a penalty under the GST framework.

Held

The court ruled in favor of the petitioner, emphasizing that the typographical error did not reflect any intent to evade tax. It referred to previous judgments, notably M/s. Varun Beverages Limited v. State of U.P., highlighting that minor discrepancies, especially those that do not indicate an intention to evade tax, should not attract penalties. Additionally, the court cited the Supreme Court judgment in Assistant Commissioner (ST) v. M/s. Satyam Shivam Papers Pvt. Ltd., asserting that the presence of mens rea (intent) is essential for imposing penalties under Section 129 of the GST Act. Thus, the court concluded that imposing a penalty for a mere typographical error, without evidence of intent to evade tax, was unjustified.

Varun Beverages Ltd.

Introduction

In the case of M/S Varun Beverages Limited vs. State of U.P. and 2 Others, the Allahabad High Court addressed the critical issue of whether a mistaken entry of a vehicle number in an E-Way bill could justify penalties under Section 129 of the Goods and Service Tax (GST) Act. The court ruled that penalties are not maintainable in cases of human error, particularly in stock transfers.

Facts of the Case

The petitioner, a registered dealer under the GST Act, is involved in manufacturing and selling aerated beverages and fruit juice-based drinks. On June 10, 2018, the petitioner was transferring stock from its unit in Greater Noida to a sale depot in Agra using Truck No. HR-73/6755, accompanied by the necessary delivery documents, including an E-Way bill and bilty.

During transit, a mobile squad intercepted the vehicle, claiming that the vehicle number in the E-Way bill was incorrectly mentioned as UP-13T/6755 instead of the correct number. Following this, a detention order was issued on June 11, 2018, along with a penalty order imposing a total tax and penalty of Rs. 3,73,668. The petitioner appealed against this decision, but the appeal was dismissed on July 1, 2019.

Issue

The main issue was whether the incorrect mention of the vehicle number in the E-Way bill constituted sufficient grounds for imposing penalties under the GST framework, particularly given that it was a case of stock transfer with no intent to evade tax.

Held

The Hon’ble Court found that the incorrect vehicle number was a mere human error, covered under the relevant circulars issued by the Commissioner. The court noted that the mistake involved the vehicle registration state and was not indicative of any intent to evade taxes. It highlighted that the correct vehicle number HR-73/6755 was present in the bilty, and the only discrepancy was in the E-Way bill.

The court emphasized that, given the nature of the transaction as a stock transfer and the absence of any evidence suggesting tax evasion, the minor discrepancy did not warrant penalty proceedings under Section 129. As a result, the court set aside the orders passed by the detaining and appellate authorities, declaring them unsustainable in law. The writ petition was allowed, and the court ruled in favor of the petitioner.

Sangeeta Jain

(2024) 18 CENTAX 509 :: 2024-TIOL-772

Introduction

In the case of Ms. Sangeeta Jain vs. Union of India and 3 Others, the Allahabad High Court emphasized the necessity of proving intent (mens rea) for imposing penalties under the GST framework. The court ruled against the imposition of penalties solely based on typographical errors in the E-Way bill, thereby reinforcing the legal principle regarding the absence of intent to evade tax.

Facts of the Case

The petitioner, Ms. Sangeeta Jain, filed a writ petition challenging two orders: one dated December 12, 2022, by the Additional Commissioner, State Tax, Agra, and another dated March 13, 2021, by the Assistant Commissioner, Mobile Squad, Agra. The imposition of a penalty under Section 129(3) of the Central Goods and Service Tax Act, 2017 was primarily based on a discrepancy in the dispatch address mentioned in the E-Way bill. The petitioner contended that the goods matched the invoice and E-Way bill, and there was no evidence of an intention to evade tax. The original authority stated that mens rea was not required for penalty imposition.

Issue

The key issue was whether a typographical error in the dispatch address of the E-Way bill warranted the imposition of penalties under the GST Act without any evidence of intent to evade tax.

Held

The Hon’ble Court held that the imposition of a penalty without proving intent to evade tax was illegal. Citing previous judgments, including M/s Hindustan Herbal Cosmetics, the court reiterated that mens rea is essential for penalty imposition. The court found that typographical errors, such as the one in this case where ‘3552’ was mistakenly entered instead of ‘5332’, should not automatically lead to penalties.

The court concluded that the original authority’s assertion that mens rea was unnecessary was incorrect and thus quashed the orders dated December 12, 2022, and March 16, 2021. The court directed the respondents to refund the amount of tax and penalty deposited by the petitioner within four weeks. The writ petition was allowed, emphasizing the legal requirement for establishing intent in penalty proceedings

INDEUTSCH INDUSTRIES PVT. LTD.

(2024) 16 CENTAX 491

Introduction

In the case of M/S INDEUTSCH INDUSTRIES PRIVATE LIMITED vs. STATE OF U.P. AND 2 OTHERS, the Allahabad High Court reinforced the principle that the initial burden of proof lies with the Revenue Department to demonstrate intent to evade tax in instances of clerical errors in documentation. The court ruled that penalties should only be imposed in cases of intentional tax evasion and not on inadvertent errors.

Facts of the Case

The petitioner, a manufacturer operating in a Special Economic Zone (SEZ), was transporting goods to the Domestic Tariff Area and generated an e-way bill for the shipment. Due to issues with the originally assigned truck, the goods were loaded onto a different vehicle, leading to a discrepancy in the truck number recorded in the e-way bill. Upon interception by tax authorities, the goods were detained based on this inconsistency.

The petitioner provided supporting documents, including a tax invoice, packing list, bill of entry, and the e-way bill, asserting that the only error was the incorrect truck number. The petitioner’s counsel referred to a letter from the transporter explaining the reason for the truck change and argued that the penalty was unjustified.

The Revenue Department contended that the error was not merely clerical since the truck number was entirely different and suggested that the short transport distance raised concerns about potential tax evasion.

Issue

The primary issue was whether the discrepancy in the truck number constituted a clerical error and whether the Revenue Department had established any intent to evade tax to justify the imposition of penalties under Section 129(3) of the GST Act.

Held

The Hon’ble Court held that the interception of the goods occurred shortly after leaving the SEZ unit, and customs duty and IGST had been duly paid, indicating no intention to evade tax. The court noted that the error in the e-way bill was purely clerical, and the initial burden of proof lay with the department to demonstrate an intention to evade tax.

The court found that the Revenue Department failed to establish any such intent, particularly as the discrepancy was merely a typographical error. The court emphasized that apart from this single error, the department did not present any evidence to justify the imposition of penalties under Section 129(3).

Furthermore, the impugned order did not consider the transporter’s explanation regarding the vehicle number discrepancy. The court referenced the judgment in Falguni Steels, underscoring that mere technical errors without financial implications should not warrant penalties.

Kerala High Court

GREENLIGHTS POWER SOLUTIONS

[TS-199-HC(KER)-2022-GST]

Introduction

The Kerala High Court, in the case of Greenlights Power Solutions vs. State Tax Officer, ruled that minor discrepancies in e-way bills should not lead to detention of goods or imposition of penalties under Section 129 of the GST Act. The court emphasized that penalties are not maintainable for insignificant errors, aligning with the principles laid out in the relevant circulars.

Facts of the Case

The petitioner, a registered entity engaged in electrical contract work, was transporting goods for a hospital project in Assam after duly paying the required taxes. During transit, the goods were intercepted by tax authorities due to a discrepancy in the e-way bill: the invoice date was incorrectly mentioned as 03.02.2021 instead of 02.03.2021. Consequently, the authorities issued an order imposing a tax of ₹27,540 and an equivalent penalty under Section 129(3) of the GST Act.

The petitioner argued that the error arose from a computer system malfunction, which generated the invoice date in the wrong format. Despite having all other documents in order, the petitioner was compelled to secure the release of the goods through a bank guarantee, leading to significant prejudice.

Issue

The core issue was whether the imposition of tax and penalty for the minor discrepancy in the invoice date constituted a valid application of Section 129 of the GST Act, given that there were no other discrepancies in the documentation.

Held

The Hon’ble Court held that the error in the invoice date was insignificant and did not warrant detention of goods or penalties under Section 129. Citing Circular No. 64/38/2018, the court reiterated that proceedings should not be initiated for minor discrepancies such as typographical errors or clerical mistakes.

The court analyzed the circular’s provisions and determined that the discrepancy in the date did not affect tax liability and was a bona fide mistake. All other details in the relevant documents were accurate, affirming that the issue fell within the exceptions outlined in the circular.

Additionally, the court referred to a similar ruling by the Madras High Court in R.K. Motors v. State Tax Officer, which supported the position that minor errors should not lead to harsh penalties.

Ultimately, the court quashed the impugned order issued under GST MOV-09 and directed the authorities to reconsider the matter in light of the circular and the observations made, ensuring the petitioner was granted an opportunity for a personal hearing.

Conclusion

The judicial stance on penalties for typographical errors in e-way bills reflects a growing recognition of procedural fairness and the importance of intent in tax compliance. While courts consistently rule against penalties for inadvertent mistakes, enforcement practices continue to vary, highlighting the need for uniformity and clarity in tax administration.