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In a significant ruling on the limits of GST enforcement powers, the High Court of Judicature at Allahabad, in a batch of five writ petitions led by M/s Maruti Enterprises v. State of U.P. & Others1, examined whether GST authorities of a transit State can invoke Section 129 of the CGST Act2 against interstate consignments merely passing through their territorial jurisdiction.
The Division Bench comprising Hon’ble Justice Saumitra Dayal Singh and Hon’ble Justice Swarupama Chaturvedi was called upon to consider a jurisdictional issue under the GST regime: while transit-state authorities unquestionably possess powers to intercept, stop, inspect, physically verify, and temporarily detain goods in transit for verification under Section 683 and Rules 138A to 138C, can they proceed further to initiate seizure, confiscation, and penalty proceedings under Section 129 where no tax liability arises within that State?
The judgment draws a distinction between regulatory verification powers and substantive enforcement jurisdiction, while also discussing the constitutional protection of interstate trade under Article 301 of the Constitution.
The judgment disposed of five connected writ petitions arising from interception of consignments of Areca nuts travelling across different interstate routes. The consignments involved transportation from West Bengal to New Delhi, Assam to Delhi, Assam to Nagpur, and Bhojpur, Bihar to New Delhi. While the goods were passing through Uttar Pradesh, GST authorities intercepted the vehicles and scrutinised the accompanying documents. The consignments carried valid e-way bills and physical tax invoices. However, the authorities alleged that the suppliers had failed to generate mandatory e-tax invoices under Rule 48(4) of the CGST Rules.
On this basis, proceedings under Section 129 of the CGST Act were initiated and penalties were imposed.
The petitioners challenged the detention and penalty proceedings before the Allahabad High Court. Their primary contention was that Uttar Pradesh was merely a transit State and had no tax nexus with the transactions. Since the goods neither originated from nor were destined for Uttar Pradesh, no tax liability arose within the State. Consequently, the petitioners argued that Section 129 could not be invoked because the penalty mechanism under that provision is linked to the existence of “tax payable” within the State seeking to levy the penalty.
The petitioners further argued that while the authorities may possess powers to stop vehicles, inspect documents, conduct physical verification, and temporarily detain consignments during the verification process under Section 68 and the corresponding Rules, the GST framework does not permit a transit State to convert that limited regulatory exercise into substantive enforcement action in the form of seizure, confiscation, and penalty proceedings under Section 129 where no taxable event arises within that State.
It was also emphasised that there was no allegation that the goods were different from those disclosed in the accompanying documents, no allegation that the invoices were bogus, and no allegation that the consignments were intended for local sale within Uttar Pradesh.
The petitioners additionally highlighted that in the case of M/s Maruti Enterprises, the recipient’s GST registration was valid and operational at the time of transportation and interception. The subsequent suspension of the registration occurred only during the pendency of the writ proceedings.
The State argued that Sections 68 and 129 of the CGST Act, read with Rules 138A to 138C, empowered GST officers to intercept, inspect, detain, and penalise goods transported in contravention of statutory requirements. The State also relied upon the doctrine of “cross-empowerment” under Section 6 of the CGST Act and Section 4 of the IGST Act to contend that State GST officers were authorised to exercise powers in relation to interstate transactions governed by IGST.
Additionally, the authorities referred to circumstances surrounding the transactions, including absence of e-tax invoices, alleged irregular sourcing patterns, and subsequent suspension of certain registrations.
The Court accepted the State’s submission to the extent that transit-state authorities do possess regulatory powers to intercept vehicles, verify documents, physically inspect goods, and temporarily detain consignments for verification purposes. The Court clarified that no fault could be found with the initial interception and verification exercise undertaken by the Uttar Pradesh authorities.
However, the Court held that once it stood established that the consignments neither originated from nor were destined for Uttar Pradesh, and that no tax incidence arose within the State, the jurisdictional foundation necessary to invoke Section 129 no longer survived. The Court observed that the penalty framework under Section 129 is tied to the concept of “tax payable.” In the absence of any tax payable within Uttar Pradesh, the statutory basis for imposing penalty could not be sustained.
The Court also observed that a transit State may independently invoke jurisdiction if the authorities genuinely doubt whether the place of origin or destination disclosed in the documents is fictitious, manipulated, or actually located within the transit State. In such circumstances, the authorities may investigate whether the transaction is in substance an intra-state transaction disguised as interstate movement. However, in the present batch of cases, the authorities accepted that the consignments genuinely originated and terminated outside Uttar Pradesh.
The Court additionally took note of the practical realities surrounding the e-tax invoice requirement under Rule 48(4). It observed that compliance with the e-invoicing mandate is linked to the supplier’s turnover, a fact lying within the “special knowledge” of the supplier. Consequently, the purchaser or recipient may not necessarily be aware of such turnover-linked compliance obligations during the course of an interstate transaction.
A significant aspect of the judgment was the Court’s interpretation of the doctrine of cross-empowerment. The Court observed that the GST framework envisages a vertical model of cross-empowerment between the Union and individual States in order to maintain the “single interface” structure under GST. The statutory framework permits coordination between Central GST authorities and State GST authorities operating within the same State. However, the Court noted that the law does not contemplate any horizontal cross-empowerment between GST administrations of different States.
Accordingly, the Court held that Uttar Pradesh GST authorities could not assume substantive enforcement jurisdiction over transactions pertaining to taxpayers registered in other States merely because the goods happened to transit through Uttar Pradesh.
The Court further observed that where discrepancies are noticed during transit verification, the appropriate course for transit-state authorities would be to communicate the deficiency to the competent authorities of the originating or destination State, rather than proceeding with seizure, confiscation, or penalty proceedings under Section 129.
The Court examined M/s Armour Security (India) Ltd. Vs. Commissioner4, CGST on cross-empowerment, while clarifying that the decision dealt with coordination between Central and State GST authorities within the same State and not between different State GST administrations.
The Court also distinguished M/s ASP Traders Vs. State of U.P.5 on facts, observing that the case involved discrepancies in quantity and genuineness of goods, unlike the present batch of matters.
Reliance was further placed on J.K. Synthetics Ltd. v. Commercial Taxes Officer6 while interpreting the expression “tax payable.” The Court additionally referred to State of Bihar v. Harihar Prasad Debuka7 and State of Rajasthan v. D.P. Metals8 regarding reasonable restrictions and anti-tax evasion measures, and found persuasive support in the reasoning adopted by the Andhra Pradesh High Court in Golden Traders v. Deputy Assistant State Tax9.
The Allahabad High Court ultimately quashed the penalty orders and directed release of the goods and vehicles.
The judgment clarifies the jurisdictional limits governing GST enforcement by transit States. While transit-state authorities retain powers to intercept, inspect, physically verify, and temporarily detain goods for verification purposes, the decision indicates that such powers may not extend to substantive enforcement proceedings under Section 129 in the absence of any taxable event or tax incidence within that State.
The ruling provides guidance in cases involving interstate transportation of goods through transit States. The judgment also suggests that where consignments are accompanied by valid e-way bills and invoices, and the transaction lacks a tax nexus with the transit State, authorities may communicate discrepancies to the competent home-state jurisdictional authority instead of proceeding directly with seizure, confiscation, or penalty proceedings under Section 129. The ruling is also likely to be relevant in future disputes concerning the scope of cross-empowerment and the extent to which transit States may exercise enforcement powers over interstate transactions under the GST framework.
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Expositor(s): Adv. Aparna Shukla
