The Himachal Pradesh High Court in the case of M/S KUNAL ALUMINUM COMPANY VERSUS STATE OF HIMACHAL PRADESH & ORS. vide Case No. No.- CMPMO No. 40/2025 dated 26.06.2025, set aside the impugned order, holding that mere delayed generation of e-way bill without any mala fide intent or revenue loss does not attract penalty under Section 129, reinforcing that the tax authorities must act judiciously and in accordance with the principles of natural justice and proportionality.

Facts of the Case: In this case, the vehicle of petitioner was intercepted on 5.11.2020, for not carrying a valid e-way bill, as required under Rule 138 of the CGST Rules, 2017. The Petitioner submitted that the goods were imported, and IGST and customs duty of ₹4,09,144 had already been paid at the port of entry. The e-way bill was generated after the interception, citing inadvertence and no intent to evade tax.

Despite this, the proper officer detained the goods and passed an order on 20.11.2020 under Section 129(3) of the CGST Act, imposing tax and penalty. The goods were released upon furnishing bank guarantee for the disputed amount. The first appellate authority rejected the petitioner’s appeal on 22.08.2024, stating that failure to generate the e-way bill itself was sufficient to infer intent to evade tax.

The respondent argued that non-generation of e-way bill was in contravention of Rule 138, which mandates an e-way bill for goods valued above ₹50,000. Generation of e-way bill post-detention was cited as evidence of malafide intent and an attempt to circumvent compliance. The authorities treated the lapse as presumptive evasion, hence invoking Section 129.

Issue: Whether penalty under Section 129(3) of the CGST Act can be imposed for non-generation of e-way bill despite no intention to evade tax and the fact that tax was already paid on the goods?

Held that: The Court held that imposition of penalty under Section 129 of the CGST Act cannot be sustained in the absence of intent to evade tax. Relying on the scheme of Sections 129 and 130, the Court emphasized that the requirement of mens rea is a sine qua non for initiating quasi-penal proceedings. Further, the petitioner had paid all applicable customs and IGST duties at the port, and generated the e-way bill post-detention. The High Court held that this did not demonstrate mala fide intention, especially since no revenue loss was caused and all other documents (invoice, transport papers, etc.) were in order.

The Court found that the original authority’s order imposing penalty and tax, as well as the appellate authority’s dismissal, lacked any substantive reasoning or finding of deliberate evasion.

The penalty, though civil in nature, assumes a quasi-criminal character due to its penal consequences. Hence, a mere technical or procedural lapse without deliberate intention cannot trigger penalty provisions. The Court placed reliance upon Supreme Court’s judgment dismissing the SLP in the case of CST vs. Satyam Shivam Papers (P) Ltd. , thereby upholding the Telangana High Court’s view that expired e-way bills or similar lapses do not amount to tax evasion in the absence of mala fide intent. Also, Court relied upon cases like Roli Enterprises v. State of U.P. (Allahabad), Modern Traders v. State of U.P. (Allahabad), Falguni Steels v. State of U.P., M/s Hindustan Herbal Cosmetics. 

The Court quashed the impugned order and respondents were directed to release the bank guarantee furnished under protest with applicable interest within four weeks.

To read the complete judgment 2025 Taxo.online 1318