The Allahabad High Court has ruled that the GST authority of a transit State, such as Uttar Pradesh in this case, cannot impose penalties under Section 129 for documentation defects when goods are moving between two other States, and no tax liability arises in the transit State. The case involved M/s Maruti Enterprises, a Delhi-based dealer, whose consignment of dried areca nuts from West Bengal to Delhi was intercepted in Uttar Pradesh due to the absence of an e-tax invoice as required under Rule 48 of the GST Rules.
The Court emphasized that while GST authorities in a transit State may inspect goods and verify documents, they do not have the jurisdiction to impose penalties unless there is a statutory tax nexus with that State. The Court rejected the argument of "cross-empowerment" between different State GST authorities, clarifying that such empowerment exists only between Central and State tax authorities within the same jurisdiction, not between different States.
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Furthermore, the absence of an e-tax invoice could warrant verification but not detention or penalty by a transit State. The Court noted that allowing transit States to impose penalties would violate the constitutional guarantee of free inter-state trade under Article 301, as it could lead to repeated penal actions by every State through which goods pass, despite those States having no tax incidence in the transaction.
Order Date - 14 May 2026
Parties: M/s Maruti Enterprises, M/s Praveen Supari Bhander, M/s Shiv Shanker Enterprises & Shiva Enterprise Vs State of Uttar Pradesh & Another
Facts -
- Petitioner M/s Maruti Enterprises, a Delhi GST registered dealer, purchased 30,100 kg of dried areca nuts from a West Bengal supplier and transported them from West Bengal to Delhi under a tax invoice and valid e-way bill.
- Petitioner's' consignment was intercepted in Gautam Buddh Nagar, Uttar Pradesh, while nearing Delhi. During verification, authorities found that the supplier had not issued an e-tax invoice as required under Rule 48 of the GST Rules.
- They admitted the absence of the e-tax invoice but treated it as a technical defect. The department additionally noted concerns regarding the supplier's transactions and later suspension of the petitioner's registration.
- Petitioner M/s Maruti Enterprises and other connected petitioners faced detention of goods and substantial penalties despite the admitted position that the consignments originated outside Uttar Pradesh and were destined outside Uttar Pradesh.
Issue -
- Whether GST authorities of Uttar Pradesh, acting as a mere transit State, had jurisdiction to detain goods and impose penalties under GST laws on inter-state transactions that originated and ended outside Uttar Pradesh solely because the goods were passing through the State?
Order -
- The Court drew a clear distinction between the power to inspect goods and the power to penalise transactions. While GST authorities in a transit State may stop vehicles, inspect documents, and physically verify goods as a regulatory measure, such powers do not automatically confer jurisdiction to impose penalties. Inspection is permissible, but punitive action requires a statutory tax nexus with that State.
- The Court rejected the State's argument of "cross-empowerment" between different State GST authorities. It held that cross-empowerment under GST exists between Central and State tax authorities within the relevant taxing jurisdiction, not between one State and another. Therefore, Uttar Pradesh authorities could not assume jurisdiction over a transaction essentially belonging to West Bengal and Delhi.
- The absence of an e-tax invoice could justify verification but not detention or penalty by a transit State. Since there was no allegation that the goods were different from those described in the documents, no allegation that the transaction was intended for Uttar Pradesh, and no claim that the invoice or e-way bill was bogus, the deficiency could only be reported to the competent authorities of the originating or destination State.
- Allowing transit States to impose penalties on such consignments would undermine the constitutional guarantee of free inter-state trade. The Court observed that goods moving across multiple States could otherwise face repeated penal actions by every State through which they pass, despite those States having no tax incidence in the transaction. Such an interpretation would be contrary to Article 301 of the Constitution.
