GST Appellate Tribunal, Thiruvananthapuram Bench, sets aside penalty of over Rs. 1.34 lakh imposed on a steel firm for moving goods between its own premises without an e-way bill
In a significant ruling with wide implications for businesses that move goods between their own branches, godowns, or units, the Goods and Services Tax Appellate Tribunal (GSTAT), Thiruvananthapuram Bench, has held that the penal provision under Section 129 of the CGST/KGST Act, 2017 cannot be invoked where the underlying movement of goods does not amount to a “supply” — even if the movement was undertaken without an e-way bill. (👉 Author’s Note Remember, that the GSTAT Held that Eway bill is though required by when not done Section 129’s penalty is not tenable)
The Division Bench comprising Shri Subramanya V Rayaprol, Member (Judicial), and Shri Ramamoorthi Sriram, Member (Technical), delivered its Final Order on 14 August 2026 in the case of M/s M.S. Steels v. The Commissioner of Kerala State GST (Appeal No. APL/1/TVP/2026), allowing the appeal and quashing a penalty of Rs. 1,34,640.
The Background
M/s M.S. Steels, a Kerala-based partnership firm dealing in steel goods, was transporting TMT bars on 13 June 2022 from its own premises to its own godown under Delivery Challan No. M120 — a purely intra-firm, same-GSTIN stock movement. The consignment was intercepted by the Mobile Squad, Thiruvananthapuram, and detained under Section 129(1) of the CGST/KGST Act on the sole ground that no e-way bill accompanied the goods.
Although no tax demand was raised, the department imposed a penalty of Rs. 1,34,640 (CGST Rs. 67,320 plus SGST Rs. 67,320) under Section 129(3), computed by applying the GST rate for TMT bars to the value of goods shown in the delivery challan. To secure release of the vehicle, the firm paid the penalty in full. Its first appeal before the Joint Commissioner of State Tax (Appeals), Thiruvananthapuram, was dismissed on 2 November 2022, prompting the present second appeal before the Tribunal.
The Core Legal Question
The Tribunal framed the issue for determination as:
Whether the first Appellate Authority was right in confirming penalty under Section 129 on a registered person for transporting goods without an e-way bill, when the transport was undertaken purely on account of stock transfer?
The Appellant’s Case
Appearing for the appellant, CA Unnikrishnan M argued that the movement was a same-GSTIN internal transfer supported by a delivery challan, not an outward taxable supply to any customer. He contended that the phrase “tax payable” in Section 129(1) cannot be read in isolation — tax becomes payable only when the charging provision under Section 9 is triggered, and Section 9 in turn requires a “supply” as defined under Section 7. Since there was no sale, no invoice, and no transfer to another taxable person, there was no supply at all, and consequently no tax payable on which a penalty could be computed.
In the alternative, the appellant argued that even if some contravention had occurred, it was merely a documentation lapse properly falling under the specific penal provision of Section 122(1)(xiv), which caps the penalty at Rs. 20,000 (Rs. 10,000 each under CGST and SGST) — far below the amount actually collected. The appellant relied heavily on the Bombay High Court’s decision in Fabricship Pvt. Ltd. v. Union of India, along with the Allahabad High Court’s rulings in Vacmet India Ltd. and Goverdhan Oil Mill, and the Delhi High Court’s decision in Kamal Envirotech Pvt. Ltd., all of which had taken a similar view on stock transfers.
The Revenue’s Defence
The Joint Commissioner/Authorized Representative for the department, Shri Mansoor MI, mounted a detailed defence. He argued that Rule 138(1) of the CGST/KGST Rules requires an e-way bill for movement of goods exceeding Rs. 50,000 in value “for reasons other than supply” as well — meaning the e-way bill requirement is not confined to taxable supplies. Section 129, he submitted, is a self-contained, non-obstante machinery provision that does not require the department to first establish an independent taxable supply before detention and penalty can follow; the phrase “tax payable on such goods” is merely a formula for quantifying the penalty by reference to the notional tax rate applicable to goods of that description.
The Revenue further argued that a complete failure to generate any e-way bill — as opposed to an expired or defective one — was a total and uncured default justifying the finding that the transaction was not genuine. It relied on the Supreme Court’s rulings in Guljag Industries v. Commercial Taxes Officer and Union of India v. Dharmendra Textile Processing Mills to argue that penalty for such statutory contraventions is a civil liability that does not require proof of intent to evade tax (mens rea). The department also raised a procedural objection that the appellant’s alternative argument on Section 122(1)(xiv) was being raised for the first time in second appeal and had never been argued before the first appellate authority.
The Tribunal’s Findings
The Tribunal undertook a step-by-step statutory analysis:
- Section 129(1)(a) ties the penalty explicitly to “the tax payable on such goods.”
- Section 9, the charging provision, levies tax only on “intra-State supplies of goods.”
- “Intra-State supply” is defined by reference to Section 8 of the IGST Act, which in turn depends on there being a “supply” in the first place.
- Section 7(1) defines “supply” to include sale, transfer, barter, exchange, licence, rental, lease, or disposal made for a consideration by a person in the course of business.
Applying this chain of reasoning, the Bench held that a transaction can only be a “supply” if it involves two distinct persons or entities and involves consideration. In the present case, the goods moved from one premises of the appellant to another premises of the very same appellant, under the same GSTIN — there was no second party and no consideration whatsoever. The transaction therefore fell outside the definition of “supply” under Section 7, could not be an intra-State supply, and consequently fell outside the charging provision of Section 9. With no tax payable on the goods, the Tribunal held, “it stands to reason that penalty under section 129(1)… which is to be determined in terms of such tax payable, is not leviable.”
The Tribunal placed strong reliance on the Bombay High Court’s decision in Fabricship Pvt. Ltd. v. Union of India, which had held in near-identical terms that transport of machinery by an importer from the port to its own factory did not constitute a “supply” for want of a second party and consideration, and that the charging section could not be attracted in the absence of any supply. The Tribunal rejected the Revenue’s attempt to distinguish Fabricship on the ground that it dealt with exempted goods, calling this argument “a red herring, based on a total misreading of the said judgement” — the ratio of that case turned on the absence of two distinct parties and consideration, not on the exempt status of the goods, and applied with equal force to TMT bars.
The Bench also drew support from the Allahabad High Court’s decisions in Vacmet India Ltd. and Goverdhan Oil Mill, both of which held that stock transfers carry no tax liability and therefore cannot sustain a Section 129(3) penalty. Responding to the Revenue’s argument that these judgments ignored the independent operation of Rule 138(1)(ii) (which requires an e-way bill even for non-supply movements), the Tribunal clarified that the correct reading of these precedents is narrower but still fatal to the department’s case: the e-way bill requirement under the Rules may well survive for non-supply movements, but that only means recourse must be had to the specific documentation-penalty provision under Section 122(1)(xiv) — not to Section 129, which is anchored to “tax payable.”
On the department’s civil-liability argument based on Guljag Industries and Dharmendra Textile Processing Mills, the Tribunal did not find it necessary to decide the mens rea question at all, since the appeal succeeded on the more fundamental ground that no tax was payable in the first place — making the quantum-linked penalty formula under Section 129(1)(a) inapplicable regardless of intent.
The Bench further noted that the first appellate authority’s order, in confirming the penalty, had done little beyond repeatedly stressing the absence of an e-way bill, without recording any independent finding or reasoning as to why the transaction was “not genuine.”
The Verdict
Answering the question of law in the negative, the Tribunal held:
“Penalty under section 129 of Central Goods and Services Act / Kerala Goods and Services Act 2017 is not leviable on the registered person, for transport of goods without e-way bill, when such transport was undertaken on account of stock transfer.”
Accordingly, the Order-in-Appeal dated 2 November 2022 was set aside, and the appeal of M/s M.S. Steels was allowed with consequential relief — meaning the firm becomes entitled to a refund of the penalty amount already deposited.
Clarification: The E-Way Bill Requirement Itself Is Not Done Away With
It is important to note what this ruling does not say. The Tribunal did not hold that an e-way bill is unnecessary for stock transfers or other non-supply movements of goods. It expressly rejected the Revenue’s suggestion that the Allahabad High Court’s decision in Goverdhan Oil Mill — and by extension its own ruling — ignores the independent operation of Rule 138(1)(ii), which mandates an e-way bill for movement of goods “for reasons other than supply.” The Tribunal clarified this distinction in unambiguous terms:
“The Hon’ble Allahabad High Court has nowhere said that EWB is not required in respect of cases other than supply. The true import of the above judgement is that in cases governed by Rule 138(1)(ii) penalty is not leviable under section 129(3). The natural corollary is that in such cases recourse will have to be had only to section 122(1)(xiv). We find the said judgement of the Allahabad High Court lays down the correct law and cannot be said to ‘not account for the independent operation of Rule 138(1)(ii)’.”
In other words, the statutory obligation to generate an e-way bill under Rule 138(1)(ii) for consignments exceeding Rs. 50,000 in value continues to apply even to stock transfers and other non-supply movements. What the Tribunal struck down was not this compliance requirement itself, but the penal consequence the department attached to its breach. Because Section 129(1)(a)’s penalty is a percentage of “tax payable on such goods,” and a stock transfer generates no tax payable, the heavy 200% penalty formula under Section 129 cannot be invoked for such a lapse. The Tribunal held that the correct — and only — recourse for a missing e-way bill in a non-supply movement is the specific, considerably lighter documentation-penalty provision under Section 122(1)(xiv), capped at Rs. 20,000.
Businesses should therefore continue to generate e-way bills for all qualifying stock transfers and similar movements; this judgment does not exempt them from that obligation. What it changes is the ceiling on the penalty exposure if that obligation is breached in a genuine non-supply transaction.
Why This Ruling Matters
For businesses that routinely move goods between their own branches, warehouses, or manufacturing units under the same GST registration, this ruling is a reminder that a lapse in e-way bill compliance does not automatically translate into the steep, tax-linked penalty under Section 129 — particularly the 200% penalty formula tied to “tax payable.” Where no supply, and therefore no tax, is involved, the Tribunal’s reasoning suggests that any consequence for a paperwork lapse should be confined to the specific, much lower penalty prescribed under Section 122(1)(xiv) for documentation defaults, rather than the harsher detention-and-release penalty regime under Section 129.
At the same time, the judgment leaves open — and does not decide — the broader question of whether Rule 138(1)(ii)’s e-way bill requirement for “reasons other than supply” remains independently enforceable, and if so, precisely how a Section 122(1)(xiv) proceeding for such a default would be structured. Businesses would still be well advised to generate e-way bills for stock transfers exceeding the prescribed threshold to avoid detention and consequent business disruption, even though this ruling suggests that the maximum monetary exposure for a bare failure to do so, absent any supply, should be significantly lower than what was demanded in this case.
Case: M/s M.S. Steels v. The Commissioner of Kerala State GST, Thiruvananthapuram — Appeal No. APL/1/TVP/2026, Final Order No. 01/TVP/KERALA/2026, GST Appellate Tribunal, Thiruvananthapuram Bench, decided 14 August 2026.
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