Section 129 of the GST Act: Understanding the Implications of Section 129 of the GST Act Through a Case Study

 

 

Introduction

The Goods and Services Tax Act, 2017 represents a watershed moment in India’s fiscal history, unifying multiple indirect taxes into a single, streamlined taxation system. This legislative reform aimed to eliminate the cascading effect of taxes and create a unified national market. Among its various provisions, Section 129 of the Central Goods and Services Tax Act, 2017 holds particular significance as it empowers tax authorities to detain, seize, and subsequently release goods and conveyances during transit when violations of the Act are suspected. This provision serves as a critical enforcement mechanism to ensure compliance with GST regulations and prevent tax evasion during the transportation of goods across state boundaries. The implementation of  Section 129 of the GST Act has generated considerable litigation, with taxpayers and tax authorities frequently finding themselves at odds over its interpretation and application. The provision has been particularly contentious in cases involving technical non-compliance, such as incomplete e-way bills, where the intention to evade tax may not be evident. Understanding the nuances of this section, along with its regulatory framework and judicial interpretations, is essential for businesses, transporters, and legal practitioners navigating the GST regime.

Legislative Framework of Section 129 of the GST Act

Section 129 of the CGST Act, 2017 establishes a detailed framework for detention, seizure, and release of goods and conveyances in transit. The provision begins with a non-obstante clause, indicating that its application overrides other provisions of the Act when goods are transported or stored in contravention of GST laws. The legislative intent behind this section is to create a robust mechanism for detecting and penalizing violations during the movement of goods, thereby ensuring that the tax base is protected and compliance is maintained throughout the supply chain.

The section underwent significant amendments through the Finance Act, 2021, which were enforced from January 1, 2022. These amendments were introduced to rationalize the penalty structure and address concerns about the harshness of the original provisions. Prior to the amendments, the section required payment of both applicable tax and penalty for release of goods. The revised provisions, however, eliminated the requirement to pay tax at the time of release in certain circumstances, focusing instead on penalty amounts as the primary mechanism for securing release of detained goods.

Under the current framework, when goods are transported or stored in transit in violation of GST provisions, both the goods and the conveyance used for transportation become liable for detention or seizure. The law mandates that no detention or seizure can occur without serving a formal order of detention or seizure on the person transporting the goods, thereby ensuring procedural fairness and transparency in enforcement actions.

Penalty Structure and Release Mechanisms

The penalty structure under Section 129 of the GST Act is designed with a tiered approach, differentiating between situations where the owner of goods comes forward voluntarily and situations where the owner does not cooperate with authorities. This differential treatment reflects the legislative intent to encourage voluntary compliance while maintaining strict consequences for non-cooperation.

When the owner of detained goods comes forward to accept liability, the penalty is set at two hundred percent of the tax payable on such goods. For exempted goods, which are not subject to GST, the penalty is calculated as two percent of the value of goods or twenty-five thousand rupees, whichever is less. This provision ensures that even goods exempt from tax are not transported in violation of procedural requirements without consequences. [1]

In cases where the owner does not come forward to take responsibility for the detained goods, the penalty structure becomes significantly more stringent. The law requires payment of a penalty equal to fifty percent of the value of goods or two hundred percent of the tax payable, whichever is higher. For exempted goods in such situations, the penalty is five percent of the value of goods or twenty-five thousand rupees, whichever is less. This differential penalty structure serves as a strong incentive for owners to cooperate with authorities and take immediate responsibility for violations.

The law also provides for release of goods upon furnishing security equivalent to the amount payable under either of the above categories. This option provides flexibility to businesses that may need time to arrange funds or wish to contest the detention while ensuring their goods are not held indefinitely by authorities.

Procedural Requirements and Timelines

Section 129 of the GST Act establishes strict timelines for procedural compliance to prevent arbitrary detention and ensure expeditious resolution of cases. Upon detention or seizure of goods, the proper officer is required to issue a notice within seven days specifying the penalty payable. This notice must clearly communicate the grounds for detention, the applicable penalty provisions, and the rights available to the person whose goods have been detained.

Following the issuance of notice, the proper officer must pass a final order within seven days from the date of service of the notice. This order determines whether penalty under clause (a) or clause (b) of sub-section (1) is applicable, based on whether the owner has come forward or not. The compressed timeline of fourteen days for the entire process, from detention to final order, reflects the legislative intent to avoid prolonged uncertainty for businesses and minimize disruption to commercial activities.

Before determining any penalty under sub-section (3), the law mandates that the proper officer must provide the person concerned with an opportunity of being heard. This requirement embodies the principles of natural justice, ensuring that affected parties have a fair chance to present their case, explain circumstances surrounding the violation, and contest the proposed penalty if they believe it is unwarranted or excessive. [2]

Once the penalty amount specified in sub-section (1) is paid, all proceedings related to the notice are deemed concluded. This provision provides finality to the matter and prevents authorities from initiating further action for the same violation after penalty has been paid and goods have been released.

The law also addresses situations where the person transporting goods or the owner fails to pay the penalty within fifteen days from the date of receiving the order. In such cases, the detained goods or conveyance become liable for sale or disposal to recover the penalty amount. However, conveyances are subject to special protection and can be released upon payment of the penalty under sub-section (3) or one lakh rupees, whichever is less, recognizing that conveyances are often owned by third-party transporters who may not be responsible for the violation.

For perishable or hazardous goods, or goods likely to depreciate in value with passage of time, the law empowers the proper officer to reduce the fifteen-day period for payment. This provision prevents loss of value and ensures that such goods can be disposed of quickly if penalty is not paid promptly.

The E-Way Bill Requirement Under GST

The electronic way bill or e-way bill is a fundamental compliance requirement under the GST regime for movement of goods exceeding a specified value. Introduced through Rule 138 of the CGST Rules, 2017, the e-way bill system is designed to ensure that all movements of goods are properly documented and can be tracked by tax authorities in real-time. The e-way bill contains details about the goods being transported, the consignor, the consignee, and the transporter, serving as an electronic trail for the entire movement.

The e-way bill consists of two parts: Part A and Part B. Part A contains details about the goods, including the invoice or delivery challan number, the value of goods, the HSN code, the reason for transportation, and the transport document number. This part is typically filled by the supplier, recipient, or transporter who is causing the movement of goods. Part B of the e-way bill contains details about the vehicle in which goods are being transported, including the vehicle number and transporter details. This part is filled by the person who is actually transporting the goods, which may be different from the person who generated Part A.

The bifurcation of the e-way bill into two parts recognizes the commercial reality that the person arranging for transportation may be different from the person actually executing the transportation. In many business transactions, the supplier generates Part A based on the invoice and hands over the goods to a transporter, who then fills Part B with vehicle details before commencing the journey. This system is designed to ensure complete traceability while accommodating different business models and transportation arrangements.

Failure to carry a valid e-way bill during transportation, or carrying an incomplete e-way bill where either Part A or Part B is not properly filled, constitutes a violation under the GST Act. Such violations make the goods liable for detention or seizure under Section 129, as the absence or incompleteness of the e-way bill suggests potential tax evasion or an attempt to move goods without proper documentation. [3]

Judicial Interpretation: The Allahabad High Court’s Approach

The judiciary has played a crucial role in interpreting Section 129 of the GST Act and balancing the enforcement powers of tax authorities against the rights of taxpayers. The Allahabad High Court has delivered several significant judgments that have shaped the application of this provision, particularly in cases involving technical non-compliance without evidence of tax evasion intent.

In multiple decisions delivered between 2023 and 2024, the Allahabad High Court has established important principles regarding the imposition of penalties under Section 129. The Court has consistently held that penalties under this section should not be mechanically imposed for every technical violation. Instead, authorities must examine whether there is evidence suggesting an intention to evade tax or whether the violation is merely a procedural lapse without financial implications.

In cases where goods were being transported between registered dealers with valid tax invoices, and the only defect was the non-filling of Part B of the e-way bill, several High Court benches have taken the view that such technical non-compliance should not automatically attract the stringent penalties prescribed under Section 129. The Court has emphasized that Part B of the e-way bill, which contains vehicle details, is typically the responsibility of the transporter rather than the supplier or owner of goods. Therefore, penalizing the owner of goods for the transporter’s failure to update vehicle details may not be justified in the absence of evidence suggesting collusion or intentional evasion.

The courts have also recognized that in genuine commercial transactions between registered dealers, where proper tax invoices exist and tax has been paid or is payable through normal assessment procedures, the detention and penalty provisions of Section 129 should be applied with caution. The rationale is that these are not cases of goods being moved to evade tax, but rather cases where procedural requirements have not been fully met due to technical reasons or oversight. [4]

However, it is important to note that not all High Court decisions have been uniformly lenient. In several cases, courts have upheld penalties where the e-way bill was completely absent or where there were other circumstances suggesting potential tax evasion. The courts have made it clear that while technical non-compliance without mala fide intent may warrant leniency, complete failure to comply with documentation requirements or circumstances indicating an attempt to evade tax will attract the full rigour of Section 129.

The judicial approach reflects a nuanced understanding that the GST law serves a dual purpose: ensuring tax compliance and facilitating ease of doing business. While the law must be enforced to prevent tax evasion, it should not become an instrument for harassment of legitimate businesses that commit inadvertent procedural lapses without any intention to defraud the exchequer.

Distinction Between Section 129 and Section 130

Understanding Section 129 of the GST Act requires appreciating its distinction from Section 130 of the CGST Act, which deals with confiscation of goods or conveyances and levy of penalty. While both sections begin with non-obstante clauses and deal with violations during transportation, they serve different purposes and have different consequences.

Section 129 is essentially a summary provision designed for quick resolution of violations during transit. It provides for immediate release of goods upon payment of penalty, without a detailed adjudication process. The focus is on ensuring that legitimate goods can continue their journey after penalty is paid, minimizing disruption to business operations. The proceedings under Section 129 are concluded once the penalty is paid, and no further action can be taken for the same violation.

Section 130, on the other hand, deals with confiscation of goods or conveyances and the levy of penalties through a more detailed adjudication process. Confiscation is a more serious consequence than detention, as it involves goods becoming the property of the government. Section 130 proceedings are initiated when the person transporting goods or the owner fails to pay the penalty under Section 129 within the prescribed timeline, or when the violation is of a more serious nature warranting confiscation rather than simple detention. [5]

The procedural requirements under Section 130 are more elaborate, with detailed show cause notices, opportunities for hearing, and the possibility of redemption of goods on payment of fine. The distinction between the two sections ensures that while minor violations can be dealt with summarily under Section 129, serious violations involving significant tax evasion or repeated offenses can be addressed through the more rigorous confiscation proceedings under Section 130.

Tax Liability Determination Under Sections 73, 74 and 75

An important aspect of the Section 129 regime is its relationship with the regular assessment provisions of the GST Act. Sections 73, 74, and 75 of the Act deal with determination of tax liability in cases where tax has not been paid or has been short-paid, incorrectly refunded, or where input tax credit has been wrongly availed or utilized.

The payment of penalty under Section 129 and the release of goods does not preclude authorities from initiating proceedings under Sections 73, 74, or 75 for determination of actual tax liability. Section 129 is an enforcement provision designed to address violations during transit, while Sections 73, 74, and 75 are assessment provisions designed to determine and recover the correct amount of tax payable.

This distinction has been recognized by courts, which have held that penalty proceedings under Section 129 and tax assessment proceedings under Sections 73, 74, or 75 are independent of each other. The payment of penalty under Section 129 provides for immediate release of goods but does not constitute payment of tax or final determination of tax liability. Authorities retain the power to issue show cause notices under the assessment provisions and determine the actual tax payable, along with interest and penalty as applicable under those provisions.

This parallel framework ensures that while goods are not held up indefinitely during transit, the interests of revenue are protected through proper assessment proceedings that determine the actual tax liability based on detailed examination of facts and documents. [6]

Implications for Businesses and Transporters

Section 129 of the GST Act has significant practical implications for businesses engaged in interstate trade and transporters who facilitate movement of goods. The provision places responsibility on both suppliers and transporters to ensure complete compliance with documentation requirements, particularly the e-way bill system.

Businesses must ensure that proper tax invoices are generated for all taxable supplies and that e-way bills are generated for movement of goods above the threshold value. The responsibility for generating Part A of the e-way bill typically lies with the supplier, who must ensure that all details are accurately filled, including the HSN code, invoice value, and transport document details.

Transporters, on the other hand, must ensure that Part B of the e-way bill is properly filled with vehicle details before commencing transportation. Many transporters maintain dedicated staff or use software solutions to ensure that e-way bills are updated with vehicle details as soon as goods are loaded for dispatch. The failure to update Part B can result in detention of goods and vehicles, causing significant delays and financial losses.

The differential penalty structure under Section 129 creates a strong incentive for owners of goods to come forward and take responsibility for violations. Businesses should maintain robust communication channels with their logistics teams to ensure that if goods are detained, the information reaches decision-makers quickly so that appropriate action can be taken within the timelines prescribed by law.

From a risk management perspective, businesses should implement internal controls to ensure GST compliance during transportation. This includes verification of e-way bills before dispatch, training of logistics staff on GST requirements, regular audits of transportation documentation, and maintenance of proper records that can be produced if goods are intercepted by authorities. [7]

The Role of Intent in Penalty Imposition

One of the most significant issues in the application of Section 129 is the role of intent or mens rea in determining whether penalty should be imposed. While the section itself does not explicitly require proof of intention to evade tax, judicial interpretations have increasingly emphasized that penalties should not be imposed mechanically for every technical violation.

The principle that penalty provisions should be construed strictly and should not be imposed without evidence of culpable mental state has been recognized in taxation jurisprudence for decades. Courts have held that penalty is not automatic and must be imposed only when there is deliberate defiance of law or conscious disregard of obligations. This principle applies to GST penalties as well, including those under Section 129.

In the context of e-way bill violations, courts have recognized that there may be genuine cases where Part B is not filled due to technical reasons, last-minute changes in vehicle arrangements, or miscommunication between the supplier and transporter. In such cases, where goods are moving between registered dealers with proper invoices and there is no indication of tax evasion, courts have held that the full penalty under Section 129 may not be warranted.

However, the application of this principle is fact-specific. Where there is complete absence of documentation, where invoices are found to be fake or forged, where goods are being moved to unregistered persons without proper documentation, or where there are other circumstances suggesting tax evasion, courts have not hesitated to uphold penalties under Section 129. The key is to examine each case on its facts and determine whether the violation was an inadvertent lapse or a deliberate attempt to evade tax. [8]

Practical Challenges in Implementation

The implementation of Section 129 has revealed several practical challenges that affect both tax authorities and taxpayers. One significant challenge is the need for proper training of field officers who conduct inspections and detentions. Officers must be able to verify e-way bills, understand complex supply chain arrangements, and make quick decisions about whether goods should be detained. The compressed timelines under Section 129 leave little room for detailed investigation, requiring officers to make judgments based on available documents and circumstances.

Another challenge relates to the e-way bill system itself. While the system has significantly improved transparency in goods movement, it is not immune to technical glitches. There have been cases where the e-way bill portal was not accessible, where e-way bills were generated but not properly updated, or where there were mismatches between invoice details and e-way bill details due to data entry errors. In such cases, determining whether the violation is genuine non-compliance or a technical issue requires careful examination.

The provision requiring payment of penalty for release of goods also creates cash flow challenges for businesses, particularly small and medium enterprises. The penalty amounts under Section 129 can be substantial, especially when calculated as a percentage of the value of goods. Businesses may not always have immediate access to funds to pay such penalties, leading to situations where goods remain detained for extended periods, causing disruption to supply chains and financial losses.

From the perspective of tax authorities, the challenge lies in distinguishing between genuine violations warranting penalty and inadvertent lapses that may be addressed through lesser consequences. The pressure to meet revenue targets may sometimes lead to aggressive enforcement, while legitimate concerns about tax evasion require vigilance. Striking the right balance requires careful judgment and proper application of legal principles. [9]

Conclusion

Section 129 of the CGST Act, 2017 represents a critical enforcement mechanism in the GST regime, empowering authorities to detain and seize goods and conveyances in transit when violations are detected. The provision serves the important purpose of ensuring compliance with tax laws and preventing evasion during transportation of goods across the country. However, its application requires careful consideration of facts, circumstances, and principles of natural justice.

The judicial interpretations of Section 129 of the GST Act, particularly by the Allahabad High Court and other High Courts, have provided valuable guidance on how this provision should be applied. Courts have emphasized that penalties should not be imposed mechanically for every technical violation but should be based on examination of whether there is evidence of intent to evade tax. This approach balances the need for tax compliance with the imperative of facilitating legitimate business operations.

For businesses and transporters, understanding Section 129 and ensuring compliance with its requirements is essential to avoid detention of goods and the resulting financial and operational consequences. Proper documentation, complete e-way bills, trained staff, and robust internal controls are necessary investments to ensure smooth movement of goods under the GST regime.

As the GST system continues to evolve, it is likely that further clarifications and amendments will refine the application of Section 129. The experience gained from litigation and practical implementation will inform future policy decisions, hopefully leading to a regime that effectively prevents tax evasion while minimizing harassment of legitimate taxpayers. The ongoing dialogue between the tax administration, the taxpayer community, and the judiciary will continue to shape the contours of this important provision.

References

[1] Central Board of Indirect Taxes and Customs. (2022). Section 129 – Detention, seizure and release of goods and conveyances in transit. CGST Act, 2017. Retrieved from https://taxinformation.cbic.gov.in/content/html/tax_repository/gst/acts/2017_CGST_act/active/chapter19/section129_v1.00.html 

[2] TaxGuru. (2023). Section 129 of CGST Act: Detention, Seizure & Release of Goods in Transit. Retrieved from https://taxguru.in/goods-and-service-tax/section-129-cgst-act-detention-seizure-release-goods-transit.html 

[3] ClearTax. (2024). Seizure, Detention and Confiscation- For Goods in Transit. Retrieved from https://cleartax.in/s/seizure-detention-confiscation-goods-gst 

[4] TaxTMI. (2025). Clarifying Penalty under Section 129(3) of the U.P. GST Act: Allahabad High Court’s Ruling on Non-Filling of Part-B of E-way Bill. Retrieved from https://www.taxtmi.com/article/detailed?id=14495 

[5] TaxGuru. (2021). HC explains provisions of Sections 129 & 130 – Detention, seizure, confiscation – GST. Retrieved from https://taxguru.in/goods-and-service-tax/hc-explains-provisions-sections-129-130-detention-seizure-confiscation-gst.html 

[6] Tax Management India. (2023). Higher penalty cannot be imposed u/s 129(1)(b) of the CGST Act if owner of goods comes forward to pay penalty. Retrieved from https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=11748 

[7] TaxBuddy. (2025). Section 129 of the CGST Act: Provisions on Detention of Goods. Retrieved from https://www.taxbuddy.com/blog/section-129-of-cgst-act 

[8] SAG Infotech Blog. (2024). Allahabad HC: No Penalty U/S 129 on Technical Errors That Do Not Involve Any Financial Implications. Retrieved from https://blog.saginfotech.com/allahabad-hc-penalty-us-129-technical-errors-involve-financial-implications 

[9] Taxmann. (2025). GST Detention and Seizure – Key Procedures, Penalties & Release Options. Retrieved from https://www.taxmann.com/post/blog/gst-detention-seizure/