S.129 CGST Act | Assessee Doesn't Waive Right To Challenge Levy By Mere Payment Of Penalty To Release Goods : Supreme Court

The Supreme Court observed that by mere payment of penalty for the release of the goods detained under Section 129 of the Central Goods and Services Tax Act, the assessee cannot be held to have waived the right to file a statutory appeal.

The Court ruled that mere payment of penalty for the release of goods detained during transit under the GST regime does not conclude proceedings unless a formal, reasoned order is passed under Section 129(3) of the CGST Act.

Section 129 of the CGST Act deals with detention, seizure, and release of goods in transit. While sub-section (1) allows for release upon payment of tax and penalty, sub-section (3) requires the proper officer to issue a notice within seven days of detention, specifying the penalty, and to pass a reasoned order within seven days of service of that notice. Sub-section (5) provides that upon such payment, the proceedings under sub-section (3) are deemed to have been concluded.

A bench comprising Justices JB Pardiwala and R Mahadevan heard the appeal of M/s ASP Traders, whose Arecanut consignment was detained in Jhansi over alleged discrepancies. Though the appellant paid the penalty under protest to avoid prolonged detention, it sought a formal adjudication order to challenge the levy. No such reasoned order was issued.

The High Court had dismissed the appellant's plea, holding that payment under Section 129(1) deemed the matter concluded under Section 129(5). Challenging this interpretation, the appellant approached the Supreme Court, which clarified that without a formal order under Section 129(3), the statutory right to appeal under Section 107 is rendered ineffective.

Setting aside the High Court's decision, the judgment authored by Justice Mahadevan observed that "while Section 129(5) of the CGST Act, 2017 provides that proceedings shall be deemed to be concluded upon payment of tax and penalty, this deeming fiction cannot be interpreted to imply that the assessee has agreed to waive or abandon the right to challenge the levy – a right that is protected by the very enactment itself."

The Court said that mere payment of penalty could not be construed as end of proceedings, because unless the proper officer passes a reasoned order after duly considering the taxpayer's reply to the notice issued under Section 129(3) of the CGST Act, it would be impossible for the taxpayer to effectively exercise the statutory right of appeal under Section 107 against the penalty imposed.

“The principles of natural justice mandate that when a taxpayer submits a response to a show cause notice, the adjudicating authority is required to consider such response and render a reasoned, speaking order. This is not a mere procedural formality, but a substantive safeguard ensuring fairness in quasi-judicial proceedings. The right to appeal under Section 107 of the CGST Act, 2017, is predicated upon the existence of a formal adjudication. An appeal can lie only against an 'order', and in the absence of a reasoned order passed under Section 129(3) of the Act, the taxpayer is effectively deprived of the statutory remedy of appeal. Such a deprivation undermines the foundational principles of fairness, due process, and access to justice, rendering the right of appeal illusory or nugatory. It is now settled law that failure to issue a speaking order in response to a show cause notice creates a legal vacuum. Any consequential action including imposition of tax or penalty, would then be unsupported by authority of law, thereby potentially violating Article 265 of the Constitution of India, which prohibits the levy or collection of tax except by authority of law.”, the court said.

“In view of the foregoing discussion, and taking into account that objections were filed, payment was stated to have been made under protest due to business exigencies, and the appellant seeks to challenge the levy, the proper officer was under a clear statutory obligation to pass a final order under section 129(3) in Form GST MOV-09 and DRC-07. The refusal by the High Court to direct the passing of such an order, has the effect of frustrating the appellant's statutory right to appeal and is contrary to well established legal principles governing tax adjudication and procedural fairness.”, the court added.

Accordingly, the appeal was allowed, and the proper officer, who detained the goods was directed to pass a reasoned order “under section 129(3) of the CGST Act, 2017, in Form GST MOV-09, after granting an opportunity of being heard as mandated under Section 129(4), and upload the summary thereof in Form GST DRC-07 within a period of one month from the date of receipt of a copy of this judgment.”

Cause Title: M/S ASP TRADERS VERSUS STATE OF UTTAR PRADESH & ORS.

Citation : 2025 LiveLaw (SC) 739

Click here to read/download the judgment

Appearance:

For Petitioner(s) :Mr. Pawanshree Agrawal, AOR Ms. Aakriti Goel, Adv.

For Respondent(s) :Mr. Bhakti Vardhan Singh, AOR