INTRODUCTION
India, being a rapidly developing country, has regularly faced the hurdle of tax evasion practices in key taxable transactions within the country. The Electronic Way Bill or E-Way Bill system is a modern digital innovation which is a crucial element of India’s Goods and Services Tax (“GST”) regime, and has undoubtedly caused a watershed movement for curbing tax evasive practices.
The E-Way Bill system is derived from the traditional shipping practice of ‘waybill’, which is a document issued by the carrier of the goods indicating details and instructions associated with the goods being transported, including names of the consignor, consignee, point of origin of the consignation, designation and route.
The modern E-Way Bill system practically functions as a digitized waybill system, relying on digital interface and technology-based tools for verifying movement of goods prior to the actual movement of such goods. The system requires suppliers to issue E-Way Bills for the movement of goods for any reason whatsoever.
The GST Council, led by the then Finance Minister Late Shri Arun Jaitley, developed the E-Way Bill system as a compliance instrument at the time of introduction of the GST regime. The E-Way Bill mechanism was implemented on 01.04.2018 pursuant to the decision of the GST Council in its 24th Meeting held on 16.12.2017.
This Blog shall discuss and elaborate the legal know-hows, provisions and judicial precedents concerning the E-Way Bill mechanism.
E-WAY BILL SYSTEM
An E-Way Bill, which functions as a document evidencing movement of goods, can be generated through the GST Network (“GSTN”) Portal online. The E-Way Bill system functions as useful instrument for tracking the transit of products and detecting tax fraud/evasion.
One of the key goals of implementing the GST framework in India was to ensure the smooth flow of commodities and uninterrupted commerce amongst states. The system of checkpoints was to be abandoned in order to facilitate unrestricted mobility of goods.
However, to ensure that such unrestricted movement does not lead to unlawful or tax evasive practices, the E-Way Bill mechanism was inculcated within the GST regime.
If the consignor or consignee is shipping items worth more than Rs. 50,000 through own or hired conveyance, railways, air travel or vessel, the consignor or consignee is required to generate an E-Way Bill. Similarly, if the goods to be transported are handed over to the transporter for transport by road, the transporter is required to generate the E-Way Bill.
In case no E-Way Bill has been generated by either the consigner or consignee for movement of goods having value of more than Rs. 50,000, the transporter is required to generate the E-Way Bill prior to transportation of the goods.
The minimum threshold for generation of E-Way Bills is not applicable on the movement of goods from a principal located in one state to a job worker located in another state. In such a situation, the E-Way Bill shall be generated irrespective of the value of goods.
PROVISIONS GOVERNING E-WAY BILLS
The E-Way Bill mechanism is governed by Section 68 of the Central Goods and Services Tax Act, 2017 (“CGST Act”), which provides for the inspection of goods in movement. Section 68 of the CGST Act enables the Government to require the person in charge of a conveyance carrying consignment of goods to carry with him the prescribed document, i.e., the E-Way Bill.
Chapter XVI of the Central Goods and Services Rules, 2017 (“CGST Rules”) stipulates the E-Way Rules pursuant to Section 68 of the CGST Act. Rule 138 of the CGST Rules provides the details of the prescribed document to be carried by the person in charge of the conveyance.
As per Rule 138 of the CGST Rules, an E-Way Bill is generated in Form EWB-01. The document is divided into two sections: Part A, which includes details of the consignor and recipient, invoice details, details of the commodities in transit, and reasons for transportation; and Part B, which includes details concerning the transporter or the vehicle.
Once the data has been entered into the online E-Way Bill generation portal, a unique E-Way Bill number (“EBN”) is generated and linked with the consignor, recipient and transporter’s GSTIN. This number aids in the identification and monitoring of the E-Way Bill against the vehicle number employed for the movement of shipment worth more than Rs.50,000. Once generated, the E-Way Bill cannot be modified and thus, correct details must be entered with caution.
An exception to the requirement of E-Way Bills is that if the consignment valuation is below Rs.50,000 or the individual is unregistered, the registered/unregistered individual or transporter is not required to possess the E-Way Bill.
Rule 138(6) of the CGST Rules provides for the merging of E-Way Bills. When multiple E-Way Bills are generated in terms of Rule 138(1) of the CGST Rules, but there are numerous large orders in a single dispatch, then the carrier has an opportunity to obtain these E-Way Bills in one consolidated Form of GST EWB-02.
Non-requirement of E-Way Bills
There are some circumstances when an E-Way Bill is not required, or is exempted, which include:
- Transportation of goods by non-motor vehicle;
- Items shipped via customs gateways, airports, air freight facilities, or land customs stations to an inland cargo base or a container freight terminal for approval by Customs;
- Items carried under Customs scrutiny or with the Customs seal;
- Items carried under Customs Bond from Inland Container Depot to Customs terminal or from one Customs depot to another;
- Transportation of goods to or from Nepal or Bhutan;
- Transportation of goods related to defence establishment under the Ministry of Defence, being the consignor to consignee;
- Transportation of empty boxes;
- Transport of items from consignor’s location of business to the weigh station for the measurement of goods, which journey does not exceed 20 km;
- Commodities shipped by rail with the consignor being Central Government, a State Government, or a local authority;
- Transport of goods exempted from GST; and
- The supply of goods falls under the category of no supply under Schedule III of CGST Act.
JUDICIAL PRECEDENTS
The E-Way Bill system has been subject to judicial overview on certain legal and regulatory issues, which may be categorized under the following heads:
Minor errors cannot be subjected to significant penalty
In the case of Tvl. R. K. Motors v. State Tax Officer, (2019) 72 GST 501 (Madras), the Madras High Court held that when the taxpayer is a registered trader, the GST on the supply made has indeed been paid, and the movement of the goods is properly documented, the Appropriate Authority should have taken a compassionate and lenient view of the lapse perpetrated by the driver of the automobile by taking the goods to a different place.
The High Court noted that the detention as well as penalty orders both endured from the flaws of severe illogicality and inequity. When two-wheelers were the items in dispute, they could not be sold unless they are properly registered with the Motor Vehicle Authorities. As a result, in this case, the taxpayer could not have circumvented its legal responsibilities in any way. The Madras High Court reduced the penalty imposed to Rs. 5000 and directed the goods detained to be released.
In the case of Tirthamoyee Aluminium Products v. State of Tripura, W.P(C) No. 1108/2018, the High Court of Tripura, relying on Circular No. 64/2018 dated 14.9.2018, recorded that if the transport of goods is followed directly by an Invoice as well as an E-Way Bill, investigations under Section 129 of the CGST Act ought not be launched if the flaw in the E-Way Bill was due to a slight oversight and simple mistake, purely due to inaccurate distance being displayed while creating the E-Way Bill. The High Court noted that in the event of such a minor mistake, a maximum penalty of only upto Rs. 1000 can be levied.
In the case of Rai Prexim India Private Limited v. State of Kerala, WP(C) No. 39022 of 2018, the High Court of Kerala that if a human mistake visible with the bare eyes is recognised in the E-Way Bill, such human defect cannot be capitalised for punitive action. In this situation, the assessee incorrectly stated the sum as Rs.3,88,220 rather than Rs.38,82,200, despite the fact that all other data was accurate.
The High Court observed that Circular No. 64/2018 dated 14.9.2018, allowed for a few minor flaws with a penalty of up to Rs.1000. Thus, the High Court observed that for minor faults, the penalty must be levied in accordance with the Circular to an extent of Rs.1000 only.
In the case of K.B. Enterprises v. Assistant Commissioner of State Taxes & Excise, Appeal No. 01/2019, the Appellate Authority for Advance Ruling (“AAAR”), Himachal Pradesh held that if it was established that a consignment of goods is supported by an Invoice or any prescribed record, as well as an E-Way Bill, proceedings under Section 129 of the CGST Act should not be initiated for minor errors, such as a mistake in one or two numbers of the vehicle’s number plate. The AAAR held that only a penalty of upto Rs. 500 may be enforced under Section 125 of the CGST Act and the Himachal Pradesh Goods and Services Tax Act, 2017.
Detention, seizure and release of goods and conveyances in transit and confiscation of goods or conveyances
In the case of Daily Fresh Fruits India (P.) Ltd v. Assistant. State Tax Officer, 2020-VIL-115-KER, the High Court of Kerala quashed the order of detention of goods on the ground of misclassification of the goods in question in the E-Way Bill. The High Court observed that in the event of a bona fide case of dispute in the classification of goods, the goods cannot be detained and directed the Inspecting Authority to prepare report and submit it to the Assessing Authority to take action if required.
In the case of Modern Traders v. State of Uttar Pradesh, Writ Tax No. 763 of 2018, the Allahabad High Court held that when the E-Way Bill was supplied on the same day as the goods were intercepted, together with documents evidencing payment of IGST but prior to the passing of order of seizure, there was no rationale for the issuance of order of seizure and levy of penalty along with tax demand. Thus, the High Court quashed the order of seizure and directed the Tax Officer to release the goods seized.
Rectification of irregularities
In the case of Integrated Constructive Solutions v. ACST & E-Cum-Proper Officer, Appeal No. 018/2019, the Appellate Authority, GST, Himachal Pradesh held that the Proper Officer issued the order demanding tax and imposing penalty mechanically when there was no dispute regarding the quantity of goods and all concerned documents were placed before him.
The Proper Officer overlooked the revised E-Way Bill submitted by the taxpayer within two hours of detaining the items, and thus, the tax demanded as well as penalty levied under Section 129(3) of the CGST Act were untenable. The Appellate Authority observed that the assessee had committed a procedural error and thus would be subject to a modest penalty under Section 122 of the CGST Act.
Validity of E-Way Bill
In the case of Hemanth Motors v. State of Karnataka, WP. No. 3337/2020, the High Court of Karnataka observed that when it was undisputed that the Petitioner ensured transportation of goods under proper E-Way Bills and that the goods reached the destination prior to the expiry of the E-Way Bills but were not unloaded prior to their expiry, the Assessing Authorities should have conducted the proceeding in accordance with Rule 138(10) of the CGST Rules. Rule 138(10) of the CGST Rules stipulates that the validity of an E-Way Bill may be extended to a further period of eight hours after its expiry.
Thus, the High Court held that the Assessing Authorities had passed an incorrect and unsustainable order arising from its failure to assess the Petitioner’s situation in accordance with Rule 138(10) of the CGST Rules.
ISSUES SURROUNDING THE E-WAY BILL SYSTEM
Even though E-Way Bills have rendered the procedure for verifying the movement of goods simpler, it is not a fool proof mechanism and is subject to certain flaws which require the immediate attention of legislators.
Firstly, the issue that there is no way to modify the E-Way Bill is a major source of concern. Only Part B, which includes the transportation details, can be changed after an E-Way Bill has been created. Furthermore, the same can only be cancelled/changed within 24 hours of creating the E-Way Bill as per Rule 138(9) of the CGST Rules. As a result, if a dealer generates an E-Way Bill with inaccurate information, the sole option is to revoke it within 24 hours of its generation and create a fresh E-Way Bill.
This cancellation must be made within 24 hours, but if the goods have already been moved and no fresh E-Way Bill has been created, the situation becomes more complicated if the goods are caught in transit. Such a situation arises when the goods in transit vary from those listed on the E-Way Bill, and thus the Tax Officer may assume that the trader is attempting to evade taxes. Even if the trader has no motive of evading taxes and the error can be rectified, the Tax Officer may overlook this and penalise the trader for inadvertent errors.
The judicial position regarding the generation of E-Way Bills is conflicting, as some Courts have held it to be a mere procedural duty whereas few Courts have held it to be an essential requirement to be complied with. Such rulings of the Court have brought forth confusion in the minds of bona fide traders, as they have no scope to rectify procedural anomalies which may occur in the E-Way Bills generated by them.
Similarly, when deciding on the issue of penalty, the Courts take into consideration whether the lapse was procedural in nature. The imposition of penalties for erroneous E-Way Bills varies according to the Court’s judicial view point regarding the treatment of such errors as procedural or substantive lapses. In case the Court treats it as a procedural error, the penalty imposed is a minimum amount. However, if the Court views it as a substantive lapse, the amount of penalty may be significantly higher.
Another dilemma is that every time the mode of transport of a particular consignment of goods changes, a fresh E-Way Bill is required. It creates a needless burden that a taxpayer must bear. This Rule poses a significant challenge for E-Commerce companies and courier services, which use various mode of transportation to ensure that the goods reach their clients. Such businesses find compliance with this requirement challenging as they are constantly required to generate new E-Way Bills for each mode of transport.
AMLEGALS REMARKS
With the changing currents of indirect taxation in India, implementation of the integrated E-Way Bill system represents a substantial development over the old scattered framework. This mechanism has set the stage for the effectiveness of GST, resulting in a seamless flow of goods throughout all states.
Nonetheless, legal requirements relating to E-Way Bills pose significant challenges to taxpayers and the GST authorities alike. As a result, it is vital that the GST Council take appropriate steps to address the flaws mentioned above so that the E-Way Bill system achieves the desired result of curbing tax evasion in a taxpayer-friendly manner.
-Team AMLEGALS, assisted by Ms. Deepali Maheshwari (Intern)
For any queries or feedback, please feel free to get in touch with aditi.tiwari@amlegals.com or riddhi.dutta@amlegals.com.
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