S.129 CGST Act | Mere Payment Of Penalty To Release Goods Doesn’t Waive Right To Challenge Levy | Supreme Court
Kiran Raj
The Supreme Court Division Bench of Justice J.B. Pardiwala and Justice R. Mahadevan has held that where a notice under Section 129(3) of the Central Goods and Services Tax (CGST) Act, 2017 has been issued, the proper officer is mandatorily required to pass a final reasoned order, regardless of whether the taxpayer has made payment during the pendency of such notice. The Court stated that even if tax and penalty are paid under Form GST DRC-03, the statutory obligation to adjudicate the matter through a speaking order in Form GST MOV-09 is not waived. Stating procedural fairness, the Court directed the concerned officer to pass a formal order under Section 129(3) and upload the corresponding summary in Form GST DRC-07. The apex court also clarified that voluntary payment of penalty cannot render the right to appeal illusory, especially where the assessee has filed objections or made payment under business compulsion. Accordingly, the Court set aside the High Court’s decision and allowed the appeal, instructing the respondent officer to pass a reasoned order within one month from the date of receipt of the judgment.
The appellant, a registered dealer in red arecanut operating from Channagiri, Davangere, Karnataka, consigned 17,850 kg of dry arecanut valued at Rs. 51,72,930/- packed in 255 bags to a purchaser located in Delhi. The consignment, accompanied by a valid E-Way bill, was transported through a vehicle bearing Registration No. UP-78-GN-7563 on 14.01.2022. During the course of transit, the goods were transhipped into a new vehicle bearing Registration No. HR-38-U-0152. However, only 248 bags were loaded, and seven bags were reported missing.
On 17.01.2022, the vehicle was intercepted and detained by the Mobile Squad at Lalitpur Bypass Road, Jhansi. The driver’s statement was recorded in Form GST MOV-01, and a physical inspection was conducted, culminating in the issuance of Form GST MOV-04 on 20.01.2022. A detention order under Form GST MOV-06 followed on the same date.
A show cause notice dated 21.01.2022 was subsequently issued under Section 129(3) of the CGST Act in Form GST MOV-07, identifying a shortfall of seven bags (from 18220 kg to 17670 kg). It further alleged that the consignee, M/s. Diamond Trading Company, was prima facie non-existent and the consignor’s address did not match records.
In response, the appellant submitted a detailed reply dated 24.01.2022 denying the allegations. However, in view of urgent business needs, the appellant deposited Rs. 7,20,440/- towards Integrated GST (IGST) on 27.01.2022 through Form GST DRC-03. Following this, the detained goods were released under Form GST MOV-05 dated 27.01.2022.
Despite the release of goods, no final adjudication order under Section 129(3) was issued. The appellant made multiple requests including a formal representation dated 26.02.2022, followed by communications on 13.04.2022, 29.04.2022, and 13.05.2022, seeking a copy of the order, if passed. In reply, the Mobile Squad official stated that the appellant’s representative had orally requested withdrawal of the reply and sought release of goods, hence proceedings were considered concluded.
The appellant contested this assertion, maintaining that no such oral request was made and that the authorities were required by statute to pass a reasoned final order. Subsequently, the appellant approached the High Court by filing Writ Tax No. 955 of 2022 seeking directions to furnish the order under Section 129(3) or to pass a speaking order after affording a hearing.
The High Court dismissed the petition, observing that since the penalty had been deposited through Form GST DRC-03, and goods were released under Form GST MOV-05, the proceedings stood concluded in terms of Section 129(5) of the CGST Act read with Rule 142(3) of the CGST Rules. Consequently, the High Court held that no mandamus could be issued.
Challenging the High Court’s view, the appellant filed a civil appeal before the Supreme Court, contending that every show cause notice must culminate in a formal order. It was argued that the payment of penalty cannot be deemed voluntary and that the statutory requirement under Section 129(3) to pass an order remains mandatory, regardless of such payment.
The appellant also relied on CBIC Circular No. 41/15/2018-GST dated 13.04.2018 which explicitly requires that, upon payment of penalty, a reasoned order in Form GST MOV-09 be issued and uploaded on the portal, followed by a summary in Form GST DRC-07.
The respondents submitted that the appellant’s representative had orally withdrawn objections and voluntarily paid the penalty, thus concluding the matter under Section 129(5). They relied on Rule 142(3) which states that if payment is made before the final order, the proceedings are deemed concluded.
The Supreme Court examined the relevant statutory provisions including Section 129 of the CGST Act and Rule 142 of the CGST Rules. The Court noted: "The language of section 129(3) is categorical in stating that the officer 'shall issue a notice… and thereafter, pass an order'. The use of the words 'and thereafter' reinforces the mandatory nature of passing a reasoned order, regardless of payment, particularly where protest or dispute is raised."
Addressing the High Court’s view, the Court recorded: "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 Bench clarified that payment under Form GST DRC-03 is auto-classified as voluntary by the GST system, and the absence of an option to record payment under protest prejudices the assessee. It held: "Such procedural limitations cannot be allowed to defeat the rights of the taxpayer, particularly where the detention of goods is ultimately found to be unlawful."
The Court further stated: "We are, therefore, of the considered opinion that the payment made by the appellant in the present case cannot be treated as voluntary, and the absence of a mechanism to record protest should not operate to the detriment of the assessee, especially when objections were already on record."
On the importance of a formal adjudication, the judgment recorded: "It is a well settled principle that every show cause notice must culminate in a final, reasoned order. While Section 129(5) … 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."
The Court referred to CBIC Circular dated 13.04.2018 and noted: "This circular… provides detailed instructions to ensure uniformity… It mandates that upon payment of tax and penalty under Section 129(1), the proper officer must issue the release order in Form GST MOV-05… Additionally, the officer is required to pass a formal order of demand in Form GST MOV-09 and upload it on the common portal."
Observing the potential prejudice to the assessee, the Court remarked: "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," the Court further stated.
The Supreme Court directed as follows: "The impugned order passed by the High Court is set aside. Respondent No.3 is directed to pass a reasoned final 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."
"Thereafter, it shall be open to the appellant to pursue appropriate legal remedies against such order, in accordance with law."
Accordingly, the appeal was allowed. The connected miscellaneous applications were also closed.
Advocates Representing the Parties:
For the Appellant: Mr. Pawanshree Agrawal, Advocate
For the Respondents: Mr. Bhakti Vardhan Singh, Advocate
Case Title: M/s. ASP Traders v. State of Uttar Pradesh & Ors.
Neutral Citation: 2025 INSC 890
Case Number: Civil Appeal No. 9764 of 2025 [Arising out of SLP (C) No. 17995 of 2022]
Bench: Justice J.B. Pardiwala, Justice R. Mahadevan
