Sending capital goods for repair is not a taxable supply liable to detention.

Sending capital goods for repair is not a taxable supply liable to detention.

Issue

Can detention and penalty proceedings under Section 129 of the CGST Act, 2017, be initiated when capital goods are being transported for the purpose of repairs, which is a non-taxable movement, and not for the purpose of a “supply”?

Facts

• The assessee’s “Hydraulic Exhibitor,” a piece of capital equipment, was being transported for the purpose of repair after it had been used to complete a job work.
• This vehicle and the equipment were intercepted and seized by GST authorities during transit.
• The assessee submitted all the necessary documents to the officer, including the bilty (consignment note), an e-way bill, and a delivery challan. A delivery challan is the appropriate document for moving goods for non-supply purposes like repairs.
• Despite the documents clarifying the nature of the movement, the authorities passed an order demanding a payment of ₹3.42 lakh for the release of the vehicle and initiated proceedings under Section 129.
• The assessee’s subsequent appeal was also dismissed, which led them to file a writ petition in the High Court.

Decision

The High Court ruled decisively in favour of the assessee.

• Using the clear analogy of a crane being sent for repair, the court held that the movement of capital goods for the purpose of repair is not a taxable event and is not liable to GST.
• Since there was no underlying taxable “supply” taking place, the initiation of proceedings under Section 129, which is a measure designed to prevent the evasion of tax on supplies, was fundamentally incorrect and without jurisdiction.
• The impugned orders passed by the authorities were found to be unsustainable in the eyes of the law and were quashed.

Key Takeways

1. Not Every Movement of Goods is a “Supply”: The GST law levies tax only on the “supply” of goods or services. The mere movement of goods from one place to another for reasons other than a sale—such as for repairs, storage, or for job work (when covered by a proper challan)—is not a supply and is therefore not a taxable event.
2. The Purpose of Section 129 is to Prevent Tax Evasion: The stringent provisions for the detention and seizure of goods under Section 129 are intended to be used to catch goods that are being supplied with an intent to evade the payment of tax. They cannot and should not be invoked for non-taxable movements.
3. The Delivery Challan is the Key Document: The presence of a delivery challan, which is the correct document prescribed under the GST rules for moving goods for non-supply purposes like repairs, should have been sufficient for the intercepting officer to understand the true nature of the transaction.
4. The Context of the Goods Matters: The fact that the item being moved was a piece of capital equipment (an exhibitor or crane) and not stock-in-trade further supports the conclusion that it was not being moved for the purpose of a sale.