(2026) 1 GSTAT E- Journal 163 (Lucknow)Section 129Decision: In Favour of DGAP / Revenue
GSTAT on Movement of Own Machinery: Delivery Challan Cannot Replace E-Way Bill Where Rental Tax Treatment Is Unproven
The GSTAT Lucknow Bench held that movement of capital machinery from a job site without an E-way bill attracts penalty under Section 129(3), even if accompanied by a delivery challan under the same GSTIN, where the taxpayer fails to prove discharge of GST on machine hire consideration.
Case Name / Parties
D.S Traders v. Commissioner, Commissioner State Goods and Services Tax Department Lucknow Uttar Pradesh & Ors.
Appeal Number
APL/52/LCK/2026
Tribunal Bench
Lucknow Bench
Date of Judgment / Order
25/08/2026
Coram
Hon’ble Santosh Kumar Srivastava, Member(Judicial) • Hon'ble Arvind Kumar, Member (Technical)
For Appellant: Dr. Swayambhav Manu, Advocate
For Respondent: Shri Sanjeev Kumar, Deputy Commissioner of SGST
Facts of the Case
On 18.07.2025, vehicle UP78GN8559 transporting an Excavator Machine valued at approximately ₹9,00,000/- was intercepted by the Mobile Squad of State Tax Department, Kanpur. The vehicle was accompanied by Delivery Challan No. 01 dated 18.07.2025 issued by M/s D.S. Traders, but no valid E-way bill accompanied the goods. The taxpayer stated that the excavator had been leased on rent to M/s OPSIS Projects India Pvt. Ltd. at Trans Ganga City, Unnao, and was being brought back to its registered place of business in Kanpur upon completion of site work. The Proper Officer seized the vehicle and imposed a total penalty of ₹3,24,000/- (CGST ₹1,62,000/- + SGST ₹1,62,000/-) under Section 129(3). The First Appellate Authority upheld the penalty. The Appellant appealed to GSTAT claiming the movement was not a supply and was exempt under a 20-km state notification.
Issues Before GSTAT
- 1Whether the return movement of an excavator machine from a job work site back to the owner's registered premises constitutes an exempted movement dispensing with the mandatory E-way bill under Section 68 read with Rule 138.
- 2Whether a Delivery Challan can legally substitute an E-way bill for capital machinery transit.
- 3Whether the movement was exempt under the alleged 20-kilometer intra-state exemption under Rule 138(14).
- 4Whether failure by the taxpayer to substantiate the tax treatment of the consideration received for machine hire justifies an inference of intention to evade tax attracting Section 129(3) penalty.
Relevant Statutory Provisions & Rules
Statutory Sections
Section 7 of CGST Act, 2017Section 68 of CGST Act, 2017Section 129 of CGST Act, 2017Section 129(3) of CGST Act, 2017Section 129 of UPGST Act, 2017Section 129(3) of UPGST Act, 2017
GST Rules
Rule 138 of CGST/UPGST Rules, 2017Rule 138(14) of CGST/UPGST Rules, 2017
Circulars & Notifications
Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018
Contentions of the Parties
Appellant / Taxpayer Contentions
- •The excavator belonged to the appellant and was being repositioned from a client site back to its own yard under a same-GSTIN delivery challan; hence, no 'supply' under Section 7 occurred.
- •The distance between Trans Ganga City (Unnao) and Dehli Sujanpur (Kanpur) is under 20 kilometers, which is exempt from E-way bill under UP State notifications.
- •The absence of an E-way bill was an innocent technical lapse without any revenue loss or intention to evade tax.
Respondent / Revenue Contentions
- •Section 68 read with Rule 138 explicitly requires an E-way bill for movement of goods for reasons other than supply as well, subject only to statutory exemptions.
- •A Delivery Challan cannot substitute an E-way bill where the consignment value exceeds the statutory threshold.
- •The appellant completely failed to produce any notification or statutory circular proving the existence of a 20-km exemption applicable to heavy construction machinery.
- •The appellant failed to establish the tax treatment of the rental consideration charged for the excavator, giving rise to a legitimate inference of tax evasion.
Findings of GSTAT
Section 68 read with Rule 138 applies to the movement of goods for all purposes, including non-supply movements. Ownership of the goods or return from a project site does not, by itself, grant immunity from the mandatory E-way bill requirement.
A Delivery Challan cannot substitute for an E-way bill where the statutory value threshold is crossed and no specific exemption applies.
The taxpayer completely failed to discharge its burden of proof regarding the alleged 20-kilometer exemption under Rule 138(14); no statutory notification granting such an exemption to heavy machinery was placed on record.
Crucially, the Appellant failed to produce any evidence regarding the commercial terms, hourly operating logs, consideration charged, or discharge of GST on the rental service provided to M/s OPSIS Projects. This complete failure of financial substantiation, combined with transporting high-value equipment without an E-way bill, gives rise to a reasonable inference of intention to evade tax and takes the case outside the realm of an innocent technical lapse.
The precedents cited by the Appellant (including Fabricship and Tata Hitachi) are distinguishable because in those cases, either the tax treatment was undisputed or the transaction was purely intra-firm without underlying commercial service revenue.
Ratio Decidendi
Key Legal Principle
“Transportation of capital machinery without an E-way bill under cover of a Delivery Challan attracts penalty under Section 129(3) of the CGST/UPGST Act where the taxpayer fails to substantiate a notified statutory exemption under Rule 138(14) and fails to prove the tax treatment of the underlying commercial hire consideration.”
Final Decision & Relief Granted
Outcome: The appeal was rejected. The order of the original adjudicating authority dated 18.07.2025 and the confirmatory First Appellate Order dated 27.11.2025 imposing a penalty of ₹3,24,000/- under Section 129(3) were upheld in full.
Relief Granted: None. Dismissal of appeal; penalty under Section 129(3) affirmed.
Operative relief was verified against the Tribunal's order and accurately summarized without altering its legal effect.
Practical Implications for Taxpayers
- Contractors and plant-hire companies must never transport heavy equipment (excavators, cranes, generators) between work sites on delivery challans alone without generating an E-way bill.
- Whenever equipment is moved for reasons other than supply, select 'Job Work' or 'Line Item - Others' in the E-way bill portal and reference the Delivery Challan number.
- Ensure that books of accounts and GSTR-3B filings clearly reflect the rental income and corresponding GST discharged on equipment deployment, as mobile squads and tribunals will demand proof during penalty hearings.
Practical Takeaways for Tax Professionals
- Do not mechanically rely on same-GSTIN non-supply arguments (like MS Steels) where the capital asset was used to render commercial services on hire; Revenue will cross-examine the tax treatment of the hire income.
- If claiming an exemption under Rule 138(14) (such as distance-based exemptions), obtain and append the exact gazetted State notification with authenticated boundaries.
- Prepare client documentation comprehensively: combine the equipment lease agreement, work orders, hire invoices, bank remittances, and transit challans to eliminate any inference of tax evasion.
SKM
Editorial Commentary
SKM Laws Professional Analysis
The D.S. Traders judgment draws a sharp, vital distinction in transit jurisprudence. While M.S. Steels established that pure intra-firm stock transfers without underlying commercial value cannot be penalized under Section 129, D.S. Traders demonstrates the strict limit of that doctrine. Where capital assets are moved between commercial sites, the transaction cannot be treated as an innocent internal shift if the taxpayer conceals or fails to account for the service consideration generated by the equipment. By examining whether GST had been discharged on the hiring fees, GSTAT Lucknow ensured that taxpayers cannot use delivery challans as an artifice to evade both service tax liabilities and transit transparency.
Related Cases & Precedents
(2026) 1 GSTAT E-Journal 80
Distinguishing genuine intra-firm stock transfers from unproven equipment hire.
(2026) 1 GSTAT E-Journal 158
Affirming Section 129 penalties for unaccounted transit.
Related GST Tools & Utilities
Source Citation & Forensic References:
Official Citation: (2026) 1 GSTAT E- Journal 163 (Lucknow)
Source Publication: GSTAT E-Journal, Volume I (Till 31.08.2026), Published by Goods and Services Tax Appellate Tribunal
Journal Pages: 163-169
Legal Information Disclaimer
This case law analysis is published strictly for informational, educational, and research purposes. It does not constitute legal, tax, or professional advice. The ratio decidendi and commentary reflect professional editorial interpretations of the Goods and Services Tax Appellate Tribunal's reported judgment. Readers must refer to the full certified order of the Tribunal before initiating or defending litigation.