Case Of: AAM India Manufacturing Corporation Pvt. Ltd.
Issued By: High Court of Karnataka
Order No: Writ Appeal No. 1390 of 2024 (T-RES)
Date: 25th June 2026
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Movement of Goods for Testing Without E-Way Bills, is Not a Taxable Supply, No 200% Penalty
The respondent purchased hydraulic fixtures and tooling body machines from a supplier in Coimbatore in July 2020. The machinery was transported to its manufacturing unit at Ahmednagar, Maharashtra.
After carrying out certain customisations, the respondent sent the machinery back to the seller in Coimbatore for testing. The movement was covered by delivery challans; however, an e-way bill was not generated.
The vehicle was intercepted on 03.11.2020 and detention proceedings were initiated under Section 129 of the CGST Act. The respondent deposited the tax and penalty demanded, following which an ex parte order was passed confirming IGST and penalty.
The Single Judge subsequently held that the movement was not a taxable supply and restricted the penalty to ₹25,000, while directing refund of the remaining amount. The State challenged this order before the Division Bench.
The Karnataka High Court held that a transaction falls within Section 7(1)(a) of the CGST/KGST Act only where the supply is made or agreed to be made for consideration in the course or furtherance of business.
The machinery was merely re-transported to the original seller for testing. Since no fresh consideration was involved, such movement could not be treated as a separate taxable supply.
The Court, however, observed that Rule 55(1) permits goods to be transported on a delivery challan for reasons other than supply, but the movement must also comply with the e-way bill requirements under Rule 138. The re-transportation in question was not covered by any exemption from generation of an e-way bill.
Accordingly, the absence of an e-way bill constituted a procedural violation attracting penalty, but it did not create a liability to pay GST on an otherwise non-taxable movement. The State’s appeal was dismissed.
The mere movement of goods from one location to another does not, by itself, constitute a “supply” under Section 7 of the CGST Act. Taxability must be determined by examining the nature of the transaction, including whether there is consideration, a transfer of title or beneficial interest, or applicability of any deemed supply under Schedule I.
Accordingly, movement of goods for testing, repair, calibration, inspection, demonstration or return to the original vendor may remain outside the scope of GST where the goods continue to belong to the same person and no independent consideration is charged for such movement.
However, non-taxability of the underlying transaction does not dispense with transportationrelated compliances. Such movement must be supported by a valid delivery challan under Rule 55 and an e-way bill under Rule 138, wherever the prescribed conditions are satisfied.
The judgment therefore reinforces an important distinction: an e-way bill default may justify penal consequences for procedural non-compliance, but it cannot convert a transaction that is otherwise outside the scope of “supply” into a taxable transaction.