Gurpreet Singh struck the decider in the shootout after Manipur's Naoba Singh and Subhas Singh faltered in their attempts as Punjab booked their last eight berth.
Locked 2-2 in the extra time, Punjab scored a 4-2 win in the shootout.
Balraj Singh gave Punjab the lead early in the 15th minute and enjoyed it almost till the end of second half before Ngauba Singh's strike in the 87th minute proved to be a killjoy.
Ngauba struck from a goalmouth melee to hold Punjab and take the match to the extra-time.
In the extra-time, Manipur went 2-1 up when R Vashum struck in the 103rd minute but Punjab did not give up and scored through Amandeep Singh in the 115th minute to take the match to tie-breaker.Punjab had a brilliant run in the shootout with Harpreet Singh, Parveen Kumar and Randeep Singh converting from the spot in the shootout.
But Punjab faltered in their fourth attempt when Balwant Singh's strike was saved by Manipur goalkeeper Lalit Thapa.
Manipur had a difficult start to the shootout when their first strike by Naoba Singh was thwarted by Punjab custodian Paramjeet Singh.
But Sunanadan Singh and Syed Farid struck for Manipur in the second and third attempts before Subhas Singh faltered in the fourth try to give Punjab an edge.
With a 3-2 lead in the shootout, Punjab needed one to settle the issue and Gurpreet Singh struck the decisive goal to take them to last eight stage. Earlier in the cluster stage match, Assam routed Himachal Pradesh 10-0 to kick off their campaign on a spectacular note.
Kerala, Orissa and Railways also got off to winning starts in their respective cluster matches of the day at various venues here.
In the cluster VII match at Mohun Bagan ground, Assam Rifles striker Akum Ao struck six goals to power their side to a thumping win over minnows Himachal Pradesh.
Akum led the goal glut striking in the 15th, 47th, 52nd, 61st, 76th and 78th minutes, while Bulu Zigdung struck twice in the 33rd and 39th minutes.S Warry (11st) and Chirod Das (87th) completed the rout for Assam.
Kerala registered a 3-1 win over Uttarakhand in their cluster VII opener at Yuba Bharati Krirangan.
Sumesh N scored in the 31st minute to give Kerala the lead while Sakeer M P made it 2-0 in the 65th minute.Four minutes later, Uttarakhand pulled one back through Veer Singh Negi before Kerala's Javed struck in the additional time to complete the tally.
Sheikh Mustaqim scored twice in each half (10th and 55th), while Maheshwar Das struck in the 70th minute to help Orissa register a 3-1 win over Mizoram in their cluster VIII match at Khardah Stadium.
Mizoram reduced the margin through a solitary goal by Aidinmawia Hmar in the 82nd minute.
In another match of the same cluster at Howrah Stadium, Railways rode on Anthony Soren's three-goal strike to thrash Bihar 7-1.Soren put Railways ahead with strikes in the 10th, 16th and 78th minutes, while S Fridde scored a double (39th and 60th).
Railways completed the tally through Suresh Kumar (36th) and Mohammad Moazzam (73rd) while Bihar pulled one back when Jiten Lomar netted in the 90+2nd minute.
Punjab joined Karnataka, reigning champions Goa and Services in group A of the quarterfinals league where eight teams are divided into two groups.
Group B will feature hosts Bengal, Tamil Nadu and two teams who will advance from the cluster stage matches.
Winners and runners-up of both the groups will make the knockout semi-final stage.
Karnataka will face Services in their last-eight league opener on July 29.