"100 % Penalty cannot be imposed if Show Cause Notice is issued under section 73 "
The Hon’ble Madras High Court in the case of K.S. Janarthanam v. Deputy State Tax Officer [W.P. No. 1848 of 2024 dated January 31, 2024] disposed of the writ petition, thereby holding that, 100 percent penalty cannot be imposed when Show Cause Notice is issued under Section 73 of Tamil Nadu Goods and Services Act, 2017 (“the TNGST Act”).
Facts:
K.S. Janarthanam (“the Petitioner”) is a civil works contractor registered under GST. The Petitioner received a notice in Form GST-ASMT-10 pertaining to discrepancies in returns filed by the Petitioner. Thereafter, the Petitioner was issued a notice under Section 73 of the TNGST Act. Subsequently, the Revenue Department passed Assessment Order dated September 4, 2023 (“the Impugned Order”) against the Petitioner wherein 100 percent penalty was imposed.
Aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Hon’ble Madras High Court.
Issue:
Whether Penalty could be imposed at 100 percent when Show Cause Notice is issued under Section 73 of TNGST Act?
Held:
The Hon’ble Madras High Court in W.P. No. 1848 of 2024 held as under:
Opined that, the Impugned Order is required to be interfered with as 100 percent penalty is imposed on the SGST dues when notice is issued under Section 73 of the TNGST Act.
Held that, the Impugned Order is quashed, thereby disposing the writ petition.
Directed that, the matter is remanded back to Assessing Officer for re-consideration with respect to the penalty imposed under the Impugned Order.
Relevant Provision:
Section 73(9) of the TGST Act:
“Section 73: Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful-misstatement or suppression of facts.
(9) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.”
Posted on:03/03/2024
"Petitioner is not liable to pay penalties for the wrongful availment of ITC by the Supplier "
The Hon’ble Calcutta High Court in the case of Fairdeal Metals Ltd. v. Assistant Commissioner of Revenue, State Tax, Bureau of Investigation (NB) [Writ Petition Application No. 170 of 2024 dated February 01, 2024], held that the Petitioner was not responsible for bogus availment of Input Tax Credit (“ITC”) by the Supplier. Therefore, the Petitioner is not liable to pay the penalty.
Facts:
Fairdeal Metals Ltd. (“the Petitioner”) procured goods from M/s Navaraj Trading Company (“the Supplier”). The Supplier was registered recently under the Central Goods and Services Tax Act, 2017 (“the CGST Act”) from October 9, 2023, in the State of Assam. The Supplier had shown the nature of occupancy over the place of business as ‘rented’ and in support of its claim rent agreement, and the trade license was supplied. No documents like electricity bill, municipal khata copy or any such document to substantiate the legal occupancy of the owner over the place of business was provided as required under the West Bengal Goods and Services Tax Act, 2017 (“the WBGST Act”)/ the CGST Act and the rules made there under.
The Show Cause Notice dated December 31, 2023 (“the Impugned SCN”) was issued to the Petitioner stating that certain discrepancies were found in FORM GSTR-3B of the Supplier for the month of October, 2023 and November, 2023. The Impugned SCN alleged that the goods that were being transported did not have coverage as per their GST registration. The purpose of the Supplier was to circulate the bogus ITC. The goods were observed to be of suspicious origin, and the purchase was merely a ‘paper sale’ to hide the original Supplier with the intention of evading payment of tax. Therefore, the penalty was calculated, and the Petitioner was directed to show cause within four days as to why the proposed tax and penalty should not be payable, failing which further proceedings would be initiated. The date of appearance was fixed on January, 04 2024. The Supplier paid the ITC in the cash ledger on December 30, 2023. Thereafter, an Order dated January 05, 2024 (“the Impugned Order”) was passed, directing the Petitioner to pay penalty, and the Revenue Department (“the Respondents”) detained the vehicle and the goods.
Hence, aggrieved by the Impugned Order, the Petitioner filed the present writ petition.
Issue:
Whether Petitioner is liable to pay penalties for the wrongful availment of ITC by the Supplier?
Held:
The Hon’ble Calcutta High Court in Writ Petition Application No. 170 of 2024, held as under:
Observed that, though there was an allegation of non-existence of the Supplier leading to non-deposit of the ITC. However, the Supplier already deposited the ITC on December 30, 2023, prior to the issuance of the Impugned SCN. This act negated the allegation of intention to evade tax.
Opined that, after registration has been done and the tax is paid by the Supplier, the allegation made against the Supplier does not stand. The Petitioner is in no way connected with any allegations that have been levelled against the Supplier. Therefore, the Petitioner cannot be made liable to pay the penalty as has been assessed.
Directed that, the Respondent to immediately take steps to release the vehicle and the goods in favor of the Petitioner. Hence, the Impugned Order imposing penalty was set aside and quashed.
Posted on:03/03/2024
"Penalty cannot be imposed in the absence of E-way bill until the department proves intention to evade tax "
The Hon’ble Allahabad High Court in the case of M/s. Falguni Steels v. State of Uttar Pradesh and Ors. [Writ Tax No. 146 of 2023 dated January 25, 2024] held that mere technical errors, without having any potential financial implications, should not be the grounds for imposition of penalties. The Court emphasized that there must be an intention to evade tax. Therefore, if a penalty is imposed in the presence of all the valid documents, even if an E-Way Bill has not been generated, and there is the absence of any determination to evade tax, the penalty cannot be sustained.
Facts:
M/s. Falguni Steels (“the Petitioner”) was an authorized dealer of the Steel Authority of India Ltd. (“SAIL”). On February 17, 2019, the Petitioner purchased a consignment of TMT Bar by SAIL. The Petitioner obtained the service for transporting its goods through a registered vehicle. The tax invoices dated February 17, 2019 issued by SAIL contained quantity, description of goods and the vehicle number. The E-way bill could not be generated by the transport due to a technical glitch on the portal. Later, these E-way bills were generated on February 20, 2019, and presented to the Assistant Commissioner (“the Respondent-1”), which were not taken into consideration.
The Petitioner submitted that the transportation of the goods on the same day was not possible due to the barrier imposed by the local administration for transportation due to the occasion of “Maghi Purnima, Kumbh Mela, 2019”. Therefore, the goods were transported on February 20, 2019.
On February 21, 2019, the Show Cause Notice was served under FORM GST MOV – 07 (“the Impugned SCN”) to the Petitioner under Section 129(3) of the Uttar Pradesh Goods and Services Tax Act, 2017 (“the UPGST Act”) alleging that the movement of the goods was in contravention to the provisions of the UPGST Act. The Impugned SCN required the Petitioner to show cause as to why tax of an amount of INR 1,29,862/- along with an equivalent penalty of INR 1,29,862/- ought not to be recovered from it.
The Petitioner deposited the amount of INR 2,59,724/- on February 21, 2019, towards tax and penalty, after which the Respondent-1 released the goods by the Order dated February 21, 2019. The Petitioner preferred a statutory appeal before the Assistant Commissioner -Grade 2 (“Respondent-2”).
Respondent-2 upheld the Order dated February 21, 2019, passed by Respondent-1, and confirmed the tax liability and penalty imposed by Respondent No-1 by passing an Order dated October 20, 2019 (“the Impugned Order”).
Hence, aggrieved by the Impugned Order, the Petitioner filed the present writ petition.
Issue:
Whether Penalty can be imposed on the Assessee in absence of E-way bill if the Tax Authorities prove that there was a mala-fide intention to evade tax?
Held:
The Allahabad High Court in Writ Tax No. 276 of 2020 held as under:
Observed that, the Petitioner had provided all the relevant details before the issuance of the Impugned SCN, and the Respondents failed to record concrete evidence substantiating an intent to evade tax liabilities. The essence of any penal imposition is intrinsically linked to the presence of mens rea and is absent from the record. The intention to evade tax is desideratum for the imposition of penalty. The Impugned Orders were vulnerable to challenge.
Relied on K. Cement Ltd. v. State of Uttar Pradesh. and Others [MANU/UP/2812/2023], Modern Traders v. State of U.P. and Others reported in 2018 SCC OnLine All 6054,M/s. Shyam Sel and Power Ltd. v. State of Uttar Pradesh. and Others [2023: AHC:191074], Axpress Logistics Pvt Ltd. v. Union of India and Others reported in 2018 SCC OnLine All 6089, VSL Alloys (India) Pvt. Ltd. v. State of Uttar Pradesh and Another [2018 SCC OnLine All 6080], the Courts observed that there was no ill intention at the hands of the petitioners therein to evade tax, since the documents accompanying the goods contained all the relevant details. The Courts emphasized the need for a meticulous examination of the facts and circumstances surrounding each case to establish the presence or absence of intentional tax evasion.
Observed that, the reason afforded by Respondent No. 2 that the provisions under the Uttar Pradesh Value Added Tax Act, 2008 (“the UPVAT Act”) mandated establishing a prior intent to evade tax, there was no such provision in the Central Goods and Services Tax Act, 2017 (“the CGST Act”) / the UPGST Act was palpably erroneous. A penal action devoid of mens rea lacks a solid legal foundation and raises concerns about the proportionality and reasonableness of the imposed penalties. The mere rejection of post-detention E-Way Bills, without a cogent nexus to the intention to evade tax, is fallacious. Hence, the Respondents have acted beyond their jurisdiction and imposed tax without there being any cogent reason for the same.
Opined that, mere technical errors, without having any potential financial implications, should not be the grounds for imposition of penalties. The burden of proof, therefore, rests on tax authorities to establish the actual intent to evade tax before imposing penalties on taxpayers. This safeguards individuals and entities from punitive measures arising from honest mistakes, administrative errors, or technical discrepancies lacking malicious intent.
Held that, the requirement of intent to evade tax for the imposition of penalties is a fundamental principle that underpins the fairness and integrity of taxation systems. Recognizing the distinction between technical errors and intentional evasion is essential for maintaining a balanced and equitable approach to tax enforcement. Hence, Respondent- 1 is to refund the amount of tax and penalty deposited by the Petitioner.
Therefore, the Impugned Order was quashed and set aside, and the writ petition was allowed.
In the Pari Materia case, the Hon’ble Calcutta High Court in the case of Ashok Kumar Sureka v. Assistant Commissioner State Tax, Durgapur Range, [Writ Petition Application No.11085 of 2021 dated March 03, 2022] quashed the order imposing a penalty for expiry of the e-way bill as there was no intention to evade tax. The Counsel for the Department could not make out a case against the Petitioner that the aforesaid violation was willful and deliberate or with specific material that the Petitioner intended to evade tax.
Posted on:03/03/2024
"Penalty should not be imposed for mentioning wrong vehicle number with a difference of three digits in E-Way Bill "
The Hon’ble Allahabad High Court in the case of Hindustan Herbal Cosmetics v. State of UP [Writ Tax No. 1400 of 2019 dated January 2, 2024] allowed the writ petition and set aside the orders imposing penalty on the ground that the typographical error of entering the wrong vehicle number in e-way bill upto three digits instead of permitted two digits as per the Circular No. 41/15/2018-GST dated April 13, 2018 and Circular No. 49/23/2018 dated June 21, 2018(“the Circulars”) is minor in nature and therefore, imposition of penalty is without jurisdiction and illegal in law.
Facts:
Hindustan Herbal Cosmetics (“the Petitioner”)is a seller of cosmetics and is supplying the goods to the Recipient along with proper tax invoice, bilty and e-way bill dated May 23, 2018. The Petitioner’s goods during transit to the Recipient were seized by the Revenue Department (“the Respondent”) on the ground that vehicle no. in the e-way bill was incorrect and thereby penalty was imposed vide order dated May 24, 2018 (“the Impugned Order”). Thereafter, the Petitioner filed an appeal before the Respondent Appellate Authority. The Respondent Appellate Authority dismissed the demand raised by the Respondent and confirmed the penalty imposed on the Petitioner vide order dated August 29, 2019 (“the Impugned Appellate Order”).
Aggrieved by the Impugned Order and Appellate Order, the Petitioner filed a writ petition before the Hon’ble Allahabad High Court.
Issue:
Whether penalty should be imposed for mentioning wrong vehicle number with a difference of three digits in the E-Way Bill?
Held:
The Hon’ble Allahabad High Court in the case of Writ Tax No. 1400 of 2019 held as under:
Noted that, in the present case there is a typographical error of vehicle number with difference of three digits instead of permitted two digits as per the Circulars.
Relying upon the judgement of the Hon’ble Supreme Court in the case of Assistant Commissioner ST & Ors. v. Satyam Shivam Papers Pvt. Ltd. [SLP (C) No. 21132/2021 dated January 12, 2022] and judgement of Hon’ble Allahabad High Court in the case of M/s. Varun Beverages Limited. v. State of U.P. and Ors. [Writ Tax No. 958 of 2019 dated February 2, 2023], the Hon’ble High Court noted that, the presence of mens rea is a primary requirement for determining evasion of tax for imposition of penalty. Also, typographical error in the e-way bill without any further material to substantiate the intention to evade tax should not and cannot lead to imposition of penalty.
Opined that, in the particular case wherein the error is minor in nature, the penalty under Section 129 of the CGST Act, is without jurisdiction and illegal in law.
Held that, the Impugned Order and Appellate Order is set aside, Hence, the writ petition is allowed.
Posted on:03/03/2024
" Payment of Interest can be made in instalments "
The Hon’ble Madras High Court in the case of Everyday Banking and Retail Assets v. Office of the Assistant Commissioner (ST) [Writ Petition No. 35372 OF 2023 January 03, 2024] held that the Petitioner asserts that all tax dues were settled and that the Petitioner requires time to pay interest. Thus, the Petitioner was allowed to pay interest in respect of four assessment years vide caution notice because the business of the assessee was to be directed to pay amounts of interest demanded in three equal monthly installments.
Facts:
Everyday Banking and Retail Assets (“the Petitioner”) were issued a caution notice (“the Impugned Notice”) to pay interest in respect of the Assessment Years 2017-18 to 2020-21. The Petitioner had paid all the tax dues but required time to pay interest since the Petitioner’s business was affected during the COVID-19 pandemic period.
The Assistant Commissioner (“the Respondent”) required interest payments to be made expeditiously.
Hence, aggrieved by the Impugned Notice the present writ was filed by the Petitioner.
Issue:
Whether payment of interest can be made in instalments?
Held:
The Madras High Court in Writ Petition No. 35372 of 2023 held as under:
Observed that, the Petitioner asserts that all tax dues were settled and that the Petitioner requires time to pay interest.
Held that, the Petitioner pay the amounts demanded in the Impugned Notice in three equal monthly instalments. Hence, the Petition was closed.
Posted on:05/03/2024
" Interest under Section 50 is not applicable if the GST amount is available in the ECL equal to the tax due "
The Hon’ble Madras High Court in the case of Eicher Motors Limited Vs Superintendent of GST and Central Excise W.P.Nos.16866 & 22013 of 2023 Dt.23/01/2024
Facts:
The common issue involved in both these writ petitions is as to whether the petitioner is liable to pay interest of the GST amount, which was routinely deposited into the ECL within the due date. However, the case of the Department is that the deposit of tax in Electronic Cash Ledger would not amount to payment of tax and would tantamount to failure to remit GST in time, for which interest liability would be attracted.
Issue:
the interpretation of Section 50(1) of the GST Act. The court addressed whether interest would be payable if the amount equal to the tax due is available in the electronic cash ledger (ECL).
Held:
In view of the above finding and following the law laid down by the Gujarat High Court in the aforesaid Vishnu Aroma case, since in the present case, the tax amount has already been credited to the Government within the prescribed time limit, i.e., before due date, the question of payment of interest would not arise. Under these circumstances, this Court passes the following orders: 1) The credit to the account of Government would always occur not later than the last date for filing the monthly returns in terms of the provisions of Section 3 9(7) of the Act. 2) Once the amount is paid by generating GST PMT-06, the said amount will be initially credited to the account of the Government immediately upon deposit, at which point, the tax liability of a registered person will be discharged to the extent of the deposit made to the Government. Thereafter, for the purpose of accounting only, it will be deemed to be credited to the ECL as stated in the Explanation (a) to Section 49(11) of the Act. 3) As long as the GST, which was collected by a registered person, is credited to the account of the Government not later than the last date for filing the monthly returns, to that extent, the tax liability of such registered person will be discharged from the date when the amount was credited to the account of the Government. If there is any default in payment of GST, even subsequent to the due date for filing the monthly returns i.e., on or before 20th of every succeeding month, for the said delayed period alone a registered person is liable to pay interest in terms of Section 50(1) of the Act. 73. In view of the above, impugned letter dated 16.05.2023 bearing DIN 20230559TK00020650 issued by the 1st respondent impugned order OC.No.77/2023 bearing DIN 20230759TK000000E36E dated 12.07.2023 passed by the 1st respondent are liable to be quashed. Accordingly, quashed. 74. In the result, these writ petitions are allowed. No cost. Consequently, the connected miscellaneous petitions are also closed.
Posted on:05/03/2024
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