Goods & Services Tax (GST) in IndiaExorbitant Penalty cannot be imposed on the Taxpayer in absence of intent to Evade Taxes

The  Calcutta High Court in Mohammad Shamasher v. State of West Bengal [Writ appeal no. 85 of 2024 decided on 01.02.2024], held that in absence of intention to evade taxes, exorbitant penalty cannot be levied on the taxpayer.

FACTS

 Mr. Mohammad Shamasher the sole proprietor of  M/s Afika Infrastructure  (hereinafter referred to as “the Petitioner”) was registered under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”). The Officers of the Bureau of Investigation, North Bengal Alipurduar Zone, intercepted the Petitioner’s escalator machine (hereinafter referred to as “JCB”). However, the driver of the vehicle failed to present the documents pertaining to the moment of the JCB machine.

Consequently, a detention order was issued under Section 129 (1) of the CGST Act and the petitioner was directed to pay the penalty under Section 129 (3) of the CGST Act.

Further, the Adjudicating Authority passed an order, against which the Petitioner preferred an appeal, which was also rejected. The Petitioner was liable for the payment of a sum of Rs. 9,93,008/- for the violation of the provisions of the Act (hereinafter referred to as the “Impugned Order”). The JCB machine has been temporarily released after the execution of a bank guarantee by the Petitioner.

 Being aggrieved and dissatisfied by the Impugned Order and the illegal and arbitrary actions of the department, the Petitioner has filed the present petition.

ISSUES BEFORE THE HIGH COURT OF CALCUTTA

1. Whether the Respondent had the power to evaluate and adjudicate the quantum of tax under Section 129(3) of the CGST Act?
2. Whether mere procedural impropriety can be reason for the imposition of fine at the rate of 200% ?
3. Whether mere non-compliance of Rule 55 (5) (b) of the Act be punishable under section 129 of the Act?

CONTENTIONS OF THE PARTIES

The Petitioner contended that the JCB was being transported with a valid e-way bill, which contained valid details along with the invoice number and reason for transportation. It was further argued that no tax was payable on the JCB, as the details were already disclosed and hence, the penalty cannot be levied under Section 129(3) of the CGST Act.

It was also contended that the provision of Section 129 of the CGST Act does not delegate the power to the proper officer to specify or determine tax. Therefore, the proper officer had exceeded his jurisdiction in calculating the quantum of tax and specifying the penalty at the rate of 200%.

It was also claimed that the non-availability of delivery challan was a procedural impropriety and hence, cannot be concluded to be an intent to evade taxes.

The Petitioner also argued that the penalty of atmost Rs.25,000/- may be imposed, in case if it is applicable. Therefore, the Impugned Order shall be quashed and set aside in its entirety.

The Respondent submitted that no documents were produced by the driver at the time of the interception, which is violative of  Rules 138 and 138A of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”)..

It was also submitted that neither the Adjudicating Authority nor the Appellate Authority had released the JCB. However, the JCB was released by a third person. Besides this the delivery challan was not also signed by the consignor.

It was also contended that Section 129 of the CGST Act empowers for imposition of a 200% penalty in case the goods are being transported without valid documents. Therefore, the petition is liable to be dismissed.

DECISION AND FINDINGS

The Calcutta High Court observed that the e-way bill of the JCB was duly generated. However, no documents were produced by the driver at the time of interception. Hence, the JCB was detained.

It was observed that during physical verification, due to discrepancies in the e-way bill and details of JCB, it was concluded as violative of the provisions of the CGST Act. Therefore, the penalty was imposed in the Impugned Order.

The High Court relied upon Usha Martin Limited & Anr. Vs. The Deputy Commissioner of State Tax, Durgapur Range and Ors. [MAT 1032/2023 IA No. CAN 1 /23 and CAN 2/23] and observed that relief ought to be given to the Petitioner in the absence of intent to evade taxes.

The High Court relied upon Prestress Steel LLP vs. Commissioner, Uttarakhand State GST [(2013) 157 taxmann.com112 (Uttarakhand)] and held that on non-compliance of procedural requirements under Rule 55(5)(b) of the CGST Rules, the penalty can be levied under Section 122 of CGST Act instead of Section 129 of CGST Act for intention of tax evasion.

The High Court held that as the valid e-way bill was duly generated, and in absence of intention to evade, a penalty of 200% levied under the Impugned Order is disproportionate. The Impugned Order was ser aside and directed the Adjudicating Authority to pass a fresh and reasoned order.

AMLEGALS REMARKS

The High Court observed that exorbitant or disproportionate penalties cannot be levied due to procedure lapse on the part of the taxpayer. Moreover, in the absence of an intention to evade taxes, such a penalty would be unreasonable and against the principles of law and natural justice. Hence, directed the Adjudicating Authority to pass a fresh and reasoned order in line with the discussion regarding penalties on such transactions.

– Team AMLEGALS