The Allahabad High Court in M/s. Ganpati Battery Traders v. State of U.P. [Writ Tax No. 1138 of 2022 decided on 06.12.2022], held that penalty cannot be imposed merely because the goods are quantified in pieces instead of weight. The stating of reasons is must for rejecting any explanation.
M/S Ganpati Battery Trader (hereinafter referred to as “the Petitioner”) is engaged in the business of sale and purchase of old batteries.
On 18.02.2022, 793 pieces of large damaged battery and 7538 pieces of small damaged battery were sold to M/s Shanti Prakash Power Private Limited at Gwalior through tax invoice. The said goods were sent to the Petitioner through a truck.
On 23.02.2022, the truck was intercepted by Mobile Squad near Unnao and was detained for verification under Section 20 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as “IGST Act”), read with Section 68(3) of the Central Goods and Service Tax Act,2017 (hereinafter referred to as the “CGST Act”).
On 26.02.2022, the physical verification and inspection was conducted and a notice was issued under Section 20 of the IGST Act read with Section 129(3) of the CGST Act, and served upon the driver of the truck granting five days’ time to file a reply.
As directed, the Petitioner submitted the reply. However, vide Order dated 01.03.2022, the Assistant Commissioner (Mobile Squad), Unnao (hereinafter referred to as the “Adjudicating Authority”) imposed a penalty of Rs. 9,70,542/- on the Petitioner and directed to deposit the said amount in terms of Section 129(1)(a) or 129(1)(b) of CGST Act, 2017. Accordingly, the Petitioner deposited the entire penalty and the goods were released.
Further, the Petitioner filed an appeal against the Order dated 01.03.2022 of the Assistant Commissioner before the Additional Commissioner, Grade-2 (Appeal) Second, Commercial Tax Department, Kanpur, (hereinafter referred to as the “Appellate Authority”) which was rejected vide Order dated 30.04.2022. Being aggrieved, the Petitioner has filed the present petition.
ISSUE BEFORE THE HIGH COURT
Whether a penalty can be levied merely because the goods are quantified in pieces instead of weight?
CONTENTION OF THE PARTIES
The Petitioner submitted that the Appellate Authority has erred in upholding the detention order and the order of penalty passed by the Adjudicating Authority was erroneous as the goods were sold on the basis of number of pieces and not according to the weight.
It was further contented that the old and damaged batteries were purchased by pieces and not by weight, and was further sold per piece. Moreover, the batteries were completely redundant and cannot be re-sold after repair.
The Petitioner asserted that there was no concealment as the correct description was given in the truck invoice differentiating the goods between large damaged batteries and small damaged batteries.
The Respondents submitted that the Petitioner was trying to evade payment of tax and the battery was sold in terms of per piece and not according to the weight. Hence, Rule 46 of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”) would be applicable in the present case.
DECISION AND FINDINGS
The Court observed that the Petitioner is dealing in the business of sale and purchase of old batteries and the tax invoice dated 18.02.2022 gave a complete detail of the batteries sold to M/s Shanti Prakash Power Private Limited at Gwalior..
The Court held that the reply of the Petitioner clearly states that the battery is purchased and sold on the basis of per piece and not on the basis of weight. Moreover, the Adjudicating Authority while passing the Order dated 01.03.2022 has failed to record the reason why the explanation of the Petitioner cannot be accepted.
The Court thus observed that the Appellate Authority has failed to record any finding as to how it has arrived at the conclusion that the trade practice required the battery to be sold is according to the weight and not per piece. The Court also observed that the Petitioner has already complied with the provision of Rule 46 of CGST Rules.
The Court held that the Adjudicating Authority had wrongly detained the truck and imposed a penalty. Furthermore, the orders dated 01.03.2022 and 30.04.2022 does not provide reasons and hence is not in consonance with law to hold that the old and damaged batteries are to be sold according to the weight and not per piece.
In view thereof, the Court set aside both the orders and allowed the present appeal. The Court further directed the Respondents to refund the amount collected as penalty to the Petitioner within a month.
The High Court in the present case held that the penalty cannot be imposed merely because the goods are measured per piece and not by weight. Moreover, the existence of rule or law is not enough, but the existence of proper reasoning is important to stand to a conclusion.
The Order which does not provide a proper reasoning as to why the explanation provided by the Petitioner cannot be accepted is bad in law and does not stand in eyes of law. Hence, a proper reasoning is a sine qua non for establishing the validity of an Order.
– Team AMLEGALS assisted by Ms. Srishti Sinha (Intern)
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