GST: No 100% Penalty for Show Cause Notices Issued Under Section 73

K.S. Janarthanam Vs Deputy State Tax Officer (Madras High Court)

Introduction: In the case of K.S. Janarthanam v. Deputy State Tax Officer, the Madras High Court addressed the issue of imposing a 100 percent penalty under Section 73 of the TNGST Act. The petitioner, a civil works contractor registered under GST, challenged the penalty imposed on SGST dues despite the issuance of a show cause notice. The Hon’ble Madras High Courtdisposed 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.”

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

The petitioner challenges an order dated 01.12.2023 issued in respect of a rectification application filed by the petitioner on 20.11.2023.

2. The petitioner states that he is a civil works contractor and a registered person under GST laws. Initially, the petitioner received a notice in Form GST-ASMT-10 with regard to discrepancies in the return filed by the petitioner. This was followed by a notice under Section 73 of the Tamil Nadu Goods and Services Tax Act, 2017 (the TNGST Act). An assessment order was issued thereafter on 04.09.2023. Upon receipt thereof, the petitioner applied for rectification on 20.11.2023. In the said rectification application, the petitioner admitted its tax liability to the extent of Rs.12,22,432/-comprising CGST of Rs.6,71,216/- and SGST of Rs.6,71,216/-. On such basis, the petitioner requested for relief from penalty. The order impugned herein was issued in the above facts and circumstances.

3. Learned counsel for the petitioner submits that the petitioner deposited a sum of Rs.12,00,000/- after admitting liability to the extent of Rs.12,22,432/-. The payment receipt at page 73 of the typed set is relied upon to corroborate the submission. By referring to the impugned order and, in particular, the revenue abstract at page 72 of the typed set, learned counsel points out that 100% penalty was imposed although the show cause notice was issued under Section 73. The challenge is limited to the said extent.

4. Mrs.K.Vasanthamala, learned Government Advocate, accepts notice on behalf of the respondent. She submits that the impugned order came to be issued in view of the rectification application of the petitioner.

5. On examining the notices on record, it is clear that such notices were issued under Section 73 and not under Section 74 of the TNGST Act. Therefore, the impugned order calls for interference as regards the imposition of penalty at 100% on the SGST dues.

6. For reasons set out above, the impugned order is quashed only insofar as it pertains to imposition of penalty under the two heads indicated in the revenue abstract of the impugned order. As a corollary, the matter is remanded to the assessing officer for re-consideration as regards the penalty imposed under the impugned order. After providing a reasonable opportunity to the petitioner, this exercise shall be completed within a period of two months from the date of receipt of a copy of this order

7. W.P.No.1848 of 2024 is disposed of on the above terms. Consequently, W.M.P.Nos.1921, 1922 of 2024 are closed.

Conclusion: The Madras High Court, recognizing the discrepancy in penalty imposition, quashed the impugned order and remanded the matter back to the assessing officer for reconsideration. This decision underscores the importance of adhering to statutory provisions and ensuring fair treatment in tax assessments, particularly concerning penalties.

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