Tvl.SAM Enterprises Vs Commercial Tax Officer (Madras High Court)
The Madras High Court dismissed writ petitions filed by multiple medical equipment suppliers accused of circular trading and upheld penalties imposed under Sections 122(1)(ii) and 122(1)(vii) of the CGST Act. The Revenue found that 96.6% to 100% of the entities’ transactions were circular trading transactions carried out without actual movement of goods, allegedly to inflate turnover and obtain bank loans. The petitioners argued that penalties under Section 122(1) should be capped at Rs.10,000 and relied on the doctrine of proportionality from labour and service law judgments. The Court rejected these arguments, holding that the expression “whichever is higher” in Section 122(1) leaves no discretion with the Assessing Officer and mandates penalty equivalent to the ineligible ITC availed or passed on. The Court also held that proportionality principles from other legal fields could not override the statutory GST framework. However, considering the large penalty amounts, the Court dispensed with the 10% pre-deposit requirement for appeals and granted liberty to file appeals within 30 days.
Facts:
Multiple entities — namely Tvl. SAM Enterprises, Tvl. New Life Healthcare Products, Tvl. Infix Global Healthcare LLP, Tvl. M.S. Global Health Care, Tvl. Sri Sana Enterprises, and Tvl. Q-Tech Surgical Products — all operating in the medical equipment supply business in Coimbatore, were subjected to assessment orders in Form GST DRC-07 under Section 74 of the respective GST Enactments for the tax periods spanning 2020-2021 to 2024-2025.
