Case Law Details
Jayasri Traders Vs Assistant Commissioner (ST) (Madras High Court)
ITC availed on car purchase and paid subsequently: HC directs reconsideration of 100% Penalty order
In recent judicial proceedings before the Madras High Court, the case of Jayasri Traders vs. Assistant Commissioner revolves around the imposition of penalties concerning Input Tax Credit (ITC) availed on a car purchase under GST regulations. The petitioner contested an order dated 28.06.2023, arguing that despite voluntary payment of tax dues before the issuance of the impugned order, a 100% penalty was imposed.
Detailed Analysis
The dispute originated from the petitioner, Jayasri Traders, availing Input Tax Credit (ITC) for a car purchase, which subsequently was found to be ineligible under GST rules. Upon realization of the error, the petitioner promptly paid the tax dues under Form GST DRC 03 on 12.09.2023, prior to the issuance of the impugned order. Despite this, the Assistant Commissioner imposed a 100% penalty under Section 74 of the GST Act, prompting the petitioner to challenge the order before the Madras High Court.
Legal Arguments
Learned counsel for the petitioner contended that the imposition of a 100% penalty was unjustified in light of the voluntary payment of tax dues before the issuance of the impugned order. The counsel argued that principles of natural justice were compromised as the penalty was levied without proper reasoning under Section 74 of the GST Act. Additionally, the petitioner cited a circular by the Central Board of Indirect Taxes and Customs (CBIC), suggesting that interest should not be levied in such cases where tax dues have been paid in full.
Government’s Response
On behalf of the respondents, Mr. V. Prasanth Kiran, learned Government Advocate, defended the imposition of the penalty, asserting that all procedural requirements were duly followed. He emphasized that the petitioner’s reply and evidence of payment were considered during the adjudication process. However, the court noted discrepancies in the imposition of the penalty without explicit reasons for invoking Section 74, which warranted reconsideration.
Court’s Decision
After careful consideration of the arguments and evidence presented, the Madras High Court set aside the impugned order dated 28.06.2023. The court directed Jayasri Traders to remit 10% of the cess demand within two weeks and allowed the petitioner to submit a detailed reply to the show cause notice. Upon verification of the payment and receipt of the petitioner’s reply, the Assistant Commissioner was instructed to provide a fair opportunity for personal hearing and issue a fresh order within three months.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
An order dated 28.06.2023 is assailed in this writ petition on the ground that the materials placed on record by the petitioner were not duly considered.
2. The petitioner had purchased a car and availed of Input Tax Credit (ITC) in relation thereto. Upon realizing that ITC should not have been availed of in respect of such purchase, the petitioner paid the tax dues under Form GST DRC 03 on 12.09.2023. This was communicated to the respondent in reply dated 12.06.2023 to show cause notice dated 03.05.2023. The impugned order was issued in these facts and circumstances.
3. Learned counsel for the petitioner submits that proceedings were initiated under Section 74 of applicable GST enactments and 100% penalty was imposed in spite of the petitioner remitting the requisite tax amount prior to the issuance of the impugned order. Therefore, he submits that the matter requires re-consideration. On instructions, he submits that the petitioner agrees to remit 10% of the cess demand under the impugned order as a condition for remand.
4. Mr. V. Prasanth Kiran, learned Government Advocate, accepts notice for the respondents. He points out that principles of natural justice were complied with and that the petitioner’s reply was taken into consideration.
5. The petitioner placed on record evidence of payment of a sum of Rs.4,78,573/- on 12.09.2023 with regard to the wrongful availment of Input Tax Credit. In those circumstances, by relying on a circular issued by the CBIC, the petitioner contends that interest should not be levied. On perusal of the impugned order, it is evident that the tax dues towards SGST and CGST were discharged by the petitioner. It also appears that 100% penalty was imposed under Section 74 without recording any reasons for invoking Section 74. In these circumstances, the matter requires re-consideration by putting the petitioner on terms.
6. Therefore, impugned order dated 28.06.2023 is set aside on condition that the petitioner remits 10% of the cess demand under the impugned order within two weeks from the date of receipt of a copy of this order. The petitioner is also permitted to submit a detailed reply to the show cause notice during the aforesaid period. Upon receipt thereof and on being satisfied that 10% of the cess amount was received, the first respondent is directed to provide a reasonable opportunity to the petitioner, including a personal hearing, and thereafter issue a fresh order within three months from the date of receipt of the petitioner’s reply.
7. W.P.No.13530 of 2024 is disposed of on the above terms. No costs. Consequently, W.M.P.Nos.14680 and 14681 of 2024 are closed.
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