Judicial pronouncements under section 126 of the Central Goods and Service Tax Act, 2017.[1]
In this write-up, the Author has reproduced the section and recent judicial pronouncement. The recent judicial pronouncements more or less cover issues related to E-way Bill wherein the E-way bill expired and wherein the address was mentioned wrongly. The Courts have invoked the provision of Section 126 of the CGST Act, 2017 and in some cases have remanded back the matter to the department for fresh consideration. Also, the Author has attempted to curl out judgments on the aspects of “Evasion of Tax and “Tax Mitigation”.
Hypothetical Situations
- Show Cause Notice issued for wrongly entering one figure in the return which is easily rectifiable and has no bearing on the tax liability. For example, A filed the GST return and paid the amount to the tune of Rs 10,000 and discharged the liability according to the books however have received the SCN that one figure is mentioned wrongly. Hence, Section 126 of the CGST Act,2017 may be invoked based on the facts and circumstances.
- Show Cause Notice issued for E-way bill invalid for the reason that the time has surpassed. This section may be invoked in terms of the recent judicial pronouncements.
Rule
Section 126 – General disciplines related to penalty
- No officer under this Act shall impose any penalty for minor breaches of tax regulations or procedural requirements and in particular, any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence.
Explanation – For the purpose of this sub -section
- A breach shall be considered a ‘minor breach’ if the amount of tax involved is less than five thousand rupees;
- An omission or mistake in documentation shall be considered to be easily rectifiable if the same is an error apparent on the face of record.
(2) The penalty imposed under this Act shall depend on the facts and circumstances of each case and shall be commensurate with the degree and severity of the breach.
(3) No penalty shall be imposed on any person without giving him an opportunity of being heard.
(4) the officer under this Act shall while imposing penalty in an order for a breach of any law, regulation or procedural requirement, specify the nature of the breach and the applicable law, regulations or procedure under which the amount of penalty for the breach has been specified.
(5) When a person voluntarily disclose to an officer under this Act the circumstances of a breach of the tax law, regulation or procedural requirement prior to the discovery of the breach by the officer under this Act, the proper officer may consider this fact as a mitigating factor when quantifying a penalty for that person.
(6) The provisions of this section shall not apply in such cases where the penalty specified under this Act is either a fixed sum or expressed as fixed percentage.
Judicial pronouncement
Nirmal Kumar Mahavver Kumar Vs Commissioner of Central Goods and Service Tax and Ors W.P (c) 8585/2022 Delhi High Court
In this case, the demand was raised against Nirmal Kumar on account of the fact that the e-way bill generated has expired.
Observation of the Court – While carrying out the exercise, the concerned officer will also bear in mind, the provision of section 126 of the CGST Act, which inter alia advert to omission or mistake in the documentation that is easily rectifiable.
Ashok Kumar Sureka Vs Asst. Commissioner, State Tax, Durgapur Range Calcutta High Court (2022) 7 GSTJ Online
In the present case, the court was of the view that the assessee E way Bill has expired even less than one day and extension could not be made and the said act was not deliberate and wilful and was due to break down of the vehicle in question and there was no intention of any evasion of tax on the part of the assessee. Hence, the penalty can’t be imposed.
Daya Shanker Singh Vs State Of Madhya Pradesh and Ors Writ Petition No. 12324 of 2022 High Court of Madhya Pradesh.
In the present case, the e-way bill expired and the Assistant Commissioner opined that the E-way bill got expired on 19.05.2022 at 12 pm. The assistant commissioner issued FORM GST MOV-02 stating that E-way Bill got expired. The vehicle was detained in the custody of the City Police Station, Dindori.
Observation of the Court– That the department was not able to establish that there exists any element of evasion of tax, fraudulent intent, or negligence on the part of the petitioner. Against this backdrop, the impugned notice/ order could not be passed. The Court further observed that the principle of natural justice was statutorily recognized and ingrained in Section 126 (1) (3) of this Act. The Lawmakers have taken care of the doctrine of proportionality while bringing subsection (1) of Section 126 in the Statute Book. The punishment should be commensurate with the breach is the legislative mandate as per sub-section (1) of Section 126.
Assistant Commissioner (ST) & others vs. Satyam Shivam Papers Pvt. & Another (2022) 7 GSTJ Online 16 (SC)
The court observed in the present case, that the same is reproduced verbatim
“Upon our having made these observations, learned counsel for the petitioner has attempted to submit that the question of law in this case, as regards the operation and effect of Section 129 of Telangana Goods and Service Tax Act, 2017 and violation by the writ petitioner, may be kept open. The submissions sought to be made do not give rise to even a question of fact what to say of question of law. As noticed hereinabove, on facts of this case, it has precisely been found that there was no intent on the part of this writ petitioner to evade tax, and rather, the goods in question could not be taken to the destination within the time for the reasons beyond the control of the writ petitioner. When the undeniable facts, including the traffic blockage due to agitation, are taken into consideration the State alone remains responsible for not providing smooth passage of traffic”.
Comments– That the Court was of the opinion that mere lapse of the time mentioned in the E-way Bill is not sufficient for invoking the penalty clause mentioned under Central Goods and Service Tax, Act 2017 as the evasion of tax is not established.
What is “Evasion of Tax” and/or Tax Mitigation?
In the case of Ananya Finance for Inclusive Growth P.Ltd Vs. The DCIT, Cir 1(1) (1) ITAT Ahmedabad, the court observed and the same is reproduced verbatim:-
“Tax mitigation in simple words would refer to a taxpayer taking advantage or benefit of a beneficent provision under the tax code and complying with the requisites to lower the tax liability. In the words of Lord Nolan in CIR vs. Willoughby
“the hallmark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option”
“Tax evasion is illegal and consists of wilful violation or circumvention of applicable tax laws to minimize tax liability. The assessed breaches the relevant law and it involves contumacious behavior or actual knowledge of wrongdoing. This can happen when an assessee deliberately fails to report an item in the income tax return, or knowingly claims a deduction to which he is aware he is not entitled to, or consciously omits to supply information even when there is a duty to furnish the said details. It can also apply to situations when the assessee fails to clarify a matter, which has been misunderstood by the income tax authority and keeps quiet. In these cases, there is an element of wilfulness, dishonesty or contemptuous conduct, or even absence of honest belief. If the taxpayer cannot show that he had an honest belief that he was not liable to tax or liable to a lower tax, then prima facie such conduct would fall within the ambit/scope of tax evasion.”
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[1] Deepanshu Arora holds a degree in Bachelor of Commerce from the University of Delhi
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