The Kerala High Court clarified that penalties under Section 129(1)(a) or 129(1)(b) of the CGST/SGST Act are applicable only when tax evasion is intended or in cases of repeated violations. Minor discrepancies do not warrant such penalties.
The case involved M/s. T. P. Metals & Roofings, who faced penalties for an expired e-way bill. The High Court deemed this a technical violation, not an attempt at tax evasion.
The Court emphasized the harmonious interpretation of Sections 122, 126, and 129 of the Act. Section 122(1)(xiv) prescribes a fine for transporting goods without required documents. Section 126 exempts minor, rectifiable breaches from penalties if done without fraudulent intent. Section 129, post-amendment, increased penalties to 200% of payable tax.
The Court overturned the initial penalty of Rs. 3,76,824 and ordered a penalty of only Rs. 10,000 under Section 122(1)(xiv).
Revenue officials can still initiate Section 129 proceedings for e-way bill expiry or similar discrepancies if done with intent to evade tax.
The Kerala High Court held that tax/ penalty under Section 129(1)(a) or 129(1)(b) of the CGST/ SCGST can be imposed only for violations which may lead to evasion of tax or which was done with the intention to evade or in case of repeated violations.
Justice P. Gopinath observed:
“It is declared that the provision of Section 129 of the CGST/ SGST Acts do not authorize the imposition of tax/ penalty as contemplated by the provisions of Section 129(1)(a) or Section 129(1)(b) in cases where only minor discrepancies are noticed and such penalty can be imposed only for violations which may lead to evasion of tax or where the transport was with the intention to evade tax or in cases of repeated violations (even of a minor nature)”
The Court said that in cases of minor discrepancies, the authorities can impose penalties after considering Sections 122 and 126 of the Acts.
As per the petitioner, he sold 12, 080 kg of roofing pipes amounting to Rs. 10,46,732 to a company. The goods were despatched to the purchaser along with the Tax-Invoice and e-way bill. The e-way bill generated on 23/10/2021 10 P.M. and was valid till 24/10/ 2021 10 P.M. The vehicle carrying the goods was intercepted on 25/10/2021 at 09:59 A.M. On finding that the e-way bill had expired, proceedings were initiated. It was decided that the petitioner should pay tax and penalty of Rs. 3,76,824. The petitioner challenged this penalty saying that there is no finding that the petitioner was attempting to evade tax. The petitioner argued that it was only a technical violation.
Section 122(1)(xiv) of The Act says that if a person transports any taxable goods without the specified documents, he shall be liable to pay a fine of Rs.10,000 or the tax evaded. Section 129 of the Act before the amendment said that when a person transports goods in contravention of the provisions of the Act, the vehicle and goods can be seized and detained and it shall be released only after payment of tax and penalty equal to one hundred percent of the tax payable. After the amendment, the penalty was increased to two hundred percent of the tax payable. Section 126 of the Act said that no penalty shall be imposed for minor breaches which is easily rectifiable and which was done without any fraudulent intent or gross negligence.
The Court observed that these 3 provisions must be read harmoniously. The Court held that once detention, seizure or release procedure is initiated by the authority, the competent officer should consider the explanation offered by the assessee. If it is found that there was no attempt to evade tax, only a minor penalty contemplated under Section 122(1)(xiv) of the Act should be imposed.
The Court noted that the instant case, there is no finding in any proceeding that the expiry of e-bill has resulted in the evasion of tax. The Court therefore ordered that only a penalty of Rs. 10,000 under Section 122(!)(xiv) can be imposed in this case.
The Court added that the Revenue Officials can still initiate proceedings under Section 129 of the Act in cases of expiry of e-bill or other discrepancies if such act was done with the intention to evade tax.
Counsel for the Petitioner: Advocates P. N. Damodaran Namboodiri, Hrithwik D. Namboothiri
Counsel for the Respondents: Government Pleader Adv. Jasmine P.
Case No: WP(C) No: 26645 of 2021
Case Title: M/s. T. P. Metals & Roofings v Assistant Tax Officer and Others
Citation: 2024 LiveLaw (Ker) 627
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