Allahabad HC: Tax Penalty Deemed Invalid If GST SCN Terms Are Conceded

Rathore Building Material Vs Commissioner of State Tax (Allahabad High Court)

Overview

In a ruling dated December 1, 2023, the Hon’ble Allahabad High Court addressed the case of M/s. Rathore Building Material v. Commissioner of State tax [Writ Tax No 136 of 2023. The court ruled that Rathore Building Material, the petitioner, abided by the Show Cause Notice (SCN) terms by submitting returns within the required 15-day period. Despite this compliance, an unjust penalty was imposed on the petitioner, making the contested orders unlawful and showing a lack of consideration.

Key Information

M/s. Rathore Building Material (“the Petitioner”) was served the Show Cause Notice (“the SCN”) under Section 46 of the Central Goods and Service Tax Act, 2017 (“the CGST Act”) through the Commissioner of State Tax (“the Respondent”) where they were requested to provide returns within 15 days to withdraw the proceedings.

Later on, the Petitioner provided the returns within the timeframe specified in the SCN. Yet, the Respondent issued the Order (“the Impugned Order”), imposing a penalty under Section 125 of the CGST Act. They noted the date of the Petitioner’s response and stated no reply had been received, despite the contrary.

Thus, the applicant filed the writ petition before the Hon’ble Allahabad High Court.

Concerns Arising from the SCN Terms

If the penalty be levied when the petition complies with the terms of the SCN?

Read Also: Delhi HC Instructs Revenue Dept for Issuing GST SCN & Tax Demand in DRC 01 & DRC 02

Verdict on Factual Records

The Hon’ble Allahabad High Court in the case of Writ Tax No. 136 of 2023 ruled under:

• It was noticed that the Respondent issued the Impugned Order, imposing a penalty, based on the absence of a reply from the Petitioner to the SCN. This conclusion lacks proper consideration of the factual records, thus rendering it flawed.
• Upon review, it was observed that the Petitioner had indeed fulfilled the terms of the SCN by providing the necessary returns within the stipulated 15-day period. As such, there was no valid reason to impose the penalty.
• Consequently, it was determined that the Impugned Order contradicted the law and was made without due consideration. Therefore, the Impugned Order should be invalidated.

Conclusion

The ruling from the esteemed Allahabad High Court in the matter involving M/s. Rathore Building Material versus the Commissioner of State tax establishes a precedent highlighting the absence of penalties when a Show Cause Notice’s terms are duly followed. This decision by the court prioritizes fairness and equity in applying tax laws, aiming to prevent unnecessary penalties for taxpayers who diligently follow the prescribed procedures.