The Allahabad High Court ruled on the case involving Clear Secured Services Private Limited Thru. Shailendra Dubey Authorized Signatory versus Commissioner, State Tax GST, Up Lucknow. They’ve decreed that a GST penalty initially set at Rs. 56,00,952 has been reduced to Rs. 10,000 by the High Court.
Official Order Important Points
Given the shared concern in both petitions, they are being addressed collectively in this ruling.
The current petition has been lodged by the petitioner to contest the decision dated 25.08.2021, where a penalty of Rs.28,00,476 under CGST and Rs.28,00,476 under SGST was imposed, purportedly under the authority of Section 122 of the GST Act.
Additionally, the petitioner challenges the ruling dated 14.09.2022, which dismissed the petitioner’s appeal. These two orders are detailed in Annexures – P1 and P2.
Clear Secured Services Private Limited Case Facts
The petitioner, a private limited company, operates in providing manpower supply services. On 27th May 2021, they received a show cause notice (Annexure – P1) alleging that although they had collected GST, they hadn’t paid it within the stipulated time. Consequently, they were accused of violating Section 122(1)(iii) of the GST Act and faced a penalty whose specifics were outlined in the notice.
Due to prevailing COVID-19 circumstances, the petitioner couldn’t respond, leading to an ex-parte order against them. This order imposed a penalty matching the earlier specified amounts: Rs. 28,00,476.36 for CGST and an equal sum for SGST, totalling Rs. 56,00,952.72 levied against the petitioner.
The petitioner’s counsel contends that while Section 122(1)(iii) of the Act allows for imposing a penalty due to a delay in depositing collected tax beyond three months, the specified penalty amount is either Rs.10,000 or the equivalent of the evaded tax or tax not deducted under Section 51 of the Act.
According to their argument, even if the allegations against the petitioner were considered valid, the maximum penalty they could face would be Rs.10,000 since no tax has been evaded.
Section 122(1)(iii) of the Act reads as under:
“122: Penalty for specific offences.
(1) Where a taxable person who –
(iii) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due.”
He further highlights Section 123’s requirement and emphasizes Sections 126, 127, and 128 of the Act, quoted below:
123: Penalty for not submitting information return.
If an individual obligated to submit an information return under section 150 fails to do so within the specified period mentioned in the notice issued under sub-section (3) of that section, the authorized officer can stipulate that the said individual will be subject to paying a penalty of one hundred rupees for each day the failure persists:
However, the penalty imposed under this section cannot exceed five thousand rupees.
Section 126: General rules concerning penalties.
(1) No officer empowered by this Act can impose penalties for minor infractions of tax rules or procedural demands, particularly for omissions or errors in documentation that can be easily rectified and were made without fraudulent intent or gross negligence.
Explanation: Under this sub-section:
(a) A breach qualifies as a ‘minor breach’ if the tax amount involved is below five thousand rupees.
(b) An omission or error in documentation is easily rectifiable if it’s an obvious mistake in the records.
(2) Penalties under this Act will vary based on the specifics of each case, aligning with the severity of the breach and the circumstances surrounding it.
(3) No individual shall face a penalty without being granted an opportunity to present their case.
(4) When an officer enforces a penalty for a violation of any law, regulation, or procedural requirement under this Act, they must specify the nature of the breach and cite the relevant law, regulation, or procedure that determines the penalty amount.
(5) If an individual voluntarily discloses a breach of tax law, regulation, or procedural requirement to an officer before it’s discovered, the officer may consider this disclosure as a mitigating factor when determining the penalty for that individual.
(6) These provisions won’t apply in cases where the penalty specified under this Act is either a set amount or expressed as a fixed percentage.
Section 127. Authority to impose penalties in specific cases.
When the authorized officer believes that a person is subject to a penalty not covered under proceedings outlined in sections 62, 63, 64, 73, 74, 129, or 130, they can issue an order imposing such penalty after providing a fair chance for that person to be heard.
Section 128: Authority to pardon penalties, fees, or both.
The Government, through notification, can partially or completely waive any penalties mentioned in sections 122, 123, or 125, or any late fees detailed in section 47 for specific groups of taxpayers and under particular mitigating circumstances specified therein, based on the recommendations of the Council.
After reviewing the arguments presented in court and examining the statements in the writ petition and counter affidavit, it appears that the revenue’s stance is centred on payments made after the stipulated three-month period, despite being collected. There’s no evidence or accusation against the petitioner suggesting non-payment or evasion of the collected amount; the only contention is the delayed payment.
Even if, hypothetically, this contention is acknowledged, the maximum penalty applicable to the petitioner would be Rs.10,000 since there’s no indication that the petitioner evaded any tax. Moreover, both the Appellate Authority and the Assessing Authority have overlooked the general guidelines regarding penalties, notably disregarding the directive of Section 126(2) of the Act.
Allahabad High Court Order
In this instance, as per the Notification issued on 1st June 2021 exercising powers under Section 128 of the Act, the Government waived late fees for return filing. This aspect should have been appropriately taken into account when applying the penalty, as mandated by Section 126(2) of the Act. Considering the circumstances here, the maximum penalty applicable was either Rs.10,000 or the amount of tax evaded, whichever was higher.
Since there’s no allegation of tax evasion, the maximum penalty that could have been imposed stood at Rs.10,000. However, this amount could have been even lower had both the Taxing Authority and the Assessing Authority considered the directive of Section 126(2) of the Act in conjunction with the Notification from 1st June 2021. Unfortunately, it’s evident that this consideration was not undertaken.
At this juncture, the petitioner’s counsel indicates that the petitioner is prepared to settle the dispute by agreeing to pay a penalty of Rs.10,000.
Considering the aforementioned provisions and the petitioner’s proposal, the challenged orders dated 25th August 2021 and 14th September 2022 in Writ Tax No.5 of 2023 are nullified.
Regarding the second case, Writ Tax No.1 of 2023, where only the amounts differ but other elements remain consistent, the contested orders from 15th March 2021 and 14th September 2022 are also revoked.
The petitioner is directed to settle a penalty of Rs.10,000 in both cases within two weeks from today by submitting the amount to the department.
| Case Title | Clear Secured Services Private Limited Vs. Commissioner, State Tax Gst, U.P. Commercial Tax |
| Citation | WRIT TAX No. – 5 of 2023 |
| Date | 23.11.2023 |
| Counsel for Petitioner | Advocates Ankit Kanodia, Megha Agarwal and Jitesh Sah |
| Counsel for Respondent | C.S.C. |
| Allahabad High Court | Read Order |
