K.R.Subramanian vs. The Managing Director

Held

The Court held that the impugned order was passed arbitrarily and in violation of the principles of natural justice for failing to conduct a domestic enquiry as contemplated by the Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014. The Court found fault with the decision-making process, deeming it illegal. Regarding the imposition of GST, the Court found it illegal on two grounds. Firstly, Section 7(1)(d) of the GST Act, which was cited for collecting GST, was omitted with effect from February 1, 2019, rendering its invocation illegal. Secondly, even if Section 7(1A) were considered, the Court held that GST is applicable only when penalties are imposed in the course of trade or commerce, not in disciplinary proceedings against an employee. Therefore, the imposition of GST on the penalty in this disciplinary proceeding was illegal. The impugned order was set aside, and the writ petition was allowed. The Court directed that if the respondents were advised, they could conduct a domestic enquiry in accordance with the Code.

Facts

The petitioner, a Supervisor at TASMAC Shop No. 6547, was compelled to close the shop by 6:00 PM on March 24, 2020, due to the COVID-19 lockdown announcement. Consequently, the sales proceeds from 4:00 PM to 6:00 PM were kept in the shop's locker. Later, during stock verification for transfer to a godown, a shortage was detected. The petitioner explained this was the unremitted sale amount from the lockdown period. The third respondent (District Manager) issued a show cause notice for a penalty of Rs. 1,41,435/- along with interest and GST, citing the Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014. The petitioner replied, clarifying it was not a shortage but sale proceeds. The third respondent passed an order imposing the penalty, interest, and GST, which the petitioner challenged.

Key Issues

1. Whether the impugned order imposing penalty, interest, and GST was passed in violation of the principles of natural justice and the Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014, by failing to conduct a domestic enquiry? 2. Whether the imposition of GST on the penalty amount levied in a disciplinary proceeding is legally sustainable under Section 7(1) and 7(1-A) of the GST Act, 2017? Petitioner's Arguments: The petitioner argued that the impugned order was passed arbitrarily without a domestic enquiry as mandated by the Code. The District Manager misconstrued the sale proceeds as a shortage. Furthermore, the petitioner contended that GST was illegally imposed, citing that Section 7(1)(d) of the GST Act, under which it was purportedly levied, was omitted and that GST is not applicable to penalties imposed in disciplinary proceedings, but only in the course of trade or commerce. Respondents' Arguments: The respondents, through their counter affidavit, indicated that GST was imposed under Section 7(1)(d) of the GST Act. They also argued that Section 7(1A) of the Act, read with Rule 5(e), was applicable, suggesting the petitioner refrained from preventing the shortage, thus attracting GST.