Clear Secured Services Private Limited, Thru. Shailendra Dubey, Authorized Signatory vs. Commissioner, State Tax GST, U.P. Commercial Tax, Lucknow And Another

Held

The Court held that the penalty imposed was disproportionate and not in line with the provisions of the GST Act. The primary allegation against the petitioner was the delay in depositing collected GST beyond three months, not tax evasion. The Court noted that Section 122(1)(iii) specifies the penalty as Rs. 10,000/- or an amount equivalent to the tax evaded, whichever is less. Since there was no tax evasion, the maximum penalty imposable should have been Rs. 10,000/-. Furthermore, the Court found that the authorities failed to follow the general disciplines related to penalty under Section 126(2), which requires penalties to be commensurate with the degree and severity of the breach and to consider mitigating circumstances. The Notification dated 01.06.2021, waiving late fees due to COVID-19, was a relevant mitigating factor that was not considered. The Court also noted the petitioner's offer to pay a penalty of Rs. 10,000/- to settle the litigation. Consequently, the impugned orders were set aside, and a penalty of Rs. 10,000/- was imposed in each case.

Facts

The petitioner, Clear Secured Services Private Limited, filed two writ petitions challenging orders imposing penalties under Section 122 of the GST Act. In Writ Tax No. 5 of 2023, a penalty of Rs. 28,00,476/- (CGST) and Rs. 28,00,476/- (SGST) was imposed by an order dated 25.08.2021, which was upheld by an appellate order dated 14.09.2022. The petitioner alleged that the show-cause notice was issued on 27.05.2021, alleging non-payment of collected GST within the prescribed time. The petitioner could not reply due to the COVID-19 situation, leading to an ex-parte order. The petitioner argued that the delay in payment was due to non-receipt of funds and that the amounts were eventually paid with late fees. The second petition, Writ Tax No. 1 of 2023, involved similar issues with different penalty amounts.

Key Issues

1. Whether the penalty imposed under Section 122(1)(iii) of the GST Act is justified when the only allegation is a delay in depositing collected tax beyond three months, without any evasion or non-collection of tax? 2. Whether the authorities failed to adhere to the general disciplines related to penalty as stipulated in Section 126 of the GST Act, particularly regarding proportionality and opportunity of hearing? Petitioner's Arguments: - The penalty under Section 122(1)(iii) is imposable for delay in depositing tax beyond three months, but the quantum is specified as Rs. 10,000/- or an amount equivalent to the tax evaded/not deducted, whichever is less. Since no tax was evaded, the maximum penalty should be Rs. 10,000/-. - Section 126 mandates that penalties should not be imposed for minor breaches and should be commensurate with the breach. Section 126(3) requires an opportunity of being heard. - The Ministry of Finance's Notification dated 01.06.2021, waiving late fees for returns due to COVID-19, should have been considered as a mitigating factor under Section 126(2). Respondent's Arguments: - The penalty is justified based on the petitioner's failure to pay collected GST beyond the prescribed three-month period, as per Section 122(1)(iii) of the Act. - The petitioner failed to provide any justification for not depositing the collected tax amount within the time limit.