V. Parameswaran vs. The District Manager

Held

The Court held that the impugned order was passed arbitrarily and in violation of the principles of natural justice, as no domestic enquiry was conducted as contemplated under Clause 6 of the Prevention and Detention of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014. The Court found that the respondents did not follow the prescribed investigation procedure, especially since the petitioner denied the charges and the matter involved a penalty beyond mere censure. Regarding the imposition of GST, the Court found it illegal on two grounds. Firstly, the notice for collecting GST was issued under Section 7(1)(d) of the GST Act, 2017, which was omitted with effect from February 1, 2019, rendering the notice without legal authority. Secondly, even if Section 7(1A) were considered, the Court held that GST is applicable to penalties imposed in the course of trade or commerce, not to penalties levied in disciplinary proceedings against an employee. Therefore, the imposition of GST on the penalty was unsustainable. The Court quashed the impugned order and allowed the writ petition, with liberty to the respondent to conduct a domestic enquiry if advised.

Facts

The petitioner, a Supervisor at a TASMAC shop, faced an order imposing penalty, interest, and GST. This stemmed from a shortage in stock discovered during an inventory check after transferring goods from the shop to a godown for safekeeping, following a lockdown announcement on March 24, 2020. The petitioner contended that the amount was not a shortage but represented sales made between 4:00 PM and 6:00 PM on that day, a period during which the shop was unusually crowded due to the lockdown, preventing timely closing of accounts and remittance. The respondent authorities, however, treated it as a shortage and issued a demand notice. The petitioner argued that the impugned order was passed without conducting a domestic enquiry as mandated by Clause 6 of the Prevention and Detention of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014.

Key Issues

1. Whether the impugned order imposing penalty, interest, and GST is liable to be quashed for non-compliance with the investigation procedure laid down in Clause 6 of the Prevention and Detention of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014, specifically the requirement of a domestic enquiry when charges are grave and the employee denies them? (Question of law and mixed fact and law, turning on Clause 6(e) and (f) of the Code). 2. Whether the imposition of GST on the penalty amount is legally sustainable under the GST Act, 2017, particularly in light of the provisions cited by the respondents? (Question of law, turning on Section 7(1)(d) and 7(1A) of the GST Act, 2017, and Rule 5(e) of the relevant Rules). Petitioner's Arguments: The petitioner argued that the respondent failed to conduct a domestic enquiry, which is mandatory under Clause 6 of the Code when the charges are grave and the employee denies them. The petitioner maintained that the amount in question was after-sales revenue, not a shortage. Furthermore, the petitioner contended that GST could not be imposed on a penalty levied in a disciplinary proceeding against an employee, as it does not fall under the ambit of trade or commerce. Respondents' Arguments: The respondents contended that the amount was a shortage and issued a demand notice accordingly. They also argued for the applicability of Section 7(1A) of the GST Act, 2017, read with Rule 5(e), suggesting that the petitioner's act of refraining from preventing the shortage attracted GST. The respondents relied on their counter affidavit and the demand notice.