Perumal vs. The Managing Director

Held

The Court held that the impugned orders were passed arbitrarily and in violation of the principles of natural justice, as no domestic enquiry was conducted as contemplated by the 'Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited-2014'. The procedure adopted was found to be illegal and liable to be quashed. Regarding the imposition of GST, the Court found it illegal for two reasons. Firstly, the notice of collection of GST was issued under Section 7(1)(d) of the GST Act, which was omitted with effect from February 1, 2019, meaning there was no provision or authority to collect GST. Secondly, even if Section 7(1A) and Rule 5(e) were considered, the respondents failed to establish their applicability. The Court reasoned that GST is attracted only when penalties are imposed in the course of trade or commerce, not in disciplinary proceedings against employees. Therefore, the imposition of GST on penalties levied in disciplinary proceedings was illegal and liable to be set aside. The Court set aside the impugned orders and allowed the writ petitions, directing the District Manager to conduct a domestic enquiry as per the Code.

Facts

The petitioners, employees of TASMAC Limited, challenged orders passed by the District Manager imposing penalties, interest, and GST on shortages. The lockdown announced on March 24, 2020, led to TASMAC shops closing at 6:00 PM. Normally, employees worked beyond closing to reconcile stock and sales, remitting the sale amount the next working day. The District Manager issued show cause notices and impugned orders imposing penalties, interest, and GST on the shortage amount. The petitioners contended that the orders were passed arbitrarily and in violation of principles of natural justice, as no domestic enquiry was conducted as per the 'Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited-2014'. They also argued that GST was illegally imposed on penalties arising from disciplinary proceedings.

Key Issues

1. Whether the impugned orders imposing penalties, interest, and GST were 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? The petitioners argued that the respondents failed to follow the prescribed investigation procedure under the Code, rendering the orders arbitrary and illegal. The respondents did not record any specific arguments on this point in the judgment. 2. Whether the GST imposed on the penalties levied in disciplinary proceedings is legally sustainable? The petitioners contended that GST is not applicable to penalties imposed in disciplinary proceedings, as it is meant for penalties in the course of trade or commerce. The respondents argued that GST is applicable under Section 7(1)(d) or 7(1-A) of the GST Act, 2017, and Rule 5(e) of the Rules, as the petitioners refrained from performing their duties to prevent shortages, thereby attracting GST on the penalty. They also relied on case laws related to penalties in the course of trade.