A.Maheshwaran vs. The District Manager

Held

The Court held that the impugned order was passed arbitrarily and in violation of the principles of natural justice because the respondent failed to conduct a domestic enquiry 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 when an employee does not admit charges or the management is not satisfied with the explanation, and the charges warrant a punishment beyond censure, a domestic enquiry is mandatory. The Court noted that the penalty imposed was not a case of censure, reprimand, or warning, thus the procedure laid down in the Code was not followed. Regarding the GST imposition, the Court held it to be illegal. Firstly, Section 7(1)(d) of the GST Act, under which the notice was allegedly issued, was not in force at the time of the order. Secondly, even if Section 7(1A) was considered, the Court found that GST is leviable on penalties imposed in the course of trade or commerce, not on penalties imposed in disciplinary proceedings against an employee. Therefore, the imposition of GST on the penalty was illegal. The Court quashed the impugned order and permitted the respondent to conduct a domestic enquiry if advised.

Facts

The petitioner, a Supervisor at TASMAC Shop No.7538, Sivagangai District, faced an order imposing penalty, interest, and GST. This was due to a shortage in stock found 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 sales made between 4:00 PM and 6:00 PM on the lockdown day, a period during which he was unable to close the stock registers due to a rush of customers. The respondent issued a show cause notice, to which the petitioner replied, but no domestic enquiry was conducted before the impugned order was passed. The petitioner argued this violated the investigation procedure laid down by TASMAC.

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 not admitted or explanations are unsatisfactory and the charges are grave. (Question of law and mixed fact and law, turning on Clause 6 of the Code). 2. Whether the imposition of GST on the penalty imposed in a disciplinary proceeding against an employee is legally sustainable under the GST Act, 2017. Petitioner's Arguments: The petitioner argued that the respondent failed to conduct a domestic enquiry as mandated by Clause 6 of the TASMAC Code, despite the petitioner denying the charges and the seriousness of the penalty. This procedural lapse violated principles of natural justice. Furthermore, the petitioner contended that GST cannot be levied on penalties imposed in disciplinary proceedings, as such penalties are not in the course of trade or commerce. The petitioner relied on the TASMAC Code for procedural requirements. Respondent's Arguments: The respondent contended that the amount in question was a shortage and not after-sales amount. They issued a demand notice, and the petitioner remitted the amount with interest and GST. The respondent's counter affidavit stated that GST was collected under Section 7(1)(d) of the GST Act. The respondent also argued that Section 7(1A) of the Act read with Rule 5(e) of the Rules would be applicable, implying that the petitioner's act of refraining from preventing the shortage attracted GST.