M. Rajendran vs. The Managing Director

Held

The Court held that the impugned orders passed by the District Manager were liable to be set aside. Firstly, the District Manager failed to follow the mandatory procedure laid down in Clause 6 of The Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014, by not conducting a domestic enquiry before imposing the penalty. This procedural lapse rendered the decision-making process illegal. Secondly, the Court found the imposition of GST on the penalty amount to be illegal. The Court noted that Section 7(1)(d) of the GST Act, 2017, relied upon by the respondent, was omitted with effect from February 1, 2019, and thus not in force when the order was passed. Even if Section 7(1A) was considered, the Court held that GST is leviable on penalties imposed in the course of trade or commerce, not on penalties imposed in disciplinary proceedings against employees. Therefore, the GST imposed by the respondents was quashed. The Court directed the District Manager to conduct a denovo enquiry in accordance with The Code.

Facts

The petitioners, employees of TASMAC shops, challenged orders from the District Manager of TASMAC imposing penalties, interest, and GST for alleged shortages in remittance. The lockdown on March 24, 2020, led to early shop closures at 6:00 PM. Petitioners argued that due to the rush and inability to close stock registers after 4:00 PM, the sales between 4:00 PM and 6:00 PM could not be accounted for immediately. They claimed the subsequent stock audit revealed a shortage, but this was due to the unremitted sales amount from the lockdown period. The District Manager issued show cause notices and imposed penalties and GST without conducting a domestic enquiry, which the petitioners contended violated Clause 6 of the Prevention and Detection of Fraudulent Acts in TASMAC Limited, 2014 (The Code).

Key Issues

1. Whether the impugned orders passed by the District Manager, imposing penalty, interest, and GST for remittance shortage, are liable to be quashed for non-compliance with the procedure laid down in Clause 6 of The Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014, specifically the absence of a domestic enquiry. 2. Whether the imposition of GST on the penalty amount is legally sustainable, considering the relevant provisions of the GST Act, 2017. Petitioner's arguments: The District Manager failed to conduct a domestic enquiry as mandated by Clause 6 of The Code, rendering the impugned orders illegal. Furthermore, the imposition of GST on the penalty amount is without authority, as the relevant provisions cited (Section 7(1)(d) and Section 7(1A) of the GST Act) are either not applicable or were not properly invoked. Revenue/State's arguments: The respondents contended that the penalty and GST were imposed in accordance with law. The judgment does not explicitly record arguments from the respondents regarding the procedural aspect of the domestic enquiry or the specific legal basis for GST imposition beyond what is discussed in the court's reasoning.