A. Fredrick Joseph Sagayaraj vs. The Managing Director

Held

The Court held that the imposition of GST by the respondents was illegal and liable to be set aside. The Court found substance in the petitioners' arguments that GST is not applicable to penalties imposed in disciplinary proceedings against employees. The Court reasoned that Section 7(1A) of the CGST Act, which deals with agreeing to refrain from an act, tolerate an act or situation, or to do an act, is applicable to penalties imposed in the course of trade or commerce, not to disciplinary actions. The Court noted that the respondents failed to demonstrate the applicability of Section 7(1A) or Rule 5(e) in their show cause notices, impugned orders, or counter-affidavits. Furthermore, the Court observed that the provision cited for GST collection, Section 7(1)(d), had been omitted from the Act prior to the issuance of the notice. Consequently, the impugned orders imposing GST were quashed. The Court also directed the District Manager to conduct a domestic enquiry in accordance with the 'Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014' before taking any further decision.

Facts

The petitioners, employees of Tamil Nadu State Marketing Corporation Limited (TASMAC) shops, filed writ petitions challenging orders passed by the District Manager imposing penalties, interest, and Goods and Services Tax (GST) for remittance of shortage amounts. The lockdown due to COVID-19 on March 24, 2020, led to shops closing at 6:00 PM instead of the usual time. This resulted in a rush of customers, making it difficult for the petitioners to close stock registers and remit sale amounts on time. The District Manager issued show cause notices and, without conducting a domestic enquiry, imposed penalties and GST, which the petitioners contend is contrary to the 'Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014' and without proper authority for GST imposition.

Key Issues

1. Whether the District Manager of TASMAC was legally empowered to impose GST on the penalty amount levied in a disciplinary proceeding against the petitioners, contrary to the procedure laid down in the 'Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014'? (Question of law) Petitioner's arguments: The petitioners argued that the District Manager acted without authority in imposing GST. They contended that the penalty was imposed in a disciplinary proceeding against employees, not in the course of trade or commerce, and therefore, GST was not applicable. They also argued that the show cause notice and impugned order did not specify the relevant provisions under which GST was being levied, and that the provision cited (Section 7(1)(d) of the CGST Act) was omitted with effect from February 1, 2019. Revenue/State's arguments: The respondents (TASMAC officials) argued that GST was applicable under Section 7(1A) of the CGST Act read with Rule 5(e) of the CGST Rules, as the petitioners 'refrained from performing' to prevent shortage of supply, which attracted GST. They relied on the 'Code of Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014' for imposing penalties.