S. Senthil Kumar vs. The District Manager

Held

The Court held that the District Manager's action of imposing penalty, interest, and GST without conducting a domestic enquiry, as mandated by Clause 6 of The Code, was arbitrary and violated the principles of natural justice. The Court noted that the petitioners' contention that the amount was due to after-sales during the lockdown period, rather than a shortage, required a proper domestic enquiry to ascertain the facts. Regarding the GST imposition, the Court found it illegal on two grounds: firstly, the cited provision, Section 7(1)(d) of the GST Act, was omitted with effect from February 1, 2019, and was not in force when the order was passed. Secondly, even if Section 7(1A) were considered, the penalty imposed in a disciplinary proceeding against an employee does not constitute a transaction in the course of trade or commerce that would attract GST. Therefore, the imposition of GST on the penalty was unsustainable. The Court quashed the impugned orders and directed the District Manager to conduct a de novo enquiry in accordance with The Code.

Facts

The petitioners, employees of TASMAC shops, challenged orders passed by the District Manager, TASMAC, Karur District. These orders imposed penalties, interest, and GST for alleged shortages in remittance of sale amounts. The petitioners contended that the shortage was due to sales between 4:00 PM and 6:00 PM on March 24, 2020, when lockdown restrictions forced early closure and prevented timely account finalization and remittance. They argued that the District Manager passed the impugned orders without conducting a domestic enquiry as mandated by the Prevention and Detention of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014 (The Code). Furthermore, they disputed the imposition of GST on the penalty, citing lack of proper authority and applicability of GST provisions.

Key Issues

1. Whether the District Manager erred in imposing penalty, interest, and GST without conducting a domestic enquiry as required by Clause 6 of The Code, thereby violating principles of natural justice? 2. Whether the imposition of GST on the penalty imposed in a disciplinary proceeding is legally sustainable under the GST Act, 2017? Petitioner's arguments: The petitioners argued that The Code mandates a domestic enquiry before imposing penalties, especially when the nature of the 'shortage' (whether actual shortage or after-sales amount) is disputed. They contended that the District Manager arbitrarily concluded it was a shortage without proper investigation. Regarding GST, they argued that Section 7(1)(d) of the GST Act, cited by the respondent, was not in force at the time of the order, and Section 7(1A) was inapplicable as the penalty was a disciplinary measure, not a transaction in the course of trade or commerce. Respondent's arguments: The respondent (District Manager, TASMAC) contended that the amount was a shortage and justified the imposition of penalty, interest, and GST. They relied on Section 7(1)(d) and, alternatively, Section 7(1A) of the GST Act, 2017, read with Rule 5(e) of the GST Rules, to justify the GST imposition, arguing that the petitioner refrained from performing their duty to prevent shortage, thus attracting GST.