M/S Vishal Motors vs. State Of Chhattisgarh

Facts

The petitioner, M/s Vishal Motors, was allotted land on lease in the Sirgitti Industrial Area, Bilaspur, with a registered lease deed executed on January 3, 2006. The lease was initially cancelled on July 27, 2007, but subsequent appeals led to extensions for establishing a business. Despite these extensions and partial payments made by the petitioner, the lease was ultimately cancelled again. The petitioner then filed a writ petition (WPC No. 1738 of 2017) which was disposed of with a direction for the State Government to consider their representation. The State Government, by order dated December 26, 2017, set aside the lease cancellation. Subsequently, the petitioner deposited Rs. 15,17,130/- on January 17, 2018. However, the petitioner received a demand notice dated December 14, 2020, for Rs. 29,07,300/- towards penalty with CGST and SGST, which is the subject of the current challenge.

Held

The Court held that the impugned demand notice dated December 14, 2020, is unsustainable and quashed it. The Court found that the demand notice was issued without providing the petitioner with a show-cause notice, without proper application of mind, and without a speaking order explaining the basis for the penalty and its calculation. The Court emphasized that imposing a penalty is a penal action and requires fairness, including informing the penalized party of the reasons and providing an opportunity to show cause. Citing Supreme Court judgments in Dharampal Satyapal Ltd. Vs. Dy. Commissioner of Central Excise, Gauhati and Ors. and Union of India and Ors. Vs. E.G. Nambudiri, the Court reiterated the importance of adhering to the principles of natural justice, specifically the audi alteram partem rule, which mandates a reasonable opportunity of hearing. The Court directed the respondents to reconsider the matter afresh after providing the petitioner with an opportunity of hearing and passing a speaking order, taking into account the facts and circumstances. The respondents were also directed to accept lease rent and other charges in accordance with the lease deed during the intervening period.

Key Issues

1. Whether the demand notice dated December 14, 2020, demanding Rs. 29,07,300/- towards penalty with CGST and SGST is arbitrary and without basis, considering the petitioner's attempts to deposit lease rent and other charges and the subsequent setting aside of the lease cancellation order. (Mixed question of law and fact, concerning principles of natural justice and contractual obligations). Petitioner's Arguments: The petitioner argued that the demand for penalty/interest is bad in law as they made attempts to deposit amounts time to time, but these were refused by the respondent-CSIDC in writing. They contended that they cannot be burdened with interest as penalty when the lease was cancelled and subsequently restored. They relied on the fact that the demand notice was issued without a show-cause notice or a speaking order. Respondents' Arguments: The respondents argued that the petitioner failed to establish their business and start production within the stipulated time, leading to the cancellation of the lease deed. They contended that the penalty was calculated as per Clause 3 of the lease deed for arrears of lease rent and other charges from 2008 until January 2018, and that the State Government's order dated December 26, 2017, clearly stated the petitioner's liability to pay arrears. They argued that the petition is without merit.