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2020 (12) TMI 1338 - HC - GSTLevy of penalty, interest and GST, for the remittance of the shortage amount - the shortage was found at the time of counting the stocks, subsequent to the transfer of the same from Shop to godown for the purpose of safe custody - HELD THAT - When the respondent issued a show cause notice to the petitioner, with regard to the imposition of penalty under Section 7(b) (xiv) of the Code, the petitioner sent a reply stating that only the respondents have construed it as shortage amount but it was only the after sales amount. When such being the case, without conducting any domestic enquiry to find out the fact that whether the said amount was after sales amount or it was a shortage amount; whether the petitioner was really sent any intimation about the after sales amount to the respective District managers and whether there was any obstacles to the petitioner to deposit, the after sales amount. All these facts can be proved only by conducting a domestic enquiry and enquiring the concerned District Managers, Supervisors, Salesmen and those who did stock verification. Without conducting any such enquiry and giving the opportunity to the petitioner to explain his case, in a personal hearing, it is not proper for the respondents to arrive at a preconceived manner as if that the amount deposited subsequent to the stock taken by the respondents as shortage amount particularly when the petitioner took a stand that the amount already deposited subsequent to the stock verification is only an after sales occurred between 4.00 p.m. to 6.00 p.m. On 24.03.2020. When the petitioner has taken definite stand that it was only an after sale amount and not a shortage amount, the respondents should not have come to the conclusion arbitrarily without conducting the domestic enquiry as shortage amount. This Court is of the opinion that the impugned order was passed in an arbitrary manner and in violation of the principles of natural justice, without conducting any domestic enquiry as contemplated in the Code and the procedure adopted in the course of decision making process is not as contemplated in the Code, thus, this Court find fault on such decision making process and the same is totally illegal and liable to be quashed. Whether the penalty imposed in a disciplinary proceedings in a service matter is liable for GST, in terms of Section 7(1) (d) or 7(1-A) of the GST Act, 2017? - HELD THAT - Admittedly the said Section 7(1) (d) was not in force as on the date of passing the impugned order in the month of September 2020. The said Section was omitted with effect from 01.02.2019. The respondent, in his counter clearly stated that the notice of collection of GST was issued under Section 7(1) (d) alone. Therefore, without any provision/authority, the third respondent has issued the show cause notice to collect the GST, which is totally illegal - Secondly, even assuming that Section 7(1A) of the Act r/w Rule 5(e) of the Rules will be applicable and the show cause notice was issued in accordance with the said provision, as contended by the learned counsel for the respondents, nowhere either in the show cause notice or in the impugned order or in the counter affidavit, the respondents never ever stated about the applicability of Section 7(1A) r/w Rule 5(e). In any angle, the imposition of the GST by the respondents, to the penalty imposed, under Rule 7(b) (xiv) of the Code, in a disciplinary proceedings initiated against the employees would not attract the GST and the penalty referred therein would only refer the penalty imposed in the course of trade or commerce - As such in the present case the penalty was imposed in a disciplinary proceedings which cannot be construed that the penalty imposed in the course of trade or commerce for the imposition of GST. The GST imposed by the respondents is illegal on the face of it and the same is liable to be set aside - Petition allowed - decided in favor of petitioner.
Issues Involved:
1. Imposition of penalty, interest, and GST by the third respondent. 2. Alleged shortage amount vs. after-sales amount. 3. Violation of principles of natural justice and lack of domestic enquiry. 4. Legality of imposing GST on penalty in disciplinary proceedings. Issue-wise Detailed Analysis: 1. Imposition of penalty, interest, and GST by the third respondent: The third respondent imposed a penalty, interest, and GST on the petitioner for an alleged shortage amount found during stock verification. The petitioner contended that the amount in question was not a shortage but an after-sales amount from 24.03.2020, which was delayed in remittance due to the sudden lockdown announcement. The petitioner argued that the imposition of these charges was arbitrary and without proper enquiry. 2. Alleged shortage amount vs. after-sales amount: The petitioner, a Supervisor at a TASMAC shop, was instructed to close the shop by 6.00 p.m. on 24.03.2020 due to the lockdown. The sales amount from 4.00 p.m. to 6.00 p.m. was kept in the shop's locker and later deposited. The respondents construed this as a shortage amount, leading to the imposition of penalties. The petitioner maintained that it was an after-sales amount, not a shortage. 3. Violation of principles of natural justice and lack of domestic enquiry: The petitioner argued that the impugned order was passed without conducting a domestic enquiry, violating the principles of natural justice. The court noted that the respondents did not follow the investigation procedure laid down in the Prevention and Detection of Fraudulent Acts in Tamil Nadu State Marketing Corporation Limited, 2014 (Code). The court emphasized the necessity of a domestic enquiry to determine whether the amount was after-sales or a shortage and to verify the petitioner's claims. 4. Legality of imposing GST on penalty in disciplinary proceedings: The petitioner contended that the imposition of GST on the penalty was illegal, as Section 7(1)(d) of the GST Act, 2017, under which the GST was imposed, was omitted with effect from 01.02.2019. The court agreed, stating that the respondents lacked authority to collect GST under an omitted provision. Furthermore, even if Section 7(1A) was applicable, GST could only be imposed in the course of trade or commerce, not in disciplinary proceedings against an employee. Conclusion: The court found that the impugned order was passed arbitrarily and in violation of the principles of natural justice, without conducting a domestic enquiry as required by the Code. The imposition of GST on the penalty was deemed illegal. Consequently, the impugned order dated 28.07.2020 was set aside, and the respondents were advised to conduct a domestic enquiry in accordance with the Code if they wished to pursue the matter further. The writ petition was allowed, and the connected miscellaneous petition was closed.
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