2024 (1) TMI 1148 - HC - GST

Levy of Penalty - Failure to update the E-way bill on change of vehicle after breakdown - violation of principles of natural justice - HELD THAT - The imposition of penalties within the realm of tax laws should not be based solely on insignificant technical errors devoid of any financial consequences. The foundational principle guiding this approach is the commitment to maintain a tax system that is characterized by fairness and justice, where the severity of penalties corresponds to the gravity of the offence committed. While penalties serve a pivotal role in ensuring compliance with tax laws, legal frameworks stress the importance of establishing the actual intent to evade taxes as a prerequisite for their just imposition. This emphasis underscores the critical need to differentiate between inadvertent technical errors and purposeful attempts to circumvent tax obligations. The burden of proof falls squarely on tax authorities to demonstrate the genuine intent to evade tax before penalizing taxpayers. This safeguard is indispensable to shield individuals and entities from punitive measures arising from honest mistakes, administrative errors, or technical discrepancies that lack any malicious intent. The fundamental principle requiring an intent to evade tax for the imposition of penalties is crucial for preserving the fairness and integrity of taxation systems. In order to uphold a balanced and equitable approach to tax enforcement, it is imperative to recognize and acknowledge the distinction between technical errors and intentional evasion. The orders impugned in this writ petition are not sustainable in law wherein the authorities have exceeded their jurisdiction and have not acted in accordance with the provisions of the statutes. Accordingly, the order September 13, 2018 and October 3, 2019 are quashed and set-aside. Petition allowed.

Summary

Issues involved:
The issues involved in this case are the imposition of penalties under tax laws based on technical errors and the requirement of establishing intent to evade taxes for the just imposition of penalties.

Imposition of penalties based on technical errors:
The petitioner challenged penalty orders dated September 13, 2018, and October 3, 2019, passed by the authorities under the State Goods and Services Tax Act. The petitioner's contention was that despite submitting explanations, the appellate authority did not address them properly and even misstated the petitioner's submission in the order. The petitioner explained that goods were loaded on a vehicle that broke down during a Bharat Bandh, leading to the use of another vehicle. The revised e-way bill was presented before the authorities before the seizure order was issued. However, the appellate authority held that a technical error, even without the intention to evade tax, amounted to a violation of tax provisions.

Intent to evade taxes for imposition of penalties:
The High Court referred to previous judgments emphasizing the necessity of mens rea, or the intent to evade tax, for the imposition of penalties. It was noted that penalties should not be imposed solely for insignificant technical errors without financial consequences. The court stressed the importance of differentiating between inadvertent errors and deliberate attempts to evade tax obligations. Penalties should be reserved for cases demonstrating a deliberate and fraudulent act against the tax system, rather than being applied to unintentional mistakes. The burden of proof lies with tax authorities to establish the genuine intent to evade tax before penalizing taxpayers. This principle is crucial for maintaining the fairness and integrity of taxation systems.

Judgment:
The High Court held that the orders imposing penalties were not sustainable in law as the authorities had exceeded their jurisdiction and did not act in accordance with statutory provisions. Therefore, the orders dated September 13, 2018, and October 3, 2019, were quashed and set aside. The court directed the refund of the amount deposited by the petitioner within four weeks. The writ petition was allowed, providing the petitioner with consequential reliefs.