2024 (5) TMI 1428 - HC - GST

Penalty order - Violation of provisions related to E-Way Bill - classification of goods as Over Dimensional Cargo (ODC) due to the speed at which they were transported - penalty imposed on the ground that the goods had travelled at a fast speed, and therefore, according to the authorities could not be categorised as the ODC - intent to evade tax or not - HELD THAT - In the present case, the entire imposition of penalty is based on surmises and conjectures without there being any basis or finding with regard to intention to evade tax. One may rely upon the judgments of this Court in the case of GIRISH AND COMPANY VERSUS STATE OF UP AND 4 OTHERS 2024 (1) TMI 1107 - ALLAHABAD HIGH COURT and M/S. HINDUSTAN HERBAL COSMETICS VERSUS STATE OF U.P. AND 2 OTHERS 2024 (1) TMI 282 - ALLAHABAD HIGH COURT where it has been held that presence of mens rea for evasion of tax is a sine qua non for imposition of penalty. The mere fact that the goods in question were transported at a faster speed does not constitute sufficient grounds for penalization, in light of the departmental circular explicitly excluding transit speed as a criterion for classification. The reliance on speculative assumptions and conjectural reasoning to justify the imposition of penalties is antithetical to the principles of fairness and equity that underpin the rule of law. The prospect of facing penalties serves as a powerful disincentive for individuals and entities tempted to engage in fraudulent or deceitful conduct, thereby promoting voluntary compliance with tax laws and fostering a culture of accountability and transparency. In the absence of wilful intent, penalties lose their deterrent effect and instead become arbitrary exercises of state power, subjecting innocent taxpayers to undue hardship and injustice. It is imperative that penalty imposition be grounded in sound reasoning and substantive evidence of wilful misconduct. The said orders are quashed and set-aside - Petition allowed.

Summary

Issues:
Challenge to seizure order, penalty order, and appellate orders based on classification of goods as Over Dimensional Cargo (ODC) due to speed of transportation.

Analysis:
The petitioner contested the seizure order, penalty order, and appellate orders, arguing that the cargo was correctly classified as Over Dimensional Cargo (ODC) as it was 13.9 feet above the ground. The petitioner relied on a circular stating that a vehicle with a height exceeding 3.8 meters is classified as ODC. The height of the goods in question was 13.8 feet, higher than the threshold mentioned in the circular. The authorities contended that the speed of transportation indicated that the vehicle cannot be categorized as ODC, but the circular explicitly stated that speed is not a criterion for classification. Additionally, all relevant documents matched the goods, and the only reason for the penalty was the fast speed of transportation, contrary to the departmental circular.

The court found that the imposition of the penalty was based on surmises and conjectures, going against the departmental circular, which does not consider the speed of transportation as a valid ground for classification. The court emphasized the necessity of mens rea, or the presence of intent to evade tax, for penalty imposition, citing previous judgments. The penalties lacked a substantive basis or findings indicating an intention to evade tax, rendering them arbitrary and unjustified.

The court highlighted the significance of mens rea in penalty imposition, serving as a safeguard against arbitrary governmental actions and ensuring procedural fairness. The reliance on speculative reasoning and conjectural assumptions to justify penalties was deemed unfair and contrary to the principles of equity and fairness. The absence of concrete evidence of wilful misconduct undermines the credibility of the tax administration system and erodes public trust in governmental actions.

The court emphasized that the mens rea requirement distinguishes between inadvertent errors and intentional misconduct, preserving the integrity of the legal system. Penalties should be reserved for deliberate violators of the law to maintain public confidence in the tax regime. The judgment allowed the writ petition, quashing the orders and directing the return of the security and penalty amount to the petitioner within six weeks, with no costs imposed.