No penalty shall be imposed on any person without giving him the opportunity of being heard

[CA Bimal Jain]

The Hon’ble Delhi High Court in NIRMAL KUMAR MAHAVEER KUMAR VERSUS COMMISSIONER OF CENTRAL GOODS AND SERVICES TAX AND ANOTHER - 2022 (9) TMI 94 - DELHI HIGH COURT directed that the assessee needs to be given another chance to establish, as to why the subject goods did not reach their designated designation before the expiry of the e-way bill. Remanded back the matter to the assessing authority, to take a fresh decision in the matter, after giving the assessee due opportunity to produce relevant material/evidence to establish its case, that the delay in transporting the goods to their destination was on account of genuine reasons.

Facts:

Nirmal Kumar Mahaveer Kumar (“the Petitioner”) transported goods from Guwahati to Delhi. The e-way bill was prepared for those goods which was valid till September 28, 2020. The goods reached its destination on September 29, 2020, by which time the e-way bill got expired.

Accordingly, show-cause notice dated September 30, 2020 ("the SCN”) was issued by the assessing authority (“the Respondent”) to the Petitioner under Section 129(3) of the Central Goods and Services Tax Act, 2017 ("the CGST Act”) the reason given, “goods not covered by valid documents”. The Petitioner paid the amount demanded towards tax and penalty, as he was keen that the goods reached the designated destination at the earliest and did not avail of the opportunity of being heard.

Subsequently, the Respondent passed an Order dated December 31, 2021 (“the Impugned Order”) and imposed tax along with the penalty equal to 100% of tax payable. Being aggrieved by the Impugned order the Petitioner filed the writ petition.

Issue:

Whether or not the Petitioner is liable to pay tax along with the penalty equal to 100% of tax?

Held:

The Hon’ble Delhi High Court in NIRMAL KUMAR MAHAVEER KUMAR VERSUS COMMISSIONER OF CENTRAL GOODS AND SERVICES TAX AND ANOTHER - 2022 (9) TMI 94 - DELHI HIGH COURT held as under:

• Clarified that it is not in dispute, that against the subject goods, the tax stands paid, and that the impugned demand has been raised, only for the reason that at the time of interception, the e-way bill was not valid - This is not a case where the Petitioner intended to evade tax. However, the impugned demand seeks not only the payment of tax but also a penalty.
• Further, observed that the Petitioner paid the amount demanded towards tax and penalty, as he was keen that the goods reached the designated destination at the earliest but the Petitioner did not avail of the opportunity to demonstrate, that the goods could not reach their destination before the expiry of the validity period of the e-way bill.
• Therefore, the Court set aside the Impugned order and remanded the matter to the assessing authority, to take a fresh decision in the matter, after giving the Petitioner due opportunity to produce relevant material or evidence to establish its case, that the delay in transporting the goods to their destination was on account of genuine reasons. Further, stated that while carrying out this exercise, the concerned officer to bear in mind, the provisions of Section 126 of the CGST Act which inter alia adverts to omission or mistake in documentation which is easily rectifiable.

Relevant Provisions:

Section 126 of the CGST Act:

“126. General disciplines related to penalty.

(1) No officer under this Act shall impose any penalty for minor breaches of tax regulations or procedural requirements and in particular, any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence.

Explanation.––For the purpose of this sub-section,––

(a) a breach shall be considered a ‘minor breach’ if the amount of tax involved is less than five thousand rupees;

(b) an omission or mistake in documentation shall be considered to be easily rectifiable if the same is an error apparent on the face of record.

(2) The penalty imposed under this Act shall depend on the facts and circumstances of each case and shall be commensurate with the degree and severity of the breach.

(3) No penalty shall be imposed on any person without giving him an opportunity of being heard.

(4) The officer under this Act shall while imposing penalty in an order for a breach of any law, regulation or procedural requirement, specify the nature of the breach and the applicable law, regulation or procedure under which the amount of penalty for the breach has been specified.

(5) When a person voluntarily discloses to an officer under this Act the circumstances of a breach of the tax law, regulation or procedural requirement prior to the discovery of the breach by the officer under this Act, the proper officer may consider this fact as a mitigating factor when quantifying a penalty for that person.

(6) The provisions of this section shall not apply in such cases where the penalty specified under this Act is either a fixed sum or expressed as a fixed percentage.”

Section 129(3) of the CGST Act:

“129. Detention, seizure and release of goods and conveyances in transit

(3) The proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).”

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