2023 (12) TMI 236 - HC - GST

Levy of penalty u/s 129 (3) of the West Bengal Goods and Services Tax Act, 2017 - detention of goods - E-way bill yet to expire - non-speaking impugned order - violation of principles of natural justice - HELD THAT - In the facts of the present case, the appellant had suffered a notice under Section 129 (1) of the Act of 2017 to which, there was a response dated June 22, 2022. The notice in Form GST Mov - 07 being a notice under Section 129 (3) of the Act of 2017, was undated. The response dated June 22, 2022, thereto, has referred to a subject of GST Mov - 2 dated June 19, 2022. However, GST Mov 2 dated June 19, 2022 is not an order of detention. The order of detention is Form GST Mov -07 which has been undated in its soft version and a date of June 26, 2022 written on the left hand top corner on the hard copy thereof served on the driver of the vehicle. Sub-Section (3) of Section 129 of the Act of 2017 has a requirement of issuance of notice with sub-Section (4) thereof, mandating the Adjudicating Authority not to pass an order of penalty without affording an opportunity of hearing to the defaulter. Compliance of principles of natural justice is inherent in any adjudicating proceedings unless specifically ousted by a statute. In the present case, Section 129 (3) and (4) of the Act of 2017 require compliance with the provisions of principles of natural justice prior to pronouncement of an order of penalty. Requirement of compliance with the principles of natural justice before passing an order of penalty ipso facto means that, the Adjudicating Authority has the jurisdiction to evaluate the merits of the defence taken and speak thereon. The mechanism provided under Section 129 of the Act of 2017 allows the Adjudicating Authority to accept the explanation given by a defaulter in given facts and circumstances and not to impose a penalty. By virtue of the authoritative pronouncement of the Supreme Court in Shriram Mutual Fund and Another 2006 (5) TMI 191 - SUPREME COURT , Guljag Industries 2007 (8) TMI 344 - SUPREME COURT and Saw Pipes Limited 2023 (4) TMI 761 - SUPREME COURT the department has been relieved of the burden of proof of mens rea or motive in respect of a statute imposing penalty as a civil obligation for violating a tax regime. However, absence of requirement to establish mens rea by the department cannot be equated with an automatic imposition of penalty under the scheme of Section 129 of the Act of 2017 in view of the provisions of Section 129 (3) and (4) thereof. In the facts of the present case, e-way bill in respect of the goods transported was yet to expire when, the new vehicle had been detained. The explanation given by the appellant that, the driver of the old vehicle did not know the law and therefore did not comply with the same and did not inform the appellant about the same, should have been evaluated, in the facts and circumstances of the present case, by the Adjudicating Authority in light of the e-way bill being valid till then in respect of the first vehicle - Appellate Authority had the jurisdiction and in fact was obliged to deal with the grounds of appeal pressed at the hearing of the appeal. Respondent has not contended that, the defence canvassed in the show cause notice and the grounds pressed in the appeal were not canvassed or pressed by the appellant at the time of hearing before the Adjudicating or the Appellate Authority. The impugned order of the Adjudicating Authority as upheld by the Appellate Authority to have violated the principles of natural justice, inasmuch as it has not spoken on the defence taken - the impugned judgement and order of the learned Single Judge is set aside. Application disposed off.

Summary

Issues Involved:
1. Validity of the penalty imposed under Section 129 (3) of the West Bengal Goods and Services Tax Act, 2017.
2. Compliance with principles of natural justice by the Adjudicating Authority.
3. Evaluation of defenses raised by the appellant.

Summary:

Issue 1: Validity of the penalty imposed under Section 129 (3) of the West Bengal Goods and Services Tax Act, 2017.

The appellant challenged the penalty imposed under Section 129 (3) of the West Bengal Goods and Services Tax Act, 2017, arguing that the penalty was unwarranted as the e-way bill was valid at the time of interception. The appellant contended that the mechanical failure of the original vehicle was unforeseen and beyond their control, and there was no intention to evade tax. The court noted that the appellant had relied on several precedents where penalties were not imposed due to lack of intent to evade tax.

Issue 2: Compliance with principles of natural justice by the Adjudicating Authority.

The court found that the Adjudicating Authority failed to consider the appellant's response to the show cause notice, which explained the circumstances leading to the transfer of goods to a new vehicle. The Adjudicating Authority did not apply its mind to the response and proceeded mechanically to impose the penalty. The court emphasized that compliance with principles of natural justice is inherent in adjudicating proceedings, and the Adjudicating Authority must evaluate the merits of the defense and provide a reasoned order.

Issue 3: Evaluation of defenses raised by the appellant.

The court highlighted that the Adjudicating Authority must consider defenses such as reasonable cause, impossibility of performance, and supervening events. In this case, the e-way bill was valid when the new vehicle was detained, and the appellant's explanation that the driver was unaware of the legal requirements should have been evaluated. The court concluded that the Adjudicating Authority and Appellate Authority failed to address the defenses raised by the appellant, resulting in a violation of natural justice.

Conclusion:

The court set aside the impugned order of the Adjudicating Authority and the Appellate Authority, directing the Adjudicating Authority to decide afresh on the show cause notice, considering the appellant's response and providing an opportunity for a hearing. The impugned judgment and order of the learned Single Judge were also set aside.