Striking a Balance: Judicial Interpretation of GST Provisions on Record-Keeping and Penalties

Analysis of the Judgement on Maintenance of Books of Accounts and Penalty under GST

Reported as:

2020 (12) TMI 790 - ALLAHABAD HIGH COURT

Introduction

This article provides a comprehensive analysis of a significant judgement delivered by the High Court concerning the maintenance of books of accounts and imposition of penalties under the Goods and Services Tax (GST) regime. The judgement addresses crucial issues related to the powers of the proper officer, confiscation of goods, search and seizure, and the levy of penalties under the Central Goods and Services Tax (CGST) Act, 2017.

Arguments Presented

The case revolves around the allegations made by the GST authorities against a registered person for not maintaining proper books of accounts and other records as required under the CGST Act and the Rules. The authorities confiscated goods, imposed penalties, and initiated proceedings against the registered person.

Discussions and Findings of the Court

Maintenance of Books of Accounts

The court examined the provisions of Section 35 of the CGST Act, which mandates the maintenance of true and correct accounts by registered persons. It also discussed the relevant provisions of Rule 56 and Rule 57 of the CGST Rules, which specify the requirements for maintaining records in electronic form.

The court noted that Section 35(6) empowers the proper officer to determine the amount of tax payable on unaccounted goods or services as if they had been supplied by the registered person. However, the determination of tax must be carried out in accordance with Sections 73 and 74 of the Act, which require the issuance of a show cause notice before determining the tax liability.

Confiscation of Goods

Regarding the confiscation of goods u/s 130 of the CGST Act, the court found that none of the conditions required for confiscation were met in the present case. The court held that the confiscation was wholly arbitrary and illegal.

Search and Seizure

The court briefly touched upon the provisions of Section 67, which confers powers of inspection, search, and seizure on the proper officer. However, as the petitioner did not challenge the seizure order, the court refrained from delving into this aspect.

Levy of Penalty u/s 122

The court extensively analyzed Section 122 of the CGST Act, which provides for the imposition of penalties for certain offenses. It categorized the offenses into two columns: Column A, where the penalty is either Rs. 10,000 or the amount of tax evaded (whichever is higher), and Column B, where the penalty is limited to Rs. 10,000.

The court found that the offenses committed by the petitioner fell under Column B, as they pertained to the failure to maintain books of accounts and furnish information or documents as required under the Act and Rules. Consequently, the court held that the maximum penalty imposable on the petitioner was Rs. 10,000.

Analysis and Decision by the Court

Based on the discussions and findings, the court allowed the writ petition in part. It set aside the orders related to the confiscation of goods and the imposition of penalties in excess of Rs. 10,000. The court quantified the total penalty imposed on the petitioner at Rs. 10,000.

Comprehensive Summary

The judgement provided clarity on the maintenance of books of accounts and the imposition of penalties under the GST regime. The court upheld the principles of due process and statutory interpretation, emphasizing the need for proper determination of tax liabilities and adherence to prescribed procedures.

The court struck down the confiscation of goods as arbitrary and illegal, finding that the conditions for confiscation were not met. It also restricted the maximum penalty imposable on the petitioner to Rs. 10,000, as the offenses fell under the category where the penalty is capped at that amount.

The judgement highlighted the importance of following the statutory provisions and maintaining proper records and documentation in compliance with the GST laws. It also underscored the need for authorities to exercise their powers judiciously and within the bounds of the law.

Full Text:

2020 (12) TMI 790 - ALLAHABAD HIGH COURT