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TMI Blog2025 (1) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... ease of goods and conveyances which may have been detained or seized. That is clearly not a subject which is regulated or controlled by any of the other provisions contained in Chapter XIX of the Act. The use of the non-obstante clause is thus liable to be appreciated and construed in the aforesaid light. In our considered opinion, since the subject of levy of penalty in connection with goods being transported in contravention of the Act had not been previously dealt with, the Legislature thought it fit and appropriate to deploy the non-obstante in order to deal with that subject. The extent of the notwithstanding phrase which introduces Section 129 into the statute book is thus liable to be construed in that light and thus the limit of its essay acknowledged accordingly. We also find ourselves unable to read Section 129 as embodying an intendment of the Legislature to either override or completely supersede and obliterate Section 126. Accepting such an interpretation would clearly amount to depriving a person of the benefit of the principles of moderation and modulation which Section 126 introduces and enjoins to be borne in consideration while considering the levy of a penalty. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles which stand embodied in Section 126. That statutory provision is undoubtedly an embodiment of the legislative intent of levy of penalties being guided by principles of moderation, restraint and reasonableness. Petition disposed off. X X X X Extracts X X X X X X X X Extracts X X X X ..... to pass an order of detention on 26 September 2020. The said officer proceeded to raise a demand of Central GST [CGST] and State GST [SGST] amounting to INR 19,80,000/- together with penalty of an equivalent amount. It is asserted by the petitioner that it was compelled to get the goods released by submitting a bond under protest on 05 October 2020 whereafter the goods came to be handed over on the next day. Aggrieved by the order in terms of which a tax liability stood created, the petitioner instituted an appeal which came to be dismissed and led to the institution of the present writ petition. >5. Similar facts obtain in W.P.(C) 12042/2022. Suffice it to note that the goods of Zeon Life Sciences are stated to have been intercepted in the course of transportation on 02 February 2021. It is the case of the writ petitioner that at the time when the vehicle was stopped, they still had time as per the Second and Third Provisos to Rule 138 (10) of the CGST Rules, 2017 [Rules] to apply for an extension of the EWB and thus overcome the delay caused in the course of transit. It is thus their case that at the time of seizure, no infraction could be said to have occurred. An order of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extract some of the relevant provisions which were alluded to. The subject of penalty is dealt with in Chapter XIX of the Act. Section 122 prescribes the various circumstances in which a penalty may come to be imposed upon a person. It reads as follows: >"122. Penalty for certain offences.--(1) Where a taxable person who-- >(i) supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply; >(ii) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder; >(iii) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due; >(iv) collects any tax in contravention of the provisions of this Act but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due; >(v) fails to deduct the tax in accordance with the provisions of sub-section (1) of Section 51, or deducts an amount which is less than the amount required to be deducted under the said sub-section, or where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted under Section 51 or short deducted or deducted but not paid to the Government or tax not collected under Section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher. >[(1-A) Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.] >[(1-B) [Any electronic commerce operator, who is liable to collect tax at source under Section 52,]-- >(i) allows a supply of goods or services or both through it by an unregistered person other than a person exempted from registration by a notification issued under this Act to make such supply; >(ii) allows an inter-State supply of goods or services or both through it by a person who is not eligible to make such inter-State supply; or >(iii) fails to furnish the correct details in the statement to be furnished under sub-section (4) of Section 52 of any out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn under Section 150 fails to do so within the period specified in the notice issued under sub-section (3) thereof, the proper officer may direct that such person shall be liable to pay a penalty of one hundred rupees for each day of the period during which the failure to furnish such return continues: >Provided that the penalty imposed under this section shall not exceed five thousand rupees." >11. A failure to furnish statistics, information or returns also exposes a person to the levy of a fine in terms of Section 124 and which reads thus: >"124. Fine for failure to furnish statistics.--If any person required to furnish any information or return under Section 151,-- >(a) without reasonable cause fails to furnish such information or return as may be required under that section, or >(b) wilfully furnishes or causes to furnish any information or return which he knows to be false, >he shall be punishable with a fine which may extend to ten thousand rupees and in case of a continuing offence to a further fine which may extend to one hundred rupees for each day after the first day during which the offence continues subject to a maximum limit of twenty-five thousand r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson. >(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." >15. Since Section 129 constitutes the foundation of the impugned demand, the same is reproduced in its entirety hereunder: >"129. Detention, seizure and release of goods and conveyances in transit.--(1) Notwithstanding anything contained in this Act, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure, shall be released,-- >[(a) on payment of penalty equal to two hundred per cent of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty; >(b) on payment of penalty equal to fifty per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or >(ii) does not account for any goods on which he is liable to pay tax under this Act; or >(iii) supplies any goods liable to tax under this Act without having applied for registration; or >(iv) contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or >(v) uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance, >then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under Section 122. >(2) Whenever confiscation of any goods or conveyance is authorised by this Act, the officer adjudging it shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the said officer thinks fit: >Provided that such fine leviable shall not exceed the mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot appear to be sound for reasons which we assign hereinafter. We in HDFC Bank Ltd. v. Commr. of Value Added Tax 2023 SCC OnLine Del 7876 had an occasion to explain in some detail the circumstances in which the levy of a penalty in terms of a statutory provision would be justified. Some of the factors that we had identified as being germane for penalties being imposed were guilt, dishonest conduct or acting in conscious disregard of a binding obligation. After noticing various decisions rendered by the Supreme Court on that subject including the celebrated decisions in Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627 and State of Gujarat & Ors. v. M/s Saw Pipes Ltd. 2023 SCC OnLine SC 428 we had held as follows: >"22. It appears to us, and which view is reinforced with the respondents seeking to draw support for their submissions from the judgment in Saw Pipes Ltd, that they appear to read Section 86 (10), (14) & (15) as envisaging the levy of a statutory penalty. However, in our considered opinion, the aforesaid premise and on which the case of the respondents appears to be founded, is wholly incorrect. As noticed hereinabove, sub-sections (10), (14) & (15) embody the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provision of the Actor where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." >25. We also take note of the reiteration of the aforesaid position in law as appearing in the decision of the Supreme Court in Pratibha Processors. While the respondents had sought to derive support for their submissions in this respect from the decision of the Supreme Court in Saw Pipes Ltd., we find that those submissions proceed in ignorance of the evident fact that Sections 45 (6) and 47 (4A) of the 1969 Act constituted instances of statutory penalties. >26. The penalty und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r provisions which are placed in Chapter XIX create distinct provisions insofar as the impositions of penalties are concerned. For instance, Section 122 (1) prescribes in absolute terms "a penalty of ten thousand rupees or an amount equivalent to the tax evaded" as being leviable in case a taxable person is found to have infracted any of the conditions which are spoken of in clauses (i) to (xxi) of that provision. Similar is the position which obtains under Section 122 (1A). >22. Section 122 (2), however, while stipulating the contingencies which may lead to a person being held liable for the imposition of penalty provides that the same "may extend to" INR 25,000/-. Section 124 stands couched in similar terms, and which too uses the expression "which may extend to". Similar is the position which obtains in Section 125. What we seek to emphasise and underscore is the phrase "which may extend to" clearly envisaging a discretion vested in the proper officer to examine the extent of penalty that may be imposed on a person dependent upon the nature of the infraction that may be alleged to have been committed. >23. When we proceed further to examine Section 126, we find that the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . >26. We so hold additionally in light of the unambiguous terms in which that provision stands couched and infused as it is with the legislative policy of absolving a person from the imposition of penalties for what the statute describes to be minor breaches or a failure to abide by procedural requirements. The statute also enjoins officers under the Act to desist from imposing a penalty in cases where the omission or mistake in documentation is found to be easily rectifiable and was one which was not tainted by a fraudulent intent or the outcome of gross negligence. >27. The mandatory command of the Legislature is manifest from Section 126 (1) ordaining "no officer under this Act shall impose any penalty from minor breaches...". The moderation which the statute contemplates is further underlined by Section 126 (2) which bids officers administering the Act to bear in mind that penalty should be imposed dependent on the facts and circumstances of each case and be commensurate with the degree and severity of the breach. >28. The respondents, however, would argue that the non-obstante clause, and with which Section 129 (1) commences, is liable to be read as overriding and ec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the draftsman appears to have had primarily in his mind a particular type of law as conflicting with the new Act. The enacting part of a statute must, where it is clear, be taken to control the non-obstante clause where both cannot be read harmoniously; for, even apart from such clause, a later law abrogates earlier laws clearly inconsistent with it. Posteriores leges priores contrarias abrogant (Broom's Legal Maxims, 10th edn., p. 347)." >(emphasis supplied) >In Dominion of India (now the Union of India) v. Shrinbai A. Irani [AIR 1954 SC 596 : (1955) 1 SCR 206] , it was observed as under: (AIR pp. 599-600, para 10) >"While recognising the force of this argument it is however necessary to observe that although ordinarily there should be a close approximation between the non-obstante clause and the operative part of the section, the non-obstante clause need not necessarily and always be co-extensive with the operative part, so as to have the effect of cutting down the clear terms of an enactment. If the words of the enactment are clear and are capable of only one interpretation on a plain and grammatical construction of the words thereof a non-obstante clause cannot cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cope of its operation. In such cases the non-obstante clause has to be read as clarifying the whole position and must be understood to have been incorporated in the enactment by the legislature by way of abundant caution and not by way of limiting the ambit and scope of the Special Rules. >12. Further, the influence of a non-obstante clause has to be considered on the basis of the context also in which it is used. In State of W.B. v. Union of India [(1964) 1 SCR 371 : AIR 1963 SC 1241] it is observed as under: (SCR p. 435) >"The Court must ascertain the intention of the legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare the clause with the other parts of the law and the setting in which the clause to be interpreted occurs." >It is also well settled that the Court should examine every word of a statute in its context and to use context in its widest sense. In Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [(1987) 1 SCC 424] it is observed that: "That interpretation is best which makes the textual interpretation match the contextual." In this case, Chinnappa Reddy, J. noting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices of all the departments and they are framed generally to cover situations that are not covered by the Special Rules of any particular department. In such a situation both the Rules including Rules 1 (3) (a), 3 (1) and 4 of General Rules should be read together. If so read it becomes plain that there is no inconsistency and that amendment by inserting Rule 3 (2) is only an amendment to the General Rules and it cannot be interpreted as to supersede the Special Rules. The amendment also must be read as being subject to Rules 1 (3) (a), 3 (1) and 4(2) of the General Rules themselves. The amendment cannot be read as abrogating all other Special Rules in respect of all departments. In a given case where there are no Special Rules then naturally the General Rules would be applicable. Just because there is a non-obstante clause, in Rule 3 (2) it cannot be interpreted that the said amendment to the General Rules though later in point of time would abrogate the special rule the scope of which is very clear and which co-exists particularly when no patent conflict or inconsistency can be spelt out. As already noted Rules 1 (3) (a), 3 (1) and 4 of the General Rules themselves provide for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enerally, it is not permissible to hold that it excludes the whole act and stands all alone by itself. "A search has, therefore, to be made with a view to determining which provision answers the description and which does not." ' [Ed.: As observed in A.G. Varadarajulu v. State of T.N., (1998) 4 SCC 231, p. 236, para 16.] " >67. Section 147 in the NI Act came by way of an amendment. From the Statement of Objects and Reasons of the Negotiable Instruments (Amendment) Bill, 2001, which ultimately became Act 55 of 2002, these amendments were introduced to deal with large number of cases which were pending under the NI Act in various courts in the country. Considering the said pendency, a Working Group was constituted to review Section 138 of the NI Act and make recommendations about changes to deal with such pendency. Pursuant to the recommendations of the Working Group, the aforesaid Bill was introduced in Parliament and one of the amendments introduced was "to make offences under the Act compoundable". Pursuant thereto Section 147 was inserted after Section 142 of the old Act under Chapter II of Act 55 of 2002. >68. It is clear from a perusal of the aforesaid Statement of Object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Supreme Court in Madhav Rao Jivaji Rao Scindia v. Union of India (1971) 1 SCC 85 which were noticed in paragraph 65 of the report and where it had been held that a non-obstante clause used in a "blanket fashion" would necessarily entail the Court determining the scope of its application against strict parameters. It was thus held that a broad and general sweep of the phrase "notwithstanding anything contained in this Act" cannot be interpreted as inexorably intended to override all other provisions of the statute or one which is contemplated to eclipse the other parts of the enactment completely. If the contention as advanced by the respondents were to be accepted, it would amount to us recognizing Section 129 as casting an unshakable shadow over all other provisions contained in Chapter XIX of the Act. We thus find ourselves unable to accord such an interpretation or read Section 129 in the manner as suggested. >35. It becomes pertinent to note that Section 129 is primarily concerned with the detention, seizure and release of goods while in transit. Those are subjects which are not specifically dealt with or regulated by Sections 122 to 124, and which provisions are conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... false. >38. What we seek to emphasize is that the transgressions and contraventions of statutory obligations, and which are amplified in Section 122, clearly cannot be placed in the category of a minor infraction nor are those mistakes which could be said to be easily rectifiable. The expression "contravention" as appearing in Section 129 would thus have to be understood bearing in mind the special provisions which are contained in Section 126 and which indubitably carves out an exception with respect to minor breaches as well as mistakes and omissions which could be easily rectified. In fact, and as would be manifest from the discussion which ensues, even the Central Board of Indirect Taxes and Customs [CBIC] had understood Section 129 as being tempered by the limits that the statute itself imposes while seeking to moderate the power to levy a penalty. >39. The decision of the Gujarat High Court in Synergy Fertichem P. Ltd. v. State of Gujarat 2019 SCC OnLine Guj 6127, was one which provided an occasion for that High Court to examine the scope and interplay between Sections 129 and 130 of the Act. The petitioners before the Gujarat High Court had argued that a purposive int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in several decisions." >67. In State of West Bengal v. Union of India (1964) 1 SCR 371, it was observed that : >"68.. .. the court must ascertain the intention of the Legislature by directing its attention not merely to the clauses to be construed but to the entire statute ; it must compare the clause with the other parts of the law and the setting in which the clause to be interpreted occurs." >68. In Madhav Rao Jivaji Rao Scindia v. Union of India (1971) 1 SCC 85, Hidayatullah, C.J. observed that : >"... the non obstante clause is no doubt a very potent clause intended to exclude every consideration arising from other provisions of the same statute or other statute but 'for that reason alone we must determine the scope' of that provision strictly. When the section containing the said clause does not refer to any particular provisions which it intends to override but refers to the provisions of the statute generally, it is not permissible to hold that it excludes the whole Act and stands all alone by itself. A search has, therefore, to be made with a view to determining which provision answers the description and which does not." > ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interpretation arise. In resolving such problems of interpretation, no settled principles can be applied except to refer to the object and purpose of each of the two provisions, containing a non obstante clause. Two provisions in the same Act each containing a non obstante clause, requires a harmonious interpretation of the two seemingly conflicting provisions in the same Act. In this difficult exercise, there are involved proper consideration of giving effect to the object and purpose of two provisions and the language employed in each. (See for relevant discussion in para 20 in Shri Swaran Singh v. Shri Kasturi Lal (1977) 1 SCC 750). >73. Normally the use of the phrase by the Legislature in a statutory provision like "notwithstanding anything to the contrary contained in this Act" is equivalent to saying that the Act shall be no impediment to the measure (See Law Lexicon words "notwithstanding anything in this Act to the contrary"). Use of such expression is another way of saying that the provision in which the non obstante clause occurs usually would prevail over the other provisions in the Act. Thus, the non obstante clauses are not always to be regarde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpretation would clearly amount to depriving a person of the benefit of the principles of moderation and modulation which Section 126 introduces and enjoins to be borne in consideration while considering the levy of a penalty. The provisions contained in sub-section (6) of Section 126 also cannot possibly be read as whittling down the application of sub-sections (1) and (2) of Section 126 when it ordains that it would not apply to cases where penalties stand specified either as a fixed sum or percentage. The prescription of a fixed sum or percentage for purposes of quantification of penalty, as was noticed above, is one which the Act adopts principally in sub-sections (1), (1A), (1B) and (2) of Section 122. We have already found that the transgressions which are spoken of in Section 122 (1) can neither be said to be trivial nor rectifiable. Section 126 (6) would thus operate only insofar as transgressions would fall within the ambit of the sub-sections referred to above. All the other provisions comprised in Chapter XIX either use the expression "which may extend to" or "shall not exceed". Those are thus instances where the penalty in any case cannot be described to be a fixed sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statute, cannot be sustained for reason of there being no declaration made under rule 138. The resultant finding that mere infraction of the procedural rules cannot result in detention of goods though they may result in imposition of penalty cannot also be sustained. If the conditions under the Act and Rules are not complied with, definitely section 129 operates and confiscation would be attracted. " >99. It is practically impossible to envisage various types of contravention of the provisions of the Act or the Rules for the purpose of detention and seizure of the goods and conveyances in transit. The contravention could be trivial or it may be quite serious sufficient enough to justify the detention and seizure. This litigation is nothing but an outburst on the part of the dealers that practically in all cases of detention and seizure of goods and conveyance, the authorities would straightway invoke section 130 of the Act and thereby would straightway issue notice calling upon the owner of the goods or the owner of the conveyance to show-cause as to why the goods or the conveyance, as the case may be, should not be confiscated. Once such a notice under section 130 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resumption is available to the Department only in the cases of prosecution and not for the purpose of section 130 of the Act. What we are trying to convey is that in a given case, the contravention may be quite trivial or may not be of such a magnitude which by itself would be sufficient to take the view that the contravention was with the necessary intent to evade payment of tax. >102. In such circumstances, referred to above, we propose to take the view that in all cases, without any application of mind and without any justifiable grounds or reasons to believe, the authorities may not be justified to straightway issue a notice of confiscation under section 130 of the Act. For the purpose of issuing a notice of confiscation under section 130 of the Act at the threshold, i. e., at the stage of section 129 of the Act itself, the case has to be of such a nature that on the face of the entire transaction, the authority concerned is convinced that the contravention was with a definite intent to evade payment of tax. We may give one simple example. The driver of the vehicle is in a position to produce all the relevant documents to the satisfaction of the authority concerned as regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explains the interplay between Sections 129 and 130 of the Act. The harsh consequences which would follow a confiscation clearly warrant the provisions of the Act being accorded an interpretation which would be fair, reasonable and in consonance with the requirement of Article 14 of the Constitution. In any event, Section 129 can neither be construed as envisaging an inevitable levy of tax nor the imposition of a penalty. As noticed hereinabove, the said provision is primarily concerned with the release of seized and detained goods. >49. It would also be relevant to notice the important message and note of guidance which was conveyed by the CBIC in its Circular No. 64/38/2018-GST dated 14 September 2018, relevant parts whereof are extracted below: >"3. Section 68 of the CGST Act read with rule 138A of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as 'the CGST Rules') requires that the person in charge of a conveyance carrying any consignment of goods of value exceeding Rs. 50,000/- should carry a copy of documents viz., invoice/bill of supply/delivery challan/bill of entry and a valid e-way bill in physical or electronic form for verification. In cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, penalty to the tune of Rs. 500/- each under section 125 of the CGST Act and the respective State GST Act should be imposed (Rs. 1000/- under the IGST Act) in FORM GST DRC-07 for every consignment. A record of all such consignments where proceedings under section 129 of the CGST Act have not been invoked in view of the situations listed in paragraph 5 above shall be sent by the proper officer to his controlling officer on a weekly basis." >50. Upon noticing the above, the Gujarat High Court in Synergy Fertichem held: >"96. As far as the determination of penalty is concerned, it is the Assessing Officer/State Tax Officer who is the competent and proper person for such determination/quantification. However, a holistic reading of the statutory provisions and the circular noted above, indicates to me that the Department does not paint all violations/transgressions with the same brush and makes a distinction between serious and substantive violations and those that are minor/procedural in nature." >As is evident from the above, even the CBIC accepts the position that the Act does not contemplate the imposition of an inevitable levy of penalty under Section 129. >51. We ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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