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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 ..... ch ultimately came to be affirmed by the appellate authority in terms of its decision rendered on 15 January 2022. In the matter of M/s Zeon Life Sciences Ltd. [Zeon Life Sciences], a demand originally came to be created against that writ petitioner by an order dated 12 January 2021, and which too was upheld by the appellate authority by its order of 15 February 2022. The demands themselves emanate from an allegation levelled against the writ petitioners of goods having been transported under an incomplete E-way Bill [EWB], Part B whereof was incomplete or missing. The factum of taxes leviable on such goods having been duly paid is not disputed. 2. The respondents, however, would bid us to hold that Section 129 is a penal provision that necessarily entails a levy and demand of tax. They view that provision as envisaging a compulsory exaction or impost. In fact, they urge us to recognize that provision as being one which contemplates the levy of a statutory penalty. They would contend that notwithstanding the absence of mens rea, fraudulent motive or an intent to evade tax, where goods are sought to be transported in contravention of the provisions of the Act, a demand of tax would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said to have occurred. An order of detention thereafter came to be passed on 05 February 2021 together with a proposal for imposition of tax and penalty thereon. Those proceedings ultimately culminated in the writ petitioner being forced to deposit INR 5,28,000/- pursuant to a final order dated 12 February 2021 which came to be passed by the GST officer. Aggrieved by the said demand, Zeon Life Sciences is stated to have moved the appellate authority on 08 March 2021. That appeal came to be dismissed on 15 February 2022 constraining Zeon Life Sciences to institute the instant writ petition. 6. Appearing for the writ petitioners, learned counsels firstly submitted that since the solitary ground for a demand of tax rested on an allegation of goods being transported without the cover of requisite documents, the only penalty which could have been imposed upon them would have been INR 10,000/- as contemplated under Section 122 (1) (xiv) of the Act. It was their submission that since the respondents do not rest their case on an allegation of evasion of tax or furnishing of false information, the levy of penalty is wholly arbitrary and illegal. Our attention was then invited to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, or where he fails to pay to the Government under sub-section (2) thereof, the amount deducted as tax; (vi) fails to collect tax in accordance with the provisions of sub-section (1) of Section 52, or collects an amount which is less than the amount required to be collected under the said sub-section or where he fails to pay to the Government the amount collected as tax under sub-section (3) of Section 52; (vii) takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder; (viii) fraudulently obtains refund of tax under this Act; (ix) takes or distributes input tax credit in contravention of Section 20, or the rules made thereunder; (x) falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information or return with an intention to evade payment of tax due under this Act; (xi) is liable to be registered under this Act but fails to obtain registration; (xii) furnishes any false information with regard to registration particulars, either at the time of applying for registration, or subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough it by a person exempted from obtaining registration under this Act, shall be liable to pay a penalty of ten thousand rupees, or an amount equivalent to the amount of tax involved had such supply been made by a registered person other than a person paying tax under Section 10, whichever is higher.] (2) Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised,- (a) for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or ten per cent. of the tax due from such person, whichever is higher; (b) for reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher. (3) Any person who- (a) aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1); (b) acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 125. General penalty. -Any person, who contravenes any of the provisions of this Act or any rules made thereunder for which no penalty is separately provided for in this Act, shall be liable to a penalty which may extend to twenty-five thousand rupees." 13. While learned counsels representing the writ petitioners had alluded to that provision, we do not find any merit in that submission since Section 125 would come into play only if the case be of a penalty not leviable under any other provision of the Act. Undisputedly, the respondents rest their case on Section 129 and which we propose to notice hereinafter. 14. Reverting then to our discussion, the general principles relating to the imposition of penalty stand embodied and spelt out in Section 126 and which reads thus: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empted goods, on payment of an amount equal to five per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty;] (c) upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed: Provided that no such goods or conveyance shall be detained or seized without serving an order of detention or seizure on the person transporting the goods. (2) [* * *] [(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).] (4) [No penalty] shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard. (5) On payment of amount referred in sub-section (1), all proceedings in respect of the notice specified in sub-section (3) shall be deemed to be concluded. [(6) Where the person transporting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the [penalty equal to hundred per cent of the tax payable on such goods]: Provided also that where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon. (3) [* * *] (4) No order for confiscation of goods or conveyance or for imposition of penalty shall be issued without giving the person an opportunity of being heard. (5) Where any goods or conveyance are confiscated under this Act, the title of such goods or conveyance shall thereupon vest in the Government. (6) The proper officer adjudging confiscation shall take and hold possession of the things confiscated and every officer of Police, on the requisition of such proper officer, shall assist him in taking and holding such possession. (7) The proper officer may, after satisfying himself that the confiscated goods or conveyance are not required in any other proceedings under this Act and after giving reasonable time not exceeding three months to pay fine in lieu of confiscation, dispose of such goods or conveyance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalties statutorily leviable. 23. We note that there are other sub-sections of Section 86 which embody the principles of a statutory penalty. For instance, sub-section (5) deals with the contingency of an assessee failing to comply with Section 21(1). The aforesaid provision obliges a registered dealer to apprise the Commissioner of circumstances which may warrant amendments in its registration. A similar example of a statutory penalty stands embodied in sub-section (6) and which authorises the levy of a penalty in case a dealer violates Section 22(2). An assessee becomes liable to be penalized under Section 86(9) consequent to a failure to furnish a return or failing to append requisite documents with a return or its refusal to comply with a direction to revise a return. As would be manifest from a close scrutiny of sub-sections (5), (6) and (9) of Section 86, those provisions envisage the levy of penalties consequent to a failure on the part of a registered dealer to discharge certain obligations or a failure on the part of an assessee to comply with statutory duties as imposed. In such situations, the Act envisages penalty to be imposed as a necessary corollary. The afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similarly, section 47 (4A) of the 1969 Act provisioned for the levy of a penalty in a situation where a dealer failed to pay tax within the time prescribed. Those provisions thus contemplated the levy of a penalty and the assessee becoming liable to face penal action in case of an admitted failure to adhere with statutory obligations. The penalty contemplated under Section 45 (6) and 47 (4A) of the 1969 Act thus did not rest on a discretion which may otherwise have been vested in the authority concerned. It was in the context of the aforenoted two statutory provisions that the observations of the Supreme Court in Saw Pipes Ltd. are liable to be appreciated." 19. In our considered opinion, when tested on the principles consistently laid down by the Supreme Court, we find ourselves unable to countenance Section 129 as being representative of a provision that seeks to levy a statutory penalty. The reasons that weigh upon us in arriving at that conclusion are set out hereinbelow. 20. As is evident from the recordal of submissions that were canvassed by the respondents, emphasis was essentially laid upon the non-obstante clause which prefaces Section 129 as well as their submission t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istake in documentation which may be rectifiable and all of which may have occurred without any underlying fraudulent intent or be the outcome of gross negligence. Of significance is sub-section (2) of Section 126 which stipulates that the penalties that may come to be imposed under the Act should be commensurate with the degree and severity of the breach. 24. We have chosen to describe the principles enshrined in Section 126 as being in the nature of a statutory command and edict bearing in mind sub-section (1) which uses the expression "no officer under this Act shall impose...". Similar is the exhortation which stands embodied in sub-section (2) and which bids the proper officer to bear in mind that "the penalty imposed under this Act shall depend...". Section 126 is thus a clear manifestation of the legislative objective of penalties being liable to be imposed bearing in mind the gravity or severity of the breach, an intent to evade tax, fraudulent conduct and thus remove from its reach mistakes which could be termed to be minor in character as well as a failure to comply with procedural requirements or the commission of a mistake in documentation which is rectifiable. The pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obstante may be intended to extend. Regard may be had to the fact that the non-obstante clause in Section 129 is not ordained to operate in respect of any particular provision or set of provisions contained in the Act. If the submission as addressed by the respondents in absolute terms were to be accepted, Section 129 would be liable to be recognized as being one which overrides all other provisions and thus being the repository of a special and overriding power to levy a penalty irrespective of the principle of moderation which the Legislature had introduced in a provision which precedes its placement under the Act. 29. In our considered view, the non-obstante clause in Section 129 cannot possibly be interpreted as being intended to override what had been specifically provided in Section 126 or annihilate the rules of guidance which stood embodied therein. 30. The scope and extent of the operation of a non-obstante clause was lucidly explained by the Supreme Court in R.S. Raghunath v. State of Karnataka (1992) 1 SCC 335 and where the following pertinent observations appear: "11. In Aswini Kumar Ghose v. Arabinda Bose [(1952) 2 SCC 237 : 1953 SCR 1 : AIR 1952 SC 369] it was obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aution and not by way of limiting the ambit and scope of the operative part of the enactment." (emphasis supplied) In Union of India v. G.M. Kokil [1984 Supp SCC 196 : 1984 SCC (L&S) 631], it was observed as under: (SCC p. 203, para 11) "It is well-known that a non obstante clause is a legislative device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions." In Chandavarkar Sita Ratna Rao v. Ashalata S. Guram [(1986) 4 SCC 447] the scope of non-obstante clause is explained in the following words: (SCC p. 477-78, para 67) "A clause beginning with the expression 'notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract' is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the non-obstante clause. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place." If we examine the scope of Rule 3 (2) particularly along with other General Rules, the context in which Rule 3 (2) is made is very clear. It is not enacted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 SCC 255, the Supreme Court succinctly observed as follows: "61. On the device of non obstante clause, William Blackstone in his Commentaries on the Laws of England (Oxford: The Claredon Press, 1st Edn. 1765-69, p. 331) observed that the device was "... effectually demolished by the Bill of Rights at the revolution, and abdicated Westminster Hall when [James II] abdicated the Kingdom." (See Bennion on Statutory Interpretation, 5th Edn., Section 48.) 62. Under the scheme of the modern legislation, non obstante clause has a contextual and limited application. xxxx xxxx xxxx 64. In the instant case the non obstante clause used in Section 147 of the NI Act does not refer to any particular section of the Code of Criminal Procedure but refers to the entire Code. When non obstante clause is used in the aforesaid fashion the extent of its impact has to be found out on the basis of consideration of the intent and purpose of insertion of such a clause. 65. Reference in this connection may be made to the Constitution Bench decision of this Court in Madhav Rao Jivaji Rao Scindia v. Union of India [(1971) 1 SCC 85], Hidayatullah, C.J. delivering the majority opinion, while constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f compounding of an offence. Section 147 will only override Section 320(9) of the Code insofar as offence under Section 147 of the NI Act is concerned. This is also the ratio in Damodar [(2010) 5 SCC 663 : (2010) 2 SCC (Civ) 520 : (2010) 2 SCC (Cri) 1328] (see para 12). Therefore, the submission of the learned counsel for the appellant to the contrary cannot be accepted." 32. As was explained by the Supreme Court in R.S. Raghunath, while examining the scope and extent of a non-obstante clause, one would have to bear in mind that the usage of the expression "notwithstanding anything contained..." cannot be interpreted so as to scuttle down or abrogate other provisions forming part of that enactment and which may not necessarily be in conflict with the provision in which that clause appears. In R.S. Raghunath, the Supreme Court pertinently observed that the usage of the expression "notwithstanding anything contained..." could on a holistic examination of the statutory scheme be found to have been possibly placed by way of abundant caution as opposed to limiting the ambit and scope of the special rules. It was in this context that it held that absent a patent conflict or inconsistenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds to be borne in mind is that Section 129 is intended to merely regulate the subject of detention and release of goods, and which is one not considered in or factored for in any of the other provisions placed in Chapter XIX. It is for this reason that the provision commences with a non-obstante clause and thus introducing adequate measures regulating the subject of detention and release of goods or conveyances. 36. That then leads us to examine whether the expression "contravention of the provisions of this Act" as appearing in Section 129, would also extend to and encompass minor breaches, mistakes or omissions which could be said to be either easily rectifiable or untainted by fraudulent intent. It is relevant to note that the contingencies which are spoken of in Section 122 (1), are essentially those which deal with a positive violation of a statutory obligation or duty. Those contingencies cannot possibly be viewed as being minor aberrations since they extend to situations such as supply of goods without the issuance of an invoice, collection of tax coupled with a failure to deposit the same with the Government, tax deducted not being transmitted to the treasury, utilizatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax revenue". It was thus contended that every contravention, even if it be minor or technical in character, would not justify the imposition of a penalty under Section 129. After chronicling the submissions which were addressed before it, the Gujarat High Court at the outset noted that both Sections 129 and 130 commence with a non-obstante clause. They thus firstly proceeded to examine the scope of a non-obstante clause and had an occasion to notice an entire body of precedent which had evolved on that subject and some of which have been noticed by us in the preceding parts of this judgment. 40. Some of the significant decisions which were noticed by that High Court appear in the following paragraphs of the report: 65. In ICICI Bank Ltd. v. SIDCO Leathers Ltd. [2006] 131 Comp Cas 451 (SC) ; (2006) 67 SCL 383 (SC), the Supreme Court, at paras 34, 36 and 37, held as follows (paras 36, 38 and 39 in pages 467 and 468 in 131 Comp Cas) : "34. Section 529A of the Companies Act no doubt contains a non obstante clause but in construing the provisions thereof, it is necessary to determine the purport and object for which the same was enacted.. . 36. The non obstante nature of a provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Tamil Nadu (1998) 4 SCC 231, the Supreme Court relied on Aswini Kumar Ghose's case AIR 1952 SC 369. The court while interpreting the non obstante clause contained in section 21A of the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961 held : "It is well-settled that while dealing with a non obstante clause under which the Legislature wants to give overriding effect to a section, the court must try to find out the extent to which the Legislature had intended to give one provision overriding effect over another provision. Such intention of the Legislature in this behalf is to be gathered from the enacting part of the section. In Aswini Kumar Ghose v. Arabinda Bose, AIR 1952 SC 369, Patanjali Sastri, J. observed: "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;''" 42. The scope and extent of applicability of the non-obstante clause was ultimately explained by the Gujarat High Court in the following terms: "71. A non obstante clause is generally appended to a section with a view to give the enacting part of the section, in case of conflict, an overriding effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject has been correctly enunciated in Synergy Fertichem and where Pardiwala J. [as his Lordship then was] rightly observed that non-obstante clauses are not always liable to be regarded as intended to repeal or completely supersede all the other provisions of the law. His Lordship explained the purpose of such a clause as essentially intended to remove obstructions which may otherwise arise in the implementation of the enacting provision to which the non-obstante clause is attached. However, and as has been consistently held by courts, the extent of its application is to be discerned from the context in which it is employed and if worded in broad and sweeping terms to be construed strictly. Ultimately, as the decisions noticed by us explain, one would have to ascertain the extent to which the Legislature intended it to apply. 44. As was noticed by us in the preceding parts of this decision, Section 129 is principally concerned with the release 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, underscoring the principle that certain penalties are non-negotiable and uniformly applicable irrespective of the circumstances of the breach. 47. It would also be pertinent to note that in Synergy Fertichem, the Gujarat High Court emphasized that authorities must distinguish between trivial breaches and serious contraventions under the Act. The High Court clarified that confiscation is penal in nature and should only apply in cases of a clear intent to evade tax as opposed to mere procedural lapses such as an incomplete EWB when other valid documents are present. Further, issuing confiscation notices under Section 130 at the initial stage, without proper grounds or evidence of an intent to evade tax, the High Court held would be unjustified and would render Section 129 ineffective. The Court ultimately came to conclude that a reasoned and fair approach is essential to avoid an unnecessary detention of goods and conveyances. It would be pertinent to refer to the following principles which the High Court came to formulate in Synergy Fertichem: "97. The questions whether the movement of the consignments sans valid e-way bills constitutes a substantive error or a mere technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valent to the amount payable under clause (a) or clause (b) to clause (1) of section 129. Section 129 (2) also provides that the provisions of sub-section (6) of section 67 shall mutatis mutandis apply for detention and seizure of goods and conveyances. We quote section 67(6) as under : "67 (6) The goods so seized under sub-section (2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be." 100. Section 129 further provides that the proper officer, detaining or seizing the goods or conveyances, is obliged to issue a notice, specifying the tax and penalty payable and, thereafter, pass an order for payment of such tax and penalty. Clause (4) provides that no tax, interest or penalty shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard. Clause (5) provides that on payment of the amount, referred to in sub-section (1) of the proceedings in respect of the notice, specified in sub-section (3) are deemed to be concluded, and in the last, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd seizure of the goods and the conveyance, straightway notice is issued under section 130, and in the said notice, one would find a parrot like chantation "as the goods were being transported without any valid documents, it is presumed that the goods were being transported for the purposes of evading the tax". We have also come across notices of confiscation, wherein it has been stated that the driver of the conveyance is presumed to have contravened the provisions of the Act or the Rules with an intent to evade payment of tax. This, in our opinion, is not justified. The resultant effect of such issue of confiscation notice at the very threshold, without any application of mind or without there being any foundation for the same, renders section 129 of the Act practically otiose. We take cognizance of the fact that once the notice under section 130 of the Act is issued, then the vehicle is not released even if the owner of the goods is ready and willing to pay the tax and the penalty that may be determined under section 129 of the Act. Such approach leads to unnecessary detention of the goods and the conveyance for an indefinite period of time. Therefore, what we are trying to conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to fifty kilometres within the State or Union territory to or from the place of business of the transporter to the place of business of the consignor or the consignee, as the case may be. 4. Whereas, section 129 of the CGST Act provides for detention and seizure of goods and conveyances and their release on the payment of requisite tax and penalty in cases where such goods are transported in contravention of the provisions of the CGST Act or the rules made thereunder. It has been informed that proceedings under section 129 of the CGST Act are being initiated for every mistake in the documents mentioned in para 3 above. It is clarified that in case a consignment of goods is accompanied by an invoice or any other specified document and not an e-way bill, proceedings under section 129 of the CGST Act may be initiated. 5. Further, in case a consignment of goods is accompanied with an invoice or any other specified document and also an e-way bill, proceedings under section 129 of the CGST Act may not be initiated, inter alia, in the following situations: a) Spelling mistakes in the name of the consignor or the consignee but the GSTIN, wherever applicable, is correct; b) Error in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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