Madras High Court Quashes GST Penalty Under Section 125, Upholds Late Fee Under Section 47 – Key Ruling

 Madras High Court Quashes GST Penalty Under Section 125, Upholds Late Fee Under Section 47 – Key Ruling

Introduction

In a recent judgment, the Madras High Court, presided over by Hon’ble Mr. Justice Krishnan Ramasamy, delivered a significant ruling in W.P. No. 36614 of 2024 and W.M.P. No. 39493 of 2024. The case, filed by Tvl. Jainsons Castors & Industrial Products, challenged an order passed by the Assistant Commissioner (ST), Ekkatuthangal Assessment Circle, imposing a late fee and penalty under the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017.

The petitioner contended that the imposition of penalty was illegal, devoid of merits, and contrary to the principles of natural justice. After hearing both sides, the Court ruled in favor of the petitioner by setting aside the penalty under Section 125 of the Act while upholding the late fee under Section 47.

Background of the Case

The dispute arose when the respondent issued a notice in Form GST DRC-07 (Reference No. ZD330724295618W) dated 24.07.2004, under Section 73 of the TNGST Act, 2017. The notice was issued due to the alleged non-filing of annual returns by the petitioner.

The petitioner’s primary argument was that only a late fee could be levied for delayed filing under Section 47, and no separate penalty under Section 125 was warranted. Further, the petitioner contended that:

• No prior notice under Section 46 was issued before initiating penalty proceedings.
• Section 73 of the Act pertains to determination of tax, and it does not deal with non-filing of returns.
• The late fee under Section 47 was already imposed, and an additional penalty under Section 125 was unjustified.

Respondent’s Stand

The Additional Government Pleader (Tax) representing the Assistant Commissioner (ST) argued that:

• The petitioner had failed to file the annual returns under Section 44 of the Act, justifying the imposition of a late fee and penalty.
• The notice was issued under Section 47 read with Section 73, since the petitioner failed to disclose turnover details.
• The late fee amounted to ₹1,12,000, and the petitioner had not provided complete turnover details, justifying the action taken.

Court’s Analysis and Ruling

Late Fee under Section 47

The Court examined Section 47 of the TNGST Act, 2017, which states that a late fee of ₹100 per day is applicable for delayed filing of annual returns, subject to a maximum of 0.25% of the turnover in the State.

Since the petitioner delayed filing the annual return, the Court found no fault in the imposition of the late fee under Section 47.

Penalty under Section 125 – Set Aside

The Court further examined Section 125, which provides for a general penalty of up to ₹25,000 for contravening provisions of the Act where no specific penalty is prescribed.

• The Court ruled that since Section 47 already provides for a late fee, no additional penalty under Section 125 was warranted.
• The penalty of ₹50,000 (₹25,000 each for CGST and SGST) was quashed, as it was incorrectly imposed in addition to the late fee.

Final Verdict

• The late fee under Section 47 was upheld.
• The penalty of ₹50,000 under Section 125 was quashed.
• The writ petition was partly allowed, with no order as to costs.

Significance of the Judgment

This ruling reinforces the principle that:

1. Late fees and penalties under the GST Act must be applied correctly as per statutory provisions.
2. When a specific provision like Section 47 applies, general penalties under Section 125 cannot be imposed arbitrarily.
3. Tax authorities must follow due process, including issuing prior notices before imposing penalties.

Conclusion

The Madras High Court’s decision in Tvl. Jainsons Castors & Industrial Products vs. Assistant Commissioner (ST), Ekkatuthangal Assessment Circle serves as an important precedent for taxpayers facing unjustified penalties under GST laws. The ruling highlights the necessity for proper procedural compliance by tax authorities and ensures that penalties are not imposed beyond what the law prescribes.

Taxpayers are encouraged to be vigilant about their compliance obligations under GST while also ensuring that they challenge any wrongful imposition of penalties.