Levying penalty at 100% of value of goods resulting in assessee paying 200% of value of goods as total tax, not permitted u/s 129(1)(b) CGST Act

Considering a petition challenging the validity of detention of goods by the GST Department of Uttar Pradesh and consequent raising of tax demand and imposition of penalty, the High Court of Allahabad observed from settled precedent that penalty under Section 129(1)(b) of the CGST Act 2017 were bad in law, where the Assessee came forward to pay the tax demand with penalty.

A Single Judge Bench of Justice Piyush Agrawal observed that since the penalty had been computed at 100% of the value of the goods, the Assessee would have to pay 200% of the value of the goods as total tax. Hence the order raising tax demand with penalty as well as the Appellate order sustaining such findings, were both found unsustainable.

The Petitioner-Assessee was represented by Mr. Aditya Pandey, Advocate, whereas the Respondent-Revenue was represented by Mr. Rishi Kumar, ACSC.

The Petitioner-Assessee, a registered dealer, made purchase of Areca Nuts from a registered dealer in Gurgaon and for which the seller issued tax invoice. As the goods were in transit from the seller’s location in Haryana to the Assessee’s location in Uttar Pradesh (UP), the goods were intercepted by officers of the GST Department in UP.

Statement of the driver was taken and goods were examined. Thereafter, order in Form GST MOV 06 came to be passed, detaining the goods. Show Cause Notice under Section 129(3) of the CGST Act 2017 was issued in Form GST MOV 7. A supplementary notice was issued, alleging that the goods being transported were not Areca Nut, but rather was processed Betul Nut. Order of demand and penalty in Form GST MOV 9 came to be issued. The Petitioner’s appeal subsequently came to be dismissed.

On hearing the contentions of both sides, the Bench observed that once the owner of the goods came forward to pay penalty, the levy of penalty under section 129(1)(b) of the GST Act cannot be justified as section 129(1)(a) of the CGST Act provides that where the owner of the goods come forward for payment of penalty the amount of tax payable should be 200%, whereas in the case in hand the penalty was levied to the tune of 200% of the value of the goods.

Touching upon the aspect of the supplementary notice in Form GST MOV 4, the Bench noted that such notice could not be used as a method of treating the goods under a classification different from the classification declared. From the Form GST MOV 4, the Bench observed that the goods in question were as they had been declared. Finding no justification for the supplementary notice, the Bench held that the action of seizure and detention of the goods and imposition of tax and penalty was vitiated.

With these observations, the tax demand raised and penalty imposed were set aside, with directions to refund any amount deposited by the Assessee during the pendency of the matter before the High Court.

Cause Title: M/S Khan Enterprises vs Additional Commissioner & Another [Writ Tax No 857 of 2021 / 2023-Enterslice-15-HC-All-GST]

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