Fairmacs Shipstores Private Limited Vs Deputy Commissioner (ST)
Date: February 11, 2025
Subject Matter
Penalties should not be imposed when input tax credit has not been utilized
Summary
The petitioner filed a writ petition to challenge an order dated 14/9/2023, issued by the second respondent, which imposed an interest payment of Rs.33,320/- and a penalty of Rs.3,86,094/- on the petitioner, totaling Rs.4,19,414/-. The background involves the petitioner receiving an ASMT-10 notice on 17/6/2023, to which they responded on 20/6/2023 by admitting and reversing the input tax credit (ITC) without utilizing it. Subsequently, multiple notices were issued—including DRC-01A and DRC-01—leading up to the impugned order. The petitioner contended that there was a delay of 94 days in filing their appeal due to internal miscommunication and argued that the penalty and interest should not apply since the ITC was not utilized. The court referred to a previous judgment (W.P.(MD) No.26254 of 2022) which indicated that when ITC is neither availed nor utilized, imposing a penalty could be unjustified. The learned Government Advocate defended the order, asserting it was well reasoned. Ultimately, the court decided to quash the impugned order and remand the matter to the second respondent for reconsideration, mandating an opportunity for the petitioner to present their case. The case emphasizes the legal principle that penalties should not be imposed when input tax credit has not been utilized, in line with established judicial precedents.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
This writ petition has been filed to quash the order dated 14/9/2023 passed by the second respondent in ZD3309230821621.
2. The brief facts that are necessary for the disposal of this writ petition are as follows:-
On 17/6/2023, petitioner had received ASMT – 10 notice and replied to the same on 20/6/2023 in ASMT 11. The petitioner had admitted the credit and reversed the same and states that he has not utilised the credit. On 20/7/2023, DRC-01A notice was issued to the petitioner and on 2/8/2023 show cause notice in DRC-01 was issued to the petitioner and the petitioner had replied to the show cause notice on 30/8/2023. But, on 14/9/2023, the second respondent had passed the impugned order, directing the petitioner to pay interest of Rs.33,320/- and penalty of Rs.3,86,094/- totalling to Rs.4,19,414/-. Being aggrieved, the petitioner had filed this instant writ petition.
3. Heard Ms.S.Gayathri, learned counsel for the petitioner and Ms.Amirthapoonkodi Dinakaran, learned Government Advocate (Tax) for the respondents.
4. The learned counsel appearing for the petitioner would submit that the staff of the petitioner who was handling GST, missed to check and inform the higher officials about the passing of the impugned order. Hence, there was a delay of 94 days in filing the appeal. She would further submit that on 25/10/202/4, appeal was summarily rejected, without giving any opportunity of hearing to the petitioner on the ground that there was a delay.
5. She would further submit that once input tax was reversed and the balance remain unutilised from the date of claim of Input Tax Credit in Electronic Credit Ledger, at no point of time, Input Tax Credit was either availed or utilized and therefore, penalty and interest cannot be imposed.
6. To substantiate her case, she had produced a copy of the order dated 11/6/2024, passed in W.P.(MD) No.26254 of 2022 by a learned Single Judge of this Court, wherein it is held that once the ITC was neither availed nor utilised by the petitioner, question of imposing the penalty does not arise.
7. Defending the impugned order, the learned Government Advocate (Tax) appearing for the respondents would submit that impugned order of the second respondent is well reasoned and do not require any interference.
8. Perused the materials available on record.
9. Relevant paragraph of the order dated 11/6/2024 made in W.P.(MD) No.26254 of 2022 is extracted hereunder:-
“I am of the view that imposition of penalty under the peculiar facts and circumstances of the case is unjustified. However, considering the fact that the petitioner has availed input tax credit, which was not eligible to be availed, but could have resulted in wrong utilization of input tax credit, a token penalty of Rs.10,000/- is imposed on the petitioner. The observation of the first respondent by placing reliance on the decisions of the Hon’ble Supreme Court, referred to supra, is also not relevant as Section 74 of the CGST Act deals with a situation where the credit is availed or utilized by reason of fraud or any wilful misstatement or suppression of facts.
10. Similar view was also taken by this Court in KUMARAN FILAMENTS (P) LTD Vs. COMMISSIONER OF CENTRAL GST AND CENTRAL EXCISE, MADURAI AND OTHERS (2021 SCC ONLINE MAD 12062) and also by the Division Bench of the Patna High Court in COMMERCIAL STEEL ENGINEERING CORPORATION Vs. STATE OF BIHAR AND OTHERS (2020) 74 GSTR 51: 2019 SCC ONLINE PAT 3363. In such a view of the matter, this Court is inclined to set aside the order impugned in this writ petition, in the light of the order passed by this Court in W.P.(MD) No.26254 of 2022.
11. Accordingly, this writ petition is disposed of and the impugned order dated 14/9/2023 passed in ZD3309230821621 is set aside and the matter is remitted back to the second respondent to consider the matter afresh, and pass appropriate orders on merits and in accordance with law, after affording an opportunity of hearing to the petitioner. No costs. Consequently, connected Miscellaneous Petitions are closed.