100% Penalty cannot be Imposed if Show Cause Notice is issued under section 73

The Madras High Court has ruled that a 100% penalty cannot be imposed if a Show Cause Notice was issued under Section 73 of the Tamil Nadu Goods and Services Act, 2017. In a case involving a civil works contractor, the court found the imposition of a full penalty to be improper. Consequently, the assessment order was quashed and the matter was sent back to the Assessing Officer for reconsideration of the penalty.

The Hon'ble Madras High Court in the case of K.S. Janarthanam v. Deputy State Tax Officer [W.P. No. 1848 of 2024 dated January 31, 2024] disposed of the writ petition, thereby holding that, 100 percent penalty cannot be imposed when Show Cause Notice is issued under Section 73 of Tamil Nadu Goods and Services Act, 2017 ("the TNGST Act")

Facts

K.S. Janarthanam("the Petitioner") is a civil works contractor registered under GST. The Petitioner received a notice in Form GST-ASMT-10 pertaining to discrepancies in returns filed by the Petitioner. Thereafter, the Petitioner was issued a notice under Section 73 of the TNGST Act. Subsequently, the Revenue Department passed Assessment Order dated September 4, 2023 ("the Impugned Order") against the Petitioner wherein 100 percent penalty was imposed. 

Aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Hon'ble Madras High Court. 

Issue

Whether Penalty could be imposed at 100 percent when Show Cause Notice is issued under Section 73 of TNGST Act?

Held

The Hon'ble Madras High Court in W.P. No. 1848 of 2024 held as under:

• Opined that, the Impugned Order is required to be interfered with as 100 percent penalty is imposed on the SGST dues when notice is issued under Section 73 of the TNGST Act. 
• Held that, the Impugned Order is quashed, thereby disposing the writ petition. 
• Directed that, the matter is remanded back to Assessing Officer for re-consideration with respect to the penalty imposed under the Impugned Order. 

Relevant Provision

Section 73(9) of the TGST Act

"Section 73: Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful-misstatement or suppression of facts.
(9) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order."