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TMI Blog2025 (6) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... This is a writ petition under Article 226 of the Constitution of India wherein the petitioner has prayed for the issuance of a writ of certiorari quashing the impugned Show Cause Notice No.02/2024-25 issued on April 19, 2024 vide Form GST DRC-01 reference No.DGGI/INV/GST/2179/2020/GRU/634(S/L) by Directorate General of Goods and Services Tax Intelligence (DGGI), Ghaziabad Regional Unit, (hereinafter referred to as 'respondent no.2') bearing CBIC DIN- 202404DNN40000555A8B, to the extent of exorbitant unexplained penalty of Rs. 2,735,113,681/- proposed to be levied against the petitioner firm under Section 122 (1), clause (ii) and (vii) of the Central Goods and Service Tax, Act 2017 (hereinafter referred to as 'CGST Act') and respective State Statutes namely Uttarakhand Goods and Services Tax Act, 2017, Haryana Goods and Services Tax Act, 2017 and the Maharastra Goods and Services Tax, 2017 read with Integrated Goods and Services Tax Act, 2017. Factual Background 2. Factual matrix giving rise to the instant petition is delineated below: a. In the present lis, M/s Patanjali Ayurved limited (hereinafter referred to as 'petitioner') is a private limited company engaged in the manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Central Tax Commissionerate Lucknow has been empowered with All India jurisdiction vide Notification No. 02/2022-Central Tax dated March 11, 2022 to further adjudicate the matter. As this writ petition is in respect of the petitioner, only the relevant portion of the said show cause notice which runs into more than 150 pages wherein the penalty is imposed upon the petitioner is extracted below: "13. Now, therefore M/s Patanjali Ayurved Ltd. (05AAECP4424C1ZX), Patanjali Food & Herbal Park Pvt. Ltd., Laksar Road, Padartha, Haridwar, Uttarakhand, 249404 is hereby required to show cause to the Additional/Joint Commissioner, Central GST Commissionerate, Office of the Commissioner, 7-A Ashok Marg, Block-E, Hazratganj, Lucknow, Uttar Pradesh-226001 as to why: i. The IGST amounting to Rs. 9,08,15,881/- (Rupees Nine Crore Eight Lakh Fifteen Thousand Eight Hundred and Eighty-one only) should not be demanded and recovered under the provision of Section 74(1) of the CGST Act, 2017 read with Section 20 of the IGST Act, 2017, as detailed in para 11.4.2; ii. Interest under the provision of Section 50(3) of the CGST Act, 2017 read with Section 20 of the IGST Act, 2017 should not be deman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Additional/Joint Commissioner, Central GST Commissionerate, Office of the Commissioner, 7-A Ashok Marg, Block-E. Hazratganj, Lucknow, Uttar Pradesh- 226001 as to why: i. Penalty should not be imposed upon them in terms of Section 122(1)(ii) of the CGST Act, 2017 read with Section 20 of the IGST Act, 2017 for issuance of tax invoices or bills for passing on irregular ITC amounting to Rs. 11,26,67,999/- (IGST Rs. 11,26,67,999/-) without concomitant supply of goods as detailed in para 11.4.4; ii. Penalty should not be imposed upon them in terms of Section 122(1)(vii) of the CGST Act, 2017 read with Section 20 of the IGST Act, 2017 for taking or utilizing Input Tax Credit amounting to Rs. 10,06,89,000/- (IGST Rs. 10,06,89,000/-) without actual receipt of goods as detailed in para 11.4.4; iii. Penalty should not be imposed upon them in terms of Section 122(1)(x) and (xvi) of the CGST Act, 2017 read with Section 20 of the IGST Act, 2017." e. With regard to the show cause notice, the petitioner is aggrieved in the present writ petition only with the imposition of exorbitant penalty of Rs.2,735,113,681/- under Section 122 (1), clause (ii) and (vii) of the CGST Act. f. This Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been accounted for by the petitioner and supplied in payment of GST thereby implying the passing on irregular ITC and the department has relied on a circular no. 171/03/2022-GST dated July 6, 2022 wherein it was clarified that proceedings under Section 74 cannot be initiated against taxpayers, if it has merely passed on irregular ITC on the outward supply and only penalty under Section 122 of the CGST Act, if any, could be imposed. iii. There is no any shortage and mismatch in stock of packing materials and the actual physical quantity of stocks in addition to the raw materials available. Furthermore, there is no adverse remark on any shortage or excess of stock packing materials found at the premises of the petitioner. iv. This is not a case of receiving supplies from a non-existent suppliers as if this would have been the case, the department ought to have cancelled the registration of such fake firms and blocked the ITC immediately. v. Show cause notice has placed reliance on third party data like RTO records which is not in conformity with the mandatory procedure prescribed under Section 145 of the CGST Act, which requires a certificate to authenticate the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on or distributed irregularly whichever is higher. This imputes that first there has to be determination of tax under Section 73/74 of the CGST Act prior to invoking penal provision under Section 122 of the CGST Act. Moreover, heading to Section 122 of the CGST Act itself states 'Penalty for certain offences' that implies that there has to be a predicate offence of tax evasion for which demand of tax had to be made under Section 73/74 of the CGST Act. In this regard, reliance has been placed upon NC Dhondial v. Union of India reported in AIR 2004 SC 1272 and Ramanna Dayaram Shetty v. International Airport Authority of India reported in (1979) 3 SCC 489. c. Heading to Section 122 of the CGST Act reads as 'Penalty for certain offences'. The word 'offence' has not been defined in CGST Act, 2017 or under any other GST laws, therefore, General Clauses Act, 1897 should be looked into. The word 'offence' is defined under Section 2(38) of the General Clauses Act, 1897 as "any act or omission made punishable by any law for the time being in force". Moreover, 'offence' has also been defined in Section 2(n) of the Code of Criminal Procedure, 1973 (hereinafter referred to as 'CrP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of framing Section 122 of the CGST Act by Parliament would not have been the same as for Section 74 of the CGST Act. It is contended that since penalty has already been dealt by the Parliament in Section 74 of the CGST Act there was no need to bring Section 122 of the CGST Act in the Statute for imposing penalty once again. Therefore, Section 122 of the CGST Act is for more serious offences and attracts criminal proceedings. f. A comparison between Section 122 (Penalty for certain offences) and 132 (Punishment for certain offences) of the CGST Act would reveal that several sub-sections are identical, which implies that a penalty under Section 122 can only be imposed after a conviction under Section 132. In relation to Section 132(6) which provides for sanction to be taken from Commissioner prior to prosecution (whereas there is no such reference in Section 122 as to who will adjudicate the matter under the said provision), it is submitted that the absence of a similar provision such as Section 132(6) in Section 122 will not convert Section 122 into a civil liability due to the presence of Section 134 that acts as a safeguard which applies to the whole Act, and therefore, als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abetting' is only found in criminal statutes. Subsection 3 of Section 122 of the CGST Act explicitly uses the word 'aiding and abetting', for offences therefore, these words used in the section makes the provision criminal in nature. l. The word 'penalty' has been used in the context of offence, even in the IPC and CrPC and does not automatically indicate that it is in the nature of civil liability. There is nothing in "tax jurisprudence" or any case law which specifically states, as a rule of law, that 'penalty' must necessarily relate to a civil liability. The character of the penalty, whether civil or criminal, will depend on the context, language, legislative intent and statutory structure. Penalty also has been defined in sixth edition of Pramanatha Aiyar's Law Lexicon which states that penalty can be punishment in taxation matters as it may attract civil liability or criminal liability. It is open to Parliament to prescribe punishment by way of imprisonment or fine or even a penalty, but whether its levy is in consequence either of a prescribed offence or of breach of other provisions that are not characterized as offences. A breach of law can attract both penalty by the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CGST Act is also a "criminal" provision, as it provides for punishment and refers to a continuing offence. Section 126 gives general guidelines relating to penalty and is intended to ensure that the penalty imposed by the Department officers is not disproportionate and unduly harsh. Section 127 also refers to 'proper officers'. Only Section 125 does not refer to 'proper officer' and is titled 'General Penalty'. It applies only where no specific penalty is provided for in the Act. However, it does not relate to any "offence" but only refers to "contravention" under the Act. The absence of any reference to 'proper officer' in Section 122 is deliberate, because the levy of penalty by way of "punishment" can only be done by the jurisdictional magistrate. Thus, Section 122 and Section 132 also do not refer to a 'proper officer' as these are criminal provisions. On the other hand, other sections like Section 129 (seizure of goods), Section 130 (confiscation) refer to 'officer' or 'proper officer'. p. It is also essential that the civil and criminal jurisdictions are to be kept separate under the principle of separation of powers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s those are covered under Sections 73, or 74 of the CGST Act. c. Tax Demand of Rs.9,08,15,881/- was issued under the provisions of Section 74 of the CGST Act as petitioner had wrongly availed or utilized ITC and penalty amounting to Rs.2,735,113,681/- under Section 122(i)(ii) and (vii) of CGST Act proposed in the notice, is not related with this demand but for issuing tax invoices without any actual supply of goods, and also for taxing/utilizing input tax credit without actual receipt of goods. Therefore, the demand invoked in the notice under the provisions of Section 74 of the CGST Act and penalty proposed under the provisions of Section 122 is for two separate offences and not interrelated. d. Penalty in taxation matters is only a civil liability and not a criminal liability and heading of section alone can not control the whole section. Section 122 of the CGST Act purports to preventing loss of revenue and imposes penalty whereas Section 132 of the CGST Act purports to impose punishment as a criminal offence. Mere addition of mens rea would not make the provision criminal in nature. If the Parliament chooses to add mens rea to the penalty in tax law, it will still be a civi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty with mens rea, it will still be considered as a penalty. h. Attention is drawn to the Explanation 1 to Section 74 of the CGST Act. The said provision is for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or wilful misstatement or suppression of facts. Explanation 1 to Section 74 is as under: "Explanation 1.- For the purposes of section 73 and this section,- (i) the expression "all proceedings in respect of the said notice" shall not include proceedings under section 132; (ii) where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under section 73 or section 74, the proceedings against all the persons liable to pay penalty under Sections 122 and 125 are deemed to be concluded." Explanation 1(i) makes it clear that the expression "all proceedings in respect of the said notice" shall not include proceedings under Section 132 of the CGST Act for the only reason that Section 132 is criminal in nature and deals with punishment for offences. If the legislative i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Rs. 100 crores and issues valid invoices of Input Tax Credit (ITC) worth Rs. 20 crores. B receives the goods and accounts the entire value and the ITC. However, B chooses to use only goods worth Rs. 50 crores and illicitly removes the balance quantity of goods to the tune of Rs. 50 crores in the grey market to C and collects cash. B also issues a fake invoice for Rs 50 crores value and Rs 10 crores ITC to yet another person D. Section 74 would apply not to A, for A has paid the taxes, not to B who does not pay any taxes, but to D who had availed input tax credit wrongly and utilized. But on the other hand Section 122(1) would apply to B for having supplied goods without invoice to C and for issuing fake invoices to D." The other persons besides the main person in the transactions would not be governed by any proceedings under Section 74 but once proceedings are initiated under Section 74, the rest of the proceedings under Section 122 would arise as connected or consequential proceedings and therefore there was no need to refer to a 'proper officer' under Section 122. It is equally for the same reason that Explanation 1(ii) gives a deemed closure to the proceedings under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) [para 29,33,52] (v) SEBI v. Cabot International Capital Corporation reported in 2004 SCC OnLine Bom 180 [para 47] (vi) Dharmendra Textile Processors (supra) [para 18] (vi) M/s Raghunandan Prasad Mohal Lal, Bareilly v. The Income Tax Appellate Tribunal and Others reported in 1969 SCC Online All 286 [para 9, 10, 11] (vii) NHPC Ltd. v. State of Himachal Pradesh, Secretary and Others reported in 2023 SCC Online SC 1137 [para 35, 36, 37] (viii) State of Tamil Nadu and Others v. K. Shyam Sunder and Others reported in (2011) 8 SCC 737 [para 63, 64 ] m. In the light of the above, the respondents reiterate their prayer before this Court that the writ petition has to be dismissed in toto. Issues 5. Considering the contentions canvassed by both the sides, the following issues arise for consideration before this Court, which are as follows: (I) Whether the "Proper Officer/Adjudicating Officer" has the power to adjudicate on the penalty provision provided under Section 122 of the CGST Act? (II) Whether dropping of proceedings under Section 74 of the CGST Act, 2017 will ipso facto abate the proceedings under Section 122 of the CGST Act? Relevant Provisions 6. Before w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment. (6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder. (7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable. (8) Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded. (9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order. (10) The prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or false invoice with regard to any such supply; (ii) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder; (iii) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due; (iv) collects any tax in contravention of the provisions of this Act but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due; (v) fails to deduct the tax in accordance with the provisions of sub-section (1) of section 51, or deducts an amount which is less than the amount required to be deducted under the said sub-section, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on. (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, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -five thousand rupees. Section 128: Power to waive penalty or fee or both.-The Government may, by notification, waive in part or full, any penalty referred to in section 122 or section 123 or section 125 or any late fee referred to in section 47 for such class of taxpayers and under such mitigating circumstances as may be specified therein on the recommendations of the Council. Section 131: Confiscation or penalty not to interfere with other punishments.--- Without prejudice to the provisions contained in the Code of Criminal Procedure, 1973 (2 of 1974), no confiscation made or penalty imposed under the provisions of this Act or the rules made thereunder shall prevent the infliction of any other punishment to which the person affected thereby is liable under the provisions of this Act or under any other law for the time being in force. Section 132 : Punishment for certain offences.--(1) Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences, namely:- (a) supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with imprisonment for a term which may extend to one year and with fine; (iv) in cases where he commits or abets the commission of an offence specified in clause (f), he shall be punishable with imprisonment for a term which may extend to six months or with fine or with both. (2) Where any person convicted of an offence under this section is again convicted of an offence under this section, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to five years and with fine. (3) The imprisonment referred to in clauses (i), (ii) and (iii) of subsection (1) and sub-section (2) shall, in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, be for a term not less than six months. (4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), all offences under this Act, except the offences referred to in sub-section (5) shall be non-cognizable and bailable. (5) The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no further proceedings shall be initiated under this Act against the accused person in respect of the same offence and any criminal proceedings, if already initiated in respect of the said offence, shall stand abated. Rule 142 of the CGST Rules. Notice and order for demand of amounts payable under the Act. -(1) The proper officer shall serve, along with the (a) Notice issued under section 52 or section 73 or section 74 or section 74A or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130, a summary thereof electronically in FORM GST DRC-01, *** (5) A summary of the order issued under section 52 or section 62 or section 63 or section 64 or section 73 or section 74 or section 74A or section 75 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130 shall be uploaded electronically in FORM GST DRC-07, specifying therein the amount of tax, interest and penalty, as the case may be, payable by the person concerned." Analysis 7. We have considered the rival submissions and have perused the materials placed on record. Mr. Arvind Datar, learned Senior Advoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'penalty' as given in Black's law dictionary, P Ramanatha Aiyar's, The Law Lexicon are quoted herein below: Definition of 'Offence' (i) Definition of 'Offence' as per Black's Law Dictionary (9th Edition, page 1186) is quoted in verbatim as under: "A violation of the law; a crime, often a minor one. The terms 'crime', 'offence' and 'criminal offence' are all said to be synonymous, and ordinarily used interchangeably. 'Offense' may comprehend every crime and misdemeanor, or may be used in a specific sense as synonymous with 'felony' or with 'misdemeanor' as the case may be, or as signifying a crime of lesser grade, or an act not indictable, but punishable summarily or by the forfeiture of a penalty." (ii) The word 'Offence' as has been defined in P Ramanatha Aiyar's 'The Law Lexicon' (4th Edition, page 1316) is quoted in verbatim as: "OFFENCE, is an act committed against law, or omitted where the law requires it, and punishable by it. (Tomlin) 'Offence' is generally equivalent to a Crime (per COLLINS, J., Derbyshire Co., v. Derby, 65 LJQB 488). In its legal signification an offence is the transgression of a law; a breach of the laws established for the protection o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinction between prosecution for an offence punishable under the Act and proceedings to impose penalties under Chapter XXI. Penalty proceedings are not criminal proceedings in the strict sense. In a criminal charge, unless the prosecution proves beyond reasonable doubt the offence committed by the assessee under the Act, the delinquent is entitled to the benefit of doubt and thereby goes scot free. The acquittal is on the technical rule of presumed innocence. The standard of proof for imposition of penalty is not as rigorous as that for prosecution of an offence. The test in the case of penalty is totality of circumstances. Evidence may be oral, documentary or circumstantial." *** "Penalty and punishment. 'Penalty is synonymous with 'punishment, in connection with crimes and is fixed by the law defining the criminal act." (v) The word 'Penalty' as has been defined in P Ramanatha Aiyar's, 'The Law Lexicon' ( 6th Edition, Volume 3, page 4112- 4114) is quoted in verbatim as herein below: "Whether or not a statute creates a criminal offence is a question of interpretation, e.g., if the word "penalty" as distinct from the word "fine" is used the general rule is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on any person other then the offender. Tax and penalty are different concepts. [Bachan Singh v Road Transport Officer, Rourkela, AIR 2009 Ori 185, 188, para 9] [Orissa Motor Vehicles Taxation Act (39 of 1975), section 20]" *** ""Penalty" is a slippery word and it has to be understood in the context in which it is used in a given statute. A penalty may be the subject-matter of a breach of statutory duty or it may be the subject-matter of a complaint. In ordinary parlance, the proceedings may cover penalties for avoidance of civil liabilities which do not constitute offences against the State. This distinction is responsible for any enactment intended to protect public revenue. Thus, all penalties do not flow from an offence as is commonly understood but all offences lead to a penalty. Whereas the former is a penalty which flows from a disregard of statutory provisions, the latter is entailed where there is mens rea and is made the subject-matter of adjudication. Penalty under Section 10(3) of the Act is compensatory. It is levied for breach of a statutory duty for non-payment of tax under the Act. [State of UP v Sukhpal Singh Bal, (2005) 7 SCC 615, 622, para 15] [UP Motor Vehicle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commit an illegal act" and illegal means, "contrary to or forbidden by law". According to New Shorter Oxford English Dictionary, an offence is "a breach of law, rules, duty, propriety, etiquette, an illegal act, a transgression, sin, wrong, misdemeanour, misdeed, fault". Thus, an offence only means the commission of an act contrary to or forbidden by law. It is not confined to the commission of a crime alone. It is an act committed against law or omitted where the law requires it and punishable by it. In its legal signification, an offence is the transgression of a law; a breach of the laws established for the protection of the public as distinguished from an infringement of mere private rights; a punishable violation of law, a crime, the doing that which a penal law forbids to be done or omitting to do what it commands (see P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edn., 2005, p. 3302). This Court in Depot Manager, A.P. SRTC v. Mohd. Yousuf Miya [(1997) 2 SCC 699 : 1997 SCC (L&S) 548] stated that the word "offence" generally implies infringement of a public duty, as distinguished from mere private rights punishable under criminal law. In Brown v. Allweather Mechanical Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shiv Dutt Rai Fateh Chand (supra) relied upon by counsel appearing on behalf of both the parties has defined 'penalty' which is quoted verbatim as hereinbelow: "25. ....The word "penalty" is a word of wide significance. Sometimes it means recovery of an amount as a penal measure even in a civil proceeding. An exaction which is not of compensatory character is also termed as a penalty even though it is not being recovered pursuant to an order finding the person concerned guilty of a crime...." (Emphasis added) 13. The Supreme Court in State of U.P. v. Sukhpal Singh Bal reported in 7 SCC 615, 622 with regard to the term 'penalty' has held that penalty does not precede offences but offences precede penalty. The relevant paragraph of the judgment is quoted herein below: "15. In the light of the above judgments as applicable to the provisions of the said 1997 Act, we are of the view that the High Court had erred in striking down Section 10(3) as ultra vires Articles 14 and 19(1)(g) of the Constitution. "Penalty" is a slippery word and it has to be understood in the context in which it is used in a given statute. A penalty may be the subject-matter of a breach of statutory duty or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criminal sanction is imposed but merely a pecuniary sanction recoverable as a civil debt. (d) The term 'penalty' has also been given a broad definition by the law dictionaries and the Supreme Court judgments wherein it is stated that the term 'penalty' is used very loosely in statutes in some cases and may be held to embrace all the consequences visited by law for an infringement of the law. (e) Penalty ordinarily becomes payable in a taxing statutes when it is found that an assessee has wilfully violated any of the provisions of the taxing statute (Associated Cement Co Ltd. v Commercial Tax Officer, (1981) 4 SCC 578). Furthermore, penalty is ordinarily levied on an assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute (Pratibha Processors v UOI, AIR 1997 SC 138). (f) "Penalty" is a slippery word and it has to be understood in the context in which it is used in a given statute. A penalty may be the subject-matter of a breach of statutory duty or it may be the subject-matter of a complaint. In ordinary parlance, the proceedings may cover penalties for avoidance of civil liabilities which do not constitute offences aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x v. Pemsel, that it is not competent to any Court to proceed upon the assumption that the Legislature has made a mistake. The Court must proceed on the footing that the Legislature intended what it has said. Even if there is some defect in the phraseology used by the Legislature, the Court cannot, as pointed out in Crawford v. Spooner, aid the Legislature's defective phrasing or add and amend or, by construction, make up deficiencies which are left in the Act. Even where there is a casus omissus, it is, as said by Lord Russel of JKillowen in Hansraj Gupta v. Dehra Dun Mussoorie Electric Tramway Co. Ltd., for other than the Courts to remedy the defect." 17. A taxing statute consists of three stages, firstly, charging provision to ascertain the subject upon whom tax is to be imposed; secondly, machinery provision for assessment or quantification of the tax, interest and penalty to be imposed and thirdly, provisions for recovery of tax, interest and penalty assessed in the previous stage. Lord Dunedin in Whitney v. Inland Revenue Commissioners reported in (1926) AC 37 in this regard has made the observations, which are quoted as under: "..... A statute is designed to be workab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue reported in (1921) 2 KB 403 has observed as quoted herein: "In a taxing Act one has to look merely at what is clearly said. There is no room for intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." 21. In Film Exhibitors, Guild v. State of A.P. reported in AIR 1987 AP 110, with regard to the charging provision of a taxing statute, the Court held that it must be strictly interpreted and laid down following principles for interpretation of taxing statutes: "9. In the light of the above discussion in interpretation of the taxing provision, the following principles would emerge: (1) A taxing statute, if it professes to impose a charge, its intention must be expressed in clear, unequivocal and unambiguous language. The Court has to look at the language couched. Hunt into intention to find a charge is impermissible. There is no equity about tax. There is no presumption as to a tax. Nothing is to be read in and nothing is to be implied. No equitable construction of a charging section is to be applied. The charging section is to be construed strictly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a remedial provision. Its main object is to plug leakage and prevent evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. If more than one construction is possible, that which preserves its workability, and efficacy is to be preferred to the one which would render it otiose or sterile. The view taken by the High Court is repugnant to this cardinal canon of interpretation." (Emphasis added) 24. The Court while interpreting a taxing statute in Sheffield City Council v. Yorkshire Water Services Ltd. reported in (1979) 2 All ER 91 held as under: "Parliament is taken not to intend the carrying out of its enactments to be unworkable or impracticable, so the Court will be slow to find in favour of a construction that leads to these consequences. This follows the path taken by Judges in developing the common law......... the common law of England has not always developed on strictly logical lines, and where the logic leads down a path that is beset with practical difficulties the Courts have not been frightened to turn aside and seek the pragmatic solution that will best ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned the facts as found by us and we do not think that there has been any infringement of the right guaranteed by Article 14." (Emphasis added) 26. Upon sifting through the various judgments quoted above, one may pen down the salient rules to be applied for interpretation of all statutes especially taxing statutes: (a) A statute is designed to be workable, and the interpretation thereof by a Court should be to secure that object, unless crucial omission or clear direction makes that end unattainable. (b) In a taxing Act one has to look merely at what is clearly said. There is no room for intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. A taxing statute, if it professes to impose a charge, its intention must be expressed in clear, unequivocal and unambiguous language. The charging section is to be construed strictly regardless of its consequences that may appear to the judicial mind. (c) However, in construing the machinery provisions for assessment and collection of the tax to make the machinery workable ut res valeat potius quam pereat, that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur and content according to the circumstances and time in which it is used. Penalty in Tax Delinquency Cases 29. The Supreme Court in Shiv Dutt Rai Fateh Chand (supra) relied upon by both the parties while dealing with legal scrutiny of a retrospective amendment made to Section 9(2)(A) of the Central Sales Tax Act has held with regard to taxation matters in relation to penalty proceedings under the Income Tax Act that it attracts civil liability. The relevant paragraph of the judgment is quoted herein below: "30. On the other hand, a Full Bench of the High Court of Allahabad has held in Raghunandan Prasad Mohan Lal v. ITAT [AIR 1970 All 620 : (1970) 75 ITR 741 : (1970) 1 ITJ 195] that Article 20 of the Constitution contemplates proceedings in the nature of criminal proceedings and it does not apply to penalty proceedings under the Income Tax Act, 1961 which have a civil sanction and are revenue in nature. The High Court of Madhya Pradesh has held in Central India Motors v. Asst. CST [(1980) 46 STC 379 (MP).] that Article 20(1) is not attracted to the case of a levy of penalty made with retrospective effect under the Madhya Pradesh General Sales Tax Act, 1958. 31. After giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus between penalty imposed and the tax evaded and under the circumstances, it was urged that Section 271(1)(c)(iii) was violative of Articles 14 and 19(1)(g) of the Constitution. This challenge was rejected by the Gujarat High Court observing that everything which is incidental to the main purpose of a power is contained within the power itself so that it extends to matters which are necessary for the reasonable fulfilment of the legislative power over the subject-matter and, therefore, the power to impose penalty is for the purpose of vindicating the main power, which is conferred by the Act. The object of the legislature in levying such penalty is to provide deterrence against tax evasion and to put a stop to a practice which the legislature considers to be against the public interest. It has been further observed that while Article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. The Supreme Court has permitted a very wide latitude in classification for taxation. The object of the legislature in enacting the impugned provision is not to provide for confiscation but to provide a penalty for concealment of income and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a civil obligation while in the latter what is imposed is a criminal sentence. There can be no dispute that having regard to the provisions of Section 276-C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established. In most cases of criminal liability, the intention of the legislature is that the penalty should serve as a deterrent. The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection the terms in which the penalty falls to be measured is significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission of "any crime" (not merely an offence) but determine the liability of the contravenor for the breach of his 'obligations' imposed under the Act. They impose 'penalty' for the breach of the "civil obligations" laid down under the Act and not impose any 'sentence' for the commission of an offence. The expression 'penalty' is a word of wide significance. Sometimes, it means recovery of an amount as a penal measure even in civil proceedings. An exaction which is not compensatory in character is also termed as a 'penalty'. When penalty is imposed by an adjudicating officer, it is done so in "adjudicatory proceedings" and not by way of fine as a result of 'prosecution' of an 'accused' for commission of an 'offence' in a criminal court. Therefore, merely because 'penalty' clause exists in Section 23(1)(a), the nature of the proceedings under that section is not changed from 'adjudicatory' to 'criminal' prosecution. An order made by an adjudicating authority under the Act is not that of conviction but of determination of the breach of the civil obligation by the offender. 8. It is thus the breach of a "civil obligation" which attracts 'penalty' under Section 23(1)(a), FERA, 1947 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1947 and that penalty is attracted under Section 23(1)(a) as soon as contravention of the statutory obligation contemplated by Section 10(1)(a) is established. The High Court apparently fell in error in treating the "blameworthy conduct" under the Act as equivalent to the commission of a "criminal offence", overlooking the position that the "blameworthy conduct" in the adjudicatory proceedings is established by proof only of the breach of a civil obligation under the Act, for which the defaulter is obliged to make amends by payment of the penalty imposed under Section 23(1)(a) of the Act irrespective of the fact whether he committed the breach with or without any guilty intention. Our answer to the first question formulated by us above is, therefore in the negative." (Emphasis added) 33. The Supreme Court has affirmed the view taken by the Bombay High Court in Cabot International Capital Corporation (supra), in its various judgments. The Bombay High Court in the said judgment has laid down the canons of interpretation. The relevant paragraph of the said judgment is quoted as under: "47. Thus, the following extracted principles are summarised: (A) Mens rea is an essential or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities must not presume evasion of tax solely on procedural lapses such as expiry of an e-way bill, specially when valid reasons are provided. It is implied by the Court that penalty by the Assessing Officer under Section 129 of Telangana Goods and Services Tax cannot be imposed in absence of mens rea. The relevant paragraphs of the judgment are quoted herein below: "7. The analysis and reasoning of the High Court commends to us, when it is noticed that the High Court has meticulously examined and correctly found that no fault or intent to evade tax could have been inferred against the writ petitioner. However, as commented at the outset, the amount of costs as awarded by the High Court in this matter is rather on the lower side. Considering the overall conduct of Petitioner 2 and the corresponding harassment faced by the writ petitioner we find it rather necessary to enhance the amount of costs. 8. Upon our having made these observations, the learned counsel for the petitioners has attempted to submit that the questions of law in this case, as regards the operation and effect of Section 129 of the Telangana Goods and Services Tax Act, 2017 and violation by the writ petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of criminal and penal laws'. d. An order made by an adjudicating authority under the statute with regard to penalty is not that of conviction but of determination of the breach of the civil obligation by the offender [see M.C.T.M Corp. (P.) Ltd. (supra)]. e. Blameworthy conduct in adjudicatory proceedings is established by proof only of a breach of the civil obligation under the statute, for which the defaulters are obliged to make amends by payment of the penalty imposed. f. As per Cabot International Capital Corporation (supra) the following principles are summarised: (i) Mens rea is an essential or sine qua non for criminal offence. (ii) A straitjacket formula of mens rea cannot be blindly followed in each and every case. The scheme of a particular statute may be diluted in a given case. (iii) If, from the scheme, object and words used in the statute, it appears that the proceedings for imposition of the penalty are adjudicatory in nature, in contradistinction to criminal or quasi-criminal proceedings, the determination is of the breach of the civil obligation by the offender. The word 'penalty' by itself will not be determinative to conclude the nature of proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 134 of the CGST Act. Hence, he argues that penalty for such offences would have to be imposed by the criminal courts and cannot be adjudicated by the proper officer. To support his arguments he submits that unless there is determination of tax under Section 73 and Section 74 of the CGST Act, no penal provision can be invoked under Section 122 of the CGST Act as there is a requirement for a predicate offence of tax evasion before any penal action can be taken under Section 122. Upon a reading of Section 2(107) of the CGST Act, it is clear that a taxable person means a person who is registered or liable to be registered under Section 22 and Section 24 of the CGST Act. Upon perusal of Section 22 and Section 24, it is clear that persons liable for registration would include persons who are exclusively in the supply of goods even if the same are exempted. Section 24, in fact provides for compulsory registration in certain cases. Accordingly, since the petitioner is registered under the CGST Act, he would fall under the definition of taxable person as mentioned in the very opening sentence of Section 122 of the CGST Act. The argument that one would have to be first taxed under Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the same contravention would not have been the intention of the legislature. Upon a perusal of Section 74, it is crystal clear that the penalty imposed under this section is for non payment of tax or where tax had been short paid or erroneously refunded or where ITC has been wrongly availed of or utilised. Ergo, this penalty is very specific in nature in contradistinction to the penalties envisaged under Section 122 of the CGST Act that are far broader and for different actions/omissions that amount to contraventions, not necessarily covered under Section 74 of the CGST Act . 45. The next argument raised by Mr. Datar is that Section 122 (penalty for certain offences) and Section 132 (punishment for certain offences) of the CGST Act reveal that several sub-sections are identical and therefore the same can only be done by way of conviction under Section 122 of the CGST Act read with Section 134 of the CGST Act. At this stage, one may look at the scheme of the CGST Act and specifically Chapter XIX that starts from 122 and ends with Section 138. To give a purposeful meaning and interpretation to the various sections provided herein one finds that Section 122 to Section 130 deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ences as may be prescribed: Provided further that any compounding allowed under the provisions of this section shall not affect the proceedings, if any, instituted under any other law: Provided also that compounding shall be allowed only after making payment of tax, interest and penalty involved in such offences." The above proviso is an indication that the legislature never intended to treat Section 122 as an offence prosecutable and punishable by way of a criminal trial. 46. The argument of Mr. Datar that Section 134 of the CGST Act envisages that no court shall take cognizance of any offence punishable under this Act without the previous sanction of the Commissioner and no court inferior to that of Magistrate of the First Class shall try any such offence would obviously include Section 122 as the word offence is used in the heading of the section as well as in Section 122(3)(a) is a plausible argument that we would have to reject with great humility for the reason that the words used in Section 134 are 'offence punishable under this Act'. On a proper interpretation of the heading of Section 122 of the CGST Act it is clear that penalty is being imposed for the offences enum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 122 needed harsher punishment is not acceptable as this submission appears to be contrary to the scheme of the Act. In fact culling out nine offences from Section 122 and creating a separate section for criminal prosecution with the heading punishment for offences itself leads to the inference that Section 122 relates to imposition of a civil liability by way of penalty by the department while for the chosen nine offences criminal proceedings with prior sanction from the Commissioner is contemplated under Section 132(6) of the CGST Act. 50. The final argument of Mr. Datar on this particular issue is that Section 122 of the CGST Act cannot be adjudicated by department and has to undergo prosecution as it nowhere refers to the word proper officer, and therefore, it has to be concluded that Section 122 is required to be read with Section 134 of the CGST Act and such penalty can only be imposed by way of a criminal trial. He has further referred to CBIC Circular No.3/3/2017- GST dated July 7, 2022 wherein the Board has assigned the proper officer for adjudication in relation to various sections of the CGST Act but has intentionally excluded the proceedings under Section 122 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause(ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on. In light of the same, it is clear that the penalty imposed under Section 122 is being imposed by the department as provisional attachment can be done for the same which would not have been possible if Section 122 was to be tried by the criminal courts. c. Rule 142(1)(a) of CGST Rules categorically states that a proper officer shall serve along with the notice issued under Sections 52/73/74/76/122/123/124/125/127/129/130, a summary thereof electronically in form GST DRC-01. Furthermore, Rule 142(5) provides that the summary of the order under Sections 52/62/63/64/73/76/122/123/124/125/127/129/130 shall be uploaded electronically in form GST DRC-07, specifying therein the amount of tax, interest and penalty, as the case may be, payable by the person concerned. The above clearly indicates the intention of the legislature that the proper officer is required to issue show cause and thereafter adjudicate and pass order under Section 122 of the CGST Act and nothing further remains in doubt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd C, no offence has been committed by either B or C as tax invoice is for the amount of goods supplied by B to C as B has supplied goods to C and issued invoice for the same amount. c. When B issues fake invoices of Rs.50 with Rs.9 as GST to D without any supply of goods, B would be liable under Section 122(1) (ii) for issuance of fake invoices and D would be liable under Section 74 for improper utilization of ITC without receiving goods. d. With regard to transaction between B and E, B has supplied goods of 100 and shows the supplies of 150, therefore, B is liable for issuance of fake invoices without supply of goods worth Rs.50 and therefore penalty would be imposed under Section 122(1)(ii) and E would be liable under Section 74 for utilization of ITC worth Rs.9 without receipt of goods. 52. In light of the above example, it is clear that there may be scenarios where a proceeding under Section 73/74 of the CGST Act may get concluded against the main person but the penalty proceedings under Section 122 of the CGST Act for issue of fake invoices by the main person may stand independent of the proceedings under Section 74, and therefore, those proceedings under Section 122 wou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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