Domestic enquiry and GST limits barred disciplinary penalty where shortage was disputed and levy lacked a taxable commercial character.

A disciplinary penalty under a service code cannot be sustained where the employee disputes the factual basis of the charge, the authority treats the amount as shortage without a domestic enquiry, and the prescribed procedure for serious punishment is not followed; such action offends the service code and natural justice. GST also cannot be levied on a disciplinary penalty imposed on an employee, particularly where the GST provision relied on had already been omitted and the levy does not arise from a supply or commercial transaction in the course of trade or commerce. The impugned order was quashed, with liberty to proceed afresh in accordance with the required enquiry procedure.

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Issues: (i) Whether the impugned penalty order could stand when the respondents treated the disputed amount as shortage without conducting a domestic enquiry and without following the procedure prescribed in the service code. (ii) Whether GST could be levied on a disciplinary penalty imposed under the service code, particularly when the relied-upon GST provision had been omitted and the levy was not in the course of trade or commerce.

Issue (i): Whether the impugned penalty order could stand when the respondents treated the disputed amount as shortage without conducting a domestic enquiry and without following the procedure prescribed in the service code.

Analysis: The dispute turned on whether the amount represented shortage or post-sale collections retained in the shop during the lockdown. The petitioner consistently denied shortage and maintained that the amount was the sale proceeds for the period between 4.00 p.m. and 6.00 p.m. The service code required a domestic enquiry where the charge was not admitted and the management was not satisfied with the explanation, especially when the proposed punishment was more than a minor measure. The respondents did not conduct such enquiry to ascertain the true nature of the amount, nor did they properly test the petitioner's explanation through the prescribed procedure. The decision-making process was therefore contrary to the code and the principles of natural justice.

Conclusion: The impugned penalty order was unsustainable on this ground and was liable to be set aside.

Issue (ii): Whether GST could be levied on a disciplinary penalty imposed under the service code, particularly when the relied-upon GST provision had been omitted and the levy was not in the course of trade or commerce.

Analysis: The levy was attempted by reference to a provision of the GST law that had already been omitted on the date of the impugned order. Even apart from that, the nature of the levy was a disciplinary penalty imposed on an employee under the service code, not a consideration arising from a contractual or commercial transaction. GST can attach only where the levy answers the statutory character of a supply or other taxable event in the course of trade or commerce. A penalty imposed in disciplinary proceedings does not assume that character. The attempted GST collection was therefore without authority of law.

Conclusion: GST could not be imposed on the disciplinary penalty, and the GST component was illegal.

Final Conclusion: The impugned order was quashed, the writ petition was allowed, and the respondents were left at liberty to proceed afresh in accordance with the prescribed enquiry procedure if so advised.

Ratio Decidendi: Where an employee disputes the factual foundation of a disciplinary charge and the governing service code mandates enquiry before serious punishment, the authority must hold a domestic enquiry; further, a penalty imposed in disciplinary proceedings is not a taxable supply or commercial levy so as to attract GST.

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