Disciplinary penalty is not taxable consideration under GST when it does not arise from trade, commerce, or contractual supply.

GST was found inapplicable to a penalty imposed in employee disciplinary proceedings because the levy provisions invoked were transaction-based and the penalty did not arise from trade, commerce, or a contractual supply. The court noted that Section 7(1)(d) was not in force when the impugned orders were made, and that even on the assumed application of Section 7(1A) with Rule 5(e), the disciplinary penalty remained outside the GST net. Orders levying penalty, interest, and GST on the shortage amount were therefore unsustainable.

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Issues: Whether GST could be levied on a penalty imposed in disciplinary proceedings against employees, and whether the impugned orders collecting GST on the shortage amount were sustainable.

Analysis: The levy was examined against the scheme of Section 7(1)(d) and the alternative reliance on Section 7(1A) read with Rule 5(e). The order notes that Section 7(1)(d) was not in force when the impugned orders were passed, having been omitted earlier. Even on the assumption that Section 7(1A) and Rule 5(e) could apply, the Court found that the penalty arose from disciplinary proceedings and not from any transaction in the course of trade or commerce. GST was therefore held to be attracted only where the penalty is connected with business dealings or contractual delay, not where it is imposed as an employee disciplinary measure.

Conclusion: GST could not be imposed on the disciplinary penalty, and the impugned orders levying penalty, interest, and GST were unsustainable.

Ratio Decidendi: A penalty imposed in disciplinary proceedings against an employee is not a consideration arising in the course of trade or commerce and therefore does not attract GST under the transaction-based charging provisions invoked in the case.

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