Penalty orders under Section 122 set aside for delayed tax deposit without evasion allegations, maximum penalty limited to Rs. 10,000

The HC set aside penalty orders under Section 122 of GST Act where the petitioner delayed depositing collected tax beyond three months. The court held that without allegations of tax evasion, maximum penalty imposable was Rs. 10,000. The authorities failed to follow Section 126(2) mandate and consider the government's notification dated 01.06.2021 waiving late fees for return filing. The petitioner accepted Rs. 10,000 penalty to settle litigation. The court directed payment of Rs. 10,000 penalty within two weeks and disposed of the petition.

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Issues involved: Challenge to penalty orders under Section 122 of GST Act for delay in tax payment, consideration of Covid-19 impact on payment timeline, interpretation of penalty provisions under Sections 122, 123, 126, 127, and 128 of the Act.

The judgment addresses two petitions challenging penalty orders under Section 122 of the GST Act. The petitioner, a private limited company providing manpower supply services, contested penalties imposed for delay in tax payment. The petitioner received a show-cause notice alleging failure to pay GST collected within the prescribed time, leading to penalties of Rs. 28,00,476 each for CGST and SGST. The petitioner's appeal was dismissed, citing Section 122(1)(iii) of the Act as justification for the penalty. The State defended the penalties based on the petitioner's delayed tax payment without adequate justification. The petitioner argued that the penalty should not exceed Rs. 10,000 as no tax evasion occurred.

The petitioner highlighted the impact of Covid-19 on payment timelines and referenced Section 123, 126, 127, and 128 of the Act. The petitioner pointed out a Ministry of Finance notification waiving late fees for certain periods due to Covid-19, suggesting a similar consideration for penalties. The court noted that no tax evasion was alleged, indicating a maximum penalty of Rs. 10,000 should apply. The court found that authorities failed to follow penalty guidelines under Section 126(2) of the Act and overlooked the impact of the waiver notification.

The petitioner offered to pay the reduced penalty of Rs. 10,000 to resolve the matter. The court set aside the penalty orders in both cases, emphasizing the need to consider Covid-19 impacts and penalty provisions correctly. The court directed the petitioner to pay Rs. 10,000 penalty in each case within two weeks. Both writ petitions were disposed of accordingly.

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