Proportional penalty for delayed tax remittance requires mitigation review and cannot be mechanically enhanced absent tax evasion.

For delayed remittance of collected tax under the CGST Act, the penalty should not be mechanically enhanced beyond the minimum where there is no allegation of tax evasion. The statutory discipline under section 126(2) requires the penalty to be commensurate with the facts and severity of the breach, including relevant mitigating circumstances. Where the authorities ignore such mitigation and treat delay alone as sufficient for a higher penalty, the penalty orders are unsustainable and liable to be set aside. The document states that, in the absence of evasion, the penalty should be confined to the reduced amount of Rs. 10,000 in each case.

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Issues: (i) Whether penalty for collecting tax and paying it beyond three months under Section 122(1)(iii) of the Central Goods and Services Tax Act, 2017 could exceed the statutory minimum where there was no allegation of tax evasion. (ii) Whether the penalty orders were sustainable when the authorities did not apply the general disciplines relating to penalty under Section 126(2) of the Central Goods and Services Tax Act, 2017 and the relevant mitigating circumstances.

Issue (i): Whether penalty for collecting tax and paying it beyond three months under Section 122(1)(iii) of the Central Goods and Services Tax Act, 2017 could exceed the statutory minimum where there was no allegation of tax evasion.

Analysis: The only allegation was delayed payment of tax collected, and there was no material to show tax evasion. The statutory scheme indicated that in such circumstances the penalty was not to be mechanically enhanced beyond the minimum amount merely on account of delay in payment. The absence of any evasion meant that the maximum penalty could not be treated as the amount imposed in the impugned orders.

Conclusion: The penalty could not lawfully exceed Rs. 10,000/- in the absence of any allegation of tax evasion.

Issue (ii): Whether the penalty orders were sustainable when the authorities did not apply the general disciplines relating to penalty under Section 126(2) of the Central Goods and Services Tax Act, 2017 and the relevant mitigating circumstances.

Analysis: Section 126(2) requires penalty to be commensurate with the facts and severity of the breach. The authorities did not consider the mitigating circumstances arising from the prevailing situation and the Government's relaxation of late fee while imposing the penalty. The impugned orders therefore failed to apply the statutory discipline governing quantification of penalty.

Conclusion: The penalty orders were unsustainable and were liable to be set aside.

Final Conclusion: The impugned penalty and appellate orders were set aside, and the matter was concluded by directing payment of a reduced penalty of Rs. 10,000/- in each case.

Ratio Decidendi: Where there is no allegation of tax evasion, penalty for delayed remittance of collected tax must be quantified in accordance with the statutory discipline of proportionality and relevant mitigating circumstances, and cannot be mechanically imposed at an enhanced level.

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