2025 (1) TMI 983 - HC - GST

Section 129 CGST Act cannot override Section 126 penalty provisions despite non-obstante clause

The Delhi HC held that Section 129 of the CGST Act, 2017 does not override Section 126's penalty provisions despite containing a non-obstante clause. The ... Interpretation of statute - Section 129 of the Central Goods & Services Tax Act, 2017 (CGST Act) constitutes a statutory penalty provision that overrides other penalty provisions in the Act - It is submitted that Section 129 being a provision creating a statutory penalty and intended to override the scheme of Chapter XIX of the Act by virtue of the non-obstante clause that it incorporates, does not appear to be sound for reasons - incomplete E-way Bills (EWBs) without any fraudulent intent - applicability and interpretation of Sections 122, 125, and 126 concerning minor breaches and procedural errors - HELD THAT:- The non-obstante clause in Section 129 cannot possibly be interpreted as being intended to override what had been specifically provided in Section 126 or annihilate the rules of guidance which stood embodied therein. Section 129 is principally concerned with the release of goods and conveyances which may have been detained or seized. That is clearly not a subject which is regulated or controlled by any of the other provisions contained in Chapter XIX of the Act. The use of the non-obstante clause is thus liable to be appreciated and construed in the aforesaid light. In our considered opinion, since the subject of levy of penalty in connection with goods being transported in contravention of the Act had not been previously dealt with, the Legislature thought it fit and appropriate to deploy the non-obstante in order to deal with that subject. The extent of the “notwithstanding” phrase which introduces Section 129 into the statute book is thus liable to be construed in that light and thus the limit of its essay acknowledged accordingly. We also find ourselves unable to read Section 129 as embodying an intendment of the Legislature to either override or completely supersede and obliterate Section 126. Accepting such an interpretation would clearly amount to depriving a person of the benefit of the principles of moderation and modulation which Section 126 introduces and enjoins to be borne in consideration while considering the levy of a penalty. The provisions contained in sub-section (6) of Section 126 also cannot possibly be read as whittling down the application of sub-sections (1) and (2) of Section 126 when it ordains that it would not apply to cases where penalties stand specified either as a fixed sum or percentage. Section 126 (6) of the Act provides that its provisions will not apply in cases where the penalty under the Act is specified as a fixed sum or as a fixed percentage. This is further reflective of the Legislature seeking to distinguish between discretionary penalties and those that are predetermined. By excluding fixed penalties from the scope of this section, the law ensures clarity and consistency in its application, underscoring the principle that certain penalties are non-negotiable and uniformly applicable irrespective of the circumstances of the breach. It would also be pertinent to note that in Synergy Fertichem [2019 (12) TMI 1213 - GUJARAT HIGH COURT], the Gujarat High Court emphasized that authorities must distinguish between trivial breaches and serious contraventions under the Act. The High Court clarified that confiscation is penal in nature and should only apply in cases of a clear intent to evade tax as opposed to mere procedural lapses such as an incomplete EWB when other valid documents are present. Further, issuing confiscation notices under Section 130 at the initial stage, without proper grounds or evidence of an intent to evade tax, the High Court held would be unjustified and would render Section 129 ineffective. The Court ultimately came to conclude that a reasoned and fair approach is essential to avoid an unnecessary detention of goods and conveyances. We are in complete agreement with the view expressed by the Gujarat High Court and which correctly explains the interplay between Sections 129 and 130 of the Act. The harsh consequences which would follow a confiscation clearly warrant the provisions of the Act being accorded an interpretation which would be fair, reasonable and in consonance with the requirement of Article 14 of the Constitution. In any event, Section 129 can neither be construed as envisaging an inevitable levy of tax nor the imposition of a penalty. As noticed hereinabove, the said provision is primarily concerned with the release of seized and detained goods. Conclsuion - The levy of penalties under the Act must be guided by the salutary principles which stand embodied in Section 126. That statutory provision is undoubtedly an embodiment of the legislative intent of levy of penalties being guided by principles of moderation, restraint and reasonableness. Petition disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether Section 129 of the Central Goods & Services Tax Act, 2017 (CGST Act) constitutes a statutory penalty provision that overrides other penalty provisions in the Act.Whether the imposition of penalties under Section 129 is justified in cases of procedural lapses such as incomplete E-way Bills (EWBs) without any fraudulent intent.Whether the non-obstante clause in Section 129 overrides the principles of moderation and reasonableness in penalty imposition as embodied in Section 126 of the CGST Act.The applicability and interpretation of Sections 122, 125, and 126 concerning minor breaches and procedural errors.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Nature and Scope of Section 129Relevant Legal Framework and Precedents: Section 129 of the CGST Act deals with the detention, seizure, and release of goods in transit. It includes a non-obstante clause, suggesting its potential to override other provisions. The court analyzed precedents on the interpretation of non-obstante clauses, including decisions from the Supreme Court and other High Courts.Court's Interpretation and Reasoning: The court found that Section 129 is primarily concerned with the release of detained goods and does not inherently impose penalties. The non-obstante clause should not be interpreted to override the principles of moderation in penalty imposition found in Section 126.Key Evidence and Findings: The court noted that the demands were based on incomplete EWBs, which were rectified without any fraudulent intent. The court emphasized that Section 129 should not be construed as imposing an automatic penalty.Application of Law to Facts: The court applied the principles of statutory interpretation, emphasizing the need for a fair and reasonable approach to penalties, especially in cases of minor procedural lapses.Treatment of Competing Arguments: The respondents argued that Section 129 imposes a statutory penalty overriding other sections. The court rejected this, emphasizing the need to consider Section 126's principles of moderation.Conclusions: Section 129 should not be interpreted as imposing an automatic penalty. The non-obstante clause does not override the principles of moderation in penalty imposition.Issue 2: Imposition of Penalties for Procedural LapsesRelevant Legal Framework and Precedents: Sections 122, 125, and 126 of the CGST Act were considered, focusing on penalties for procedural lapses and minor breaches.Court's Interpretation and Reasoning: The court emphasized that penalties should be commensurate with the severity of the breach. Minor procedural errors, especially those rectified without fraudulent intent, should not attract severe penalties.Key Evidence and Findings: The court noted that the petitioners had rectified the incomplete EWBs promptly and without any fraudulent intent, which should be considered a minor breach.Application of Law to Facts: The court applied Section 126, which emphasizes moderation in penalty imposition, to the facts, concluding that the penalties were unwarranted.Treatment of Competing Arguments: The respondents argued for strict penalties under Section 129. The court countered this with the principles of moderation in Section 126.Conclusions: Penalties for procedural lapses should be moderate, and Section 126 should guide penalty imposition, considering the absence of fraudulent intent.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'Section 129 should not be interpreted as imposing an automatic penalty. The non-obstante clause does not override the principles of moderation in penalty imposition.'Core Principles Established: The court established that penalties should be commensurate with the severity of the breach and that minor procedural errors, especially those rectified without fraudulent intent, should not attract severe penalties.Final Determinations on Each Issue: The court quashed the impugned orders and set aside the demands of tax and penalty, emphasizing the need for moderation and reasonableness in penalty imposition.The court's decision underscores the importance of interpreting statutory provisions in a manner that aligns with principles of fairness, moderation, and reasonableness, particularly in the context of procedural lapses under the CGST Act.