SC rules 100% penalty under Section 74 CGST invalid without proof of fraud or wilful concealment

The SC held that the levy of 100% penalty under section 74 of the CGST Act, 2017 could not be sustained as fraud or wilful concealment was not proved. The appellant was permitted to raise the challenge to the penalty in the review application despite it not being expressly argued earlier, as it was included in the writ petition memorandum. The SC set aside the High Court's order rejecting the review application on procedural grounds and remanded the matter for consideration on merits. The appeal was allowed in part, directing the HC to examine the validity of the penalty afresh.

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ISSUES:

Whether the imposition of 100% penalty under Section 74 of the Central Goods and Services Tax Act, 2017, is justified in absence of proof of fraud or wilful concealment by the department.Whether a contention regarding penalty can be raised for the first time in a review application when it was mentioned in the memorandum of the writ petition but not elaborated during initial hearings.The scope and permissibility of review under clause (c) of Order XLVII Rule 1 of the Code of Civil Procedure, 1908, in relation to newly emphasized grounds originally stated but not argued.Whether the High Court erred in dismissing the review application on the ground that the penalty contention was not raised during the original writ petition hearing.

RULINGS / HOLDINGS:

The Court held that the appellant was entitled to raise the contention regarding the imposition of 100% penalty in the review application as it was a ground raised in the memorandum of the writ petition, and the High Court must consider it on merits.The Court found that "interest of justice would be met" by permitting the appellant to argue the penalty issue in the review application, despite it not being expressly elaborated during the initial writ petition hearing.The order dismissing the review application was set aside and restored for fresh consideration by the High Court, directing it to decide the penalty issue on merits and in accordance with law.The Court allowed the appellant to also raise the issue of imposition of interest on the penalty in the review application.The Court reserved liberty for the appellant to approach it again only on the penalty aspect if unsuccessful in the review application.

RATIONALE:

The Court applied the provisions of Section 74 of the CGST Act, 2017, which require proof of fraud or wilful concealment for imposition of 100% penalty.The Court interpreted clause (c) of Order XLVII Rule 1 of the Code of Civil Procedure, 1908, as permitting review where sufficient grounds exist, including grounds that were raised in the pleadings but not fully argued initially.The Court emphasized the principle of "interest of justice" as a guiding factor to allow consideration of substantive issues on merits rather than procedural technicalities.No dissent or doctrinal shift was noted; the judgment reinforced the established approach that review applications may be entertained to address grounds inadequately considered earlier, especially when such grounds appear in the original pleadings.

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