TaxTMI 
TaxTMI 
2025 (6) TMI 115
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 51-61 DEALING WITH SUBMISSIONS OF THE PETITIONER 61-70 8. CONCLUSION 70-71 Relief Sought 1. This is a writ petition under Article 226 of the Constitution of India wherein the petitioner has prayed for the issuance of a writ of certiorari quashing the impugned Show Cause Notice No.02/2024-25 issued on April 19, 2024 vide Form GST DRC-01 reference No.DGGI/INV/GST/2179/2020/GRU/634(S/L) by Directorate General of Goods and Services Tax Intelligence (DGGI), Ghaziabad Regional Unit, (hereinafter referred to as 'respondent no.2') bearing CBIC DIN- 202404DNN40000555A8B, to the extent of exorbitant unexplained penalty of Rs. 2,735,113,681/- proposed to be levied against the petitioner firm under Section 122 (1), clause (ii) and (vii) of the Central Goods and Service Tax, Act 2017 (hereinafter referred to as 'CGST Act') and respective State Statutes namely Uttarakhand Goods and Services Tax Act, 2017, Haryana Goods and Services Tax Act, 2017 and the Maharastra Goods and Services Tax, 2017 read with Integrated Goods and Services Tax Act, 2017. Factual Background 2. Factual matrix giving rise to the instant petition is delineated below: a. In the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....diction of the same lies before the respondent no. 2 in view of Circular No.169/01/2022-GST dated March 12, 2022, wherein the Additional/Joint Commissioners of Central Tax Commissionerate Lucknow has been empowered with All India jurisdiction vide Notification No. 02/2022-Central Tax dated March 11, 2022 to further adjudicate the matter. As this writ petition is in respect of the petitioner, only the relevant portion of the said show cause notice which runs into more than 150 pages wherein the penalty is imposed upon the petitioner is extracted below: "13. Now, therefore M/s Patanjali Ayurved Ltd. (05AAECP4424C1ZX), Patanjali Food & Herbal Park Pvt. Ltd., Laksar Road, Padartha, Haridwar, Uttarakhand, 249404 is hereby required to show cause to the Additional/Joint Commissioner, Central GST Commissionerate, Office of the Commissioner, 7-A Ashok Marg, Block-E, Hazratganj, Lucknow, Uttar Pradesh-226001 as to why: i. The IGST amounting to Rs. 9,08,15,881/- (Rupees Nine Crore Eight Lakh Fifteen Thousand Eight Hundred and Eighty-one only) should not be demanded and recovered under the provision of Section 74(1) of the CGST Act, 2017 read with Section 20 of the IGST Act, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the CGST Act, 2017 read with Section 20 of the IGST Act, 2017. 13.2 Now, therefore M/s Patanjali Ayurved Ltd. (27AAECP4424C1ZR), G.N.5. Khadaka, Tal, Newasa, Ahmednagar, Maharashtra, 414603 is hereby required to show cause to the Additional/Joint Commissioner, Central GST Commissionerate, Office of the Commissioner, 7-A Ashok Marg, Block-E. Hazratganj, Lucknow, Uttar Pradesh- 226001 as to why: i. Penalty should not be imposed upon them in terms of Section 122(1)(ii) of the CGST Act, 2017 read with Section 20 of the IGST Act, 2017 for issuance of tax invoices or bills for passing on irregular ITC amounting to Rs. 11,26,67,999/- (IGST Rs. 11,26,67,999/-) without concomitant supply of goods as detailed in para 11.4.4; ii. Penalty should not be imposed upon them in terms of Section 122(1)(vii) of the CGST Act, 2017 read with Section 20 of the IGST Act, 2017 for taking or utilizing Input Tax Credit amounting to Rs. 10,06,89,000/- (IGST Rs. 10,06,89,000/-) without actual receipt of goods as detailed in para 11.4.4; iii. Penalty should not be imposed upon them in terms of Section 122(1)(x) and (xvi) of the CGST Act, 2017 read with Section 20 of the I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ular suppliers as fake, therefore, in absence of any physical verification report of particular stocks and the said irregular ITC cannot be attributed to a particular supplier in absence of which a demand of differential ITC is not legally sustainable. ii. All goods received from the suppliers have been accounted for by the petitioner and supplied in payment of GST thereby implying the passing on irregular ITC and the department has relied on a circular no. 171/03/2022-GST dated July 6, 2022 wherein it was clarified that proceedings under Section 74 cannot be initiated against taxpayers, if it has merely passed on irregular ITC on the outward supply and only penalty under Section 122 of the CGST Act, if any, could be imposed. iii. There is no any shortage and mismatch in stock of packing materials and the actual physical quantity of stocks in addition to the raw materials available. Furthermore, there is no adverse remark on any shortage or excess of stock packing materials found at the premises of the petitioner. iv. This is not a case of receiving supplies from a non-existent suppliers as if this would have been the case, the department ought to have ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia to point out that Section 122 of the CGST Act is criminal in nature and accordingly attracts criminal liability. b. Penalty for offences under Section 122 of the CGST Act states that a taxable person who commits any of the offences mentioned in its clause (i) to (xxi) shall be liable to penalty of ten thousand rupees or an amount equivalent to the tax evaded or ITC availed of or passed on or distributed irregularly whichever is higher. This imputes that first there has to be determination of tax under Section 73/74 of the CGST Act prior to invoking penal provision under Section 122 of the CGST Act. Moreover, heading to Section 122 of the CGST Act itself states 'Penalty for certain offences' that implies that there has to be a predicate offence of tax evasion for which demand of tax had to be made under Section 73/74 of the CGST Act. In this regard, reliance has been placed upon NC Dhondial v. Union of India reported in AIR 2004 SC 1272 and Ramanna Dayaram Shetty v. International Airport Authority of India reported in (1979) 3 SCC 489. c. Heading to Section 122 of the CGST Act reads as 'Penalty for certain offences'. The word 'offence' has not been defined in CG....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he prescribed acts under Section 122 of the CGST Act are identical to penal provisions under other statues further necessitating a trial. e. Section 74 of the CGST Act is already there to compensate for the loss of revenue under the head 'Demands and Recovery' which also contains reference to 'penalty' which is adjudicated by the proper officer and states that penalty payable is equivalent to tax payable under the notice. The purpose of framing Section 122 of the CGST Act by Parliament would not have been the same as for Section 74 of the CGST Act. It is contended that since penalty has already been dealt by the Parliament in Section 74 of the CGST Act there was no need to bring Section 122 of the CGST Act in the Statute for imposing penalty once again. Therefore, Section 122 of the CGST Act is for more serious offences and attracts criminal proceedings. f. A comparison between Section 122 (Penalty for certain offences) and 132 (Punishment for certain offences) of the CGST Act would reveal that several sub-sections are identical, which implies that a penalty under Section 122 can only be imposed after a conviction under Section 132. In relation to Section 132(6) w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion in relation to the various sections of the CGST Act but has intentionally excluded the proceedings under Section 122 for prosecution by criminal courts. Moreover, Section 122 of the CGST Act also does not contain any reference to proper officer; therefore it is implied that these proceedings ought to undergo prosecution by criminal courts. k. Petitioner's argument does not solely hinge on heading to Section 122 but also its substantive and operative part. Word 'aiding and abetting' is only found in criminal statutes. Subsection 3 of Section 122 of the CGST Act explicitly uses the word 'aiding and abetting', for offences therefore, these words used in the section makes the provision criminal in nature. l. The word 'penalty' has been used in the context of offence, even in the IPC and CrPC and does not automatically indicate that it is in the nature of civil liability. There is nothing in "tax jurisprudence" or any case law which specifically states, as a rule of law, that 'penalty' must necessarily relate to a civil liability. The character of the penalty, whether civil or criminal, will depend on the context, language, legislative intent and statutory structu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of penalty under Section 74 will not result in abatement of the proceedings under Section 132. However, proceedings under Section 122 even though criminal, will stand concluded in consonance with the general rule. Proceedings under Sections 73 and 74 are different from Sections 122 and 132 of the CGST Act and, therefore, can never be clubbed together. o. There are 17 provisions in chapter XIX titled as 'Offences and Penalty' and there is reference to a proper officer in some of the provisions. Section 124 of the CGST Act is also a "criminal" provision, as it provides for punishment and refers to a continuing offence. Section 126 gives general guidelines relating to penalty and is intended to ensure that the penalty imposed by the Department officers is not disproportionate and unduly harsh. Section 127 also refers to 'proper officers'. Only Section 125 does not refer to 'proper officer' and is titled 'General Penalty'. It applies only where no specific penalty is provided for in the Act. However, it does not relate to any "offence" but only refers to "contravention" under the Act. The absence of any reference to 'proper officer' in Section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nalty prescribed in Section 122(1) are different from the penalty prescribed under the Chapter XV Demands and Recovery that is Sections 73/74. Section 74 of the CGST Act deals with the determination of tax on account of fraud, wilful misstatement, or suppression of facts. On the other hand, Section 122(1) enumerates specific offences and penalties for various violations. b. Section 74 of the CGST Act are the outcomes resulting from the commission of the offences listed under Section 122 of the CGST Act. Therefore, the offences listed under Section 122 of the CGST Act need not necessarily cover the cases as those are covered under Sections 73, or 74 of the CGST Act. c. Tax Demand of Rs.9,08,15,881/- was issued under the provisions of Section 74 of the CGST Act as petitioner had wrongly availed or utilized ITC and penalty amounting to Rs.2,735,113,681/- under Section 122(i)(ii) and (vii) of CGST Act proposed in the notice, is not related with this demand but for issuing tax invoices without any actual supply of goods, and also for taxing/utilizing input tax credit without actual receipt of goods. Therefore, the demand invoked in the notice under the provisions of Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nent and indispensable feature under criminal law. Whereas, mens rea is not always needed when it comes to civil liability under tax law. Consequently, Section 122 does not suffer from any unconstitutionality, it can have ten offences without mens rea and eleven with mens rea, it will still amount to penalty as a civil liability. Therefore, Section 122 and its subsections, is a basket which is a mixture of non-mens rea and mens rea offences. Mens rea is permissible under tax statute for penalty, but it is impermissible for criminal trial wherein all sub-sections require mens rea. It is settled law in taxing statue that one can have civil liability/penalty with mens rea, it will still be considered as a penalty. h. Attention is drawn to the Explanation 1 to Section 74 of the CGST Act. The said provision is for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or wilful misstatement or suppression of facts. Explanation 1 to Section 74 is as under: "Explanation 1.- For the purposes of section 73 and this section,- (i) the expression "all proceedings in respect of the said no....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under Section 122 of the CGST Act and it is therefore indicative of the fact that the provision is only criminal in nature and that in terms of Section 74, the proper officer is entitled to issue show-cause notice both for non-payment of taxes and also for wrong availment of input tax credit and its utilization, therefore the safeguard being available under Section 74, a penalty under Section 122 as a civil liability is misconceived and should therefore be held to be only criminal in nature. Counsel on behalf of respondent has rebutted the assumption of the petitioner as both factually and legally incorrect and which was demonstrated by an illustration: "A, a taxable person supplies goods worth Rs. 100 crores and issues valid invoices of Input Tax Credit (ITC) worth Rs. 20 crores. B receives the goods and accounts the entire value and the ITC. However, B chooses to use only goods worth Rs. 50 crores and illicitly removes the balance quantity of goods to the tune of Rs. 50 crores in the grey market to C and collects cash. B also issues a fake invoice for Rs 50 crores value and Rs 10 crores ITC to yet another person D. Section 74 would apply not to A, for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... stand alone, a reference or non-reference to a proper officer cannot decide whether a provision is a civil liability or criminal in nature. For example; Section 123 deals with failure to furnish information and the penalty is one hundred rupees a day and shall not exceed five thousand rupees. Section 125 deals with a general penalty of twenty-five thousand rupees. Merely because there is no reference to a proper officer, cannot be construed as making the provision criminal in nature. l. To buttress his arguments, counsel has placed reliance on the following cases: (i) Shiv Dutt Rai Fatehchand (supra) [para 30,31] (ii) Gujarat Travancore Agency (supra) [para 4] (iii) M.C.T.M. Corporation Pvt. Limited (supra) [para 7,8,12] (iv) Chairman SEBI (supra) [para 29,33,52] (v) SEBI v. Cabot International Capital Corporation reported in 2004 SCC OnLine Bom 180 [para 47] (vi) Dharmendra Textile Processors (supra) [para 18] (vi) M/s Raghunandan Prasad Mohal Lal, Bareilly v. The Income Tax Appellate Tribunal and Others reported in 1969 SCC Online All 286 [para 9, 10, 11] (vii) NHPC Ltd. v. State of Himachal Pradesh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax. (4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice. (5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment. (6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer." Section 83. Provisional attachment to protect revenue in certain cases.- (1) Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue it is necessary so to do, he may, by order in writing, attach provisionally, any property, including bank account, belonging to the taxable person or any person specified in sub-section (1A) of section 122, in such manner as may be prescribed." (2) Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1). Section 122 : Penalty for certain offences.--(1) Where a taxable person who-- (i) supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply; (ii) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with the provisions of this Act or the rules made thereunder or furnishes false information or documents during any proceedings under this Act; (xviii) supplies, transports or stores any goods which he has reasons to believe are liable to confiscation under this Act; (xix) issues any invoice or document by using the registration number of another registered person; (xx) tampers with, or destroys any material evidence or document; (xxi) disposes of or tampers with any goods that have been detained, seized, or attached under this Act, shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher. (1A) Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is cond....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under sub-section (4) of section 52 of any outward supply of goods effected through it by a person exempted from obtaining registration under this Act, shall be liable to pay a penalty of ten thousand rupees, or an amount equivalent to the amount of tax involved had such supply been made by a registered person other than a person paying tax under section 10, whichever is higher." Section 124: Fine for failure to furnish statistics-If any person required to furnish any information or return under section 151,- (a) without reasonable cause fails to furnish such information or return as may be required under that section, or (b) wilfully furnishes or causes to furnish any information or return which he knows to be false, he shall be punishable with a fine which may extend to ten thousand rupees and in case of a continuing offence to a further fine which may extend to one hundred rupees for each day after the first day during which the offence continues subject to a maximum limit of twenty-five thousand rupees." Section 125. General penalty-Any person, who contravenes any of the provisions of this Act or any rules made thereunder f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder; (i) receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder; * * * * * (l) attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (f) and clauses (h) and (i) of this section, shall be punishable-- (i) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine; (ii) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine; (iii) in the case of an offence specifie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....offence under this Act may, either before or after the institution of prosecution, be compounded by the Commissioner on payment, by the person accused of the offence, to the Central Government or the State Government, as the case may be, of such compounding amount in such manner as may be prescribed: Provided that nothing contained in this section shall apply to- (a) a person who has been allowed to compound once in respect of any of the offences specified in clauses (a) to (f), (h), (i) and (l) of sub-section (1) of section 132; (b) [Omitted] (c) a person who has been accused of committing an offence under clause (b) of sub-section (1) of section 132; (d) a person who has been convicted for an offence under this Act by a court; (e) [Omitted] (f) any other class of persons or offences as may be prescribed: Provided further that any compounding allowed under the provisions of this section shall not affect the proceedings, if any, instituted under any other law: Provided also that compounding shall be allowed only after making payment of tax, interest and penalty involved in such offences. (2) T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i) to Section 74. 9. Per contra, the learned ASGI appearing on behalf of the respondents confutes the aforesaid arguments of the petitioner mainly on two-fold points. Firstly, Section 122 of the CGST Act attracts civil liability and not criminal as penalty in taxation matters subsumes civil liability. Furthermore, penalty provision prescribed under Section 122(1) is for offences committed by a taxable person and is different from penalty prescribed under the head 'Chapter XV: Demand and Recovery' that includes Sections 73/74. Issuance of tax invoice without actual supply of goods and utilisation of input tax credit without actual receipt of goods are different acts of omission and commission and hence penalty provisions under Section 122(1) of the CGST Act would be attracted. Secondly, with regard to abatement of proceedings under Section 122 in view of the explanation (1)(ii) to Section 74, it is submitted that a taxable person is liable for penalty under Section 122(1), if it violates the provisions of the CGST Act. Merely because no tax is demanded subsequent to dropping of proceedings under Section 74 by the department, it cannot exonerate the taxable person from the penalty....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., usu. In the form of imprisonment or fine; esp., a sum of money exacted as punishment for either a wrong to the state or a civil wrong (as distinguished from compensation for the injured party's loss). Though usu. for crimes, penalties are also sometimes imposed for civil wrongs." (iv) The word 'Penalty' as has been defined in P Ramanatha Aiyar's, 'The Law Lexicon' (4th Edition, page 1404) is quoted in verbatim as herein below: "The term 'penalty' is used very loosely in statutes in some cases, and might, without being much strained from its ordinary meaning, be held to embrace all the consequences visited by law on the heads of those who violate police requirements." *** "A punishment imposed for any breach of law, rule or contract a sum named in a bond as the amount to be forfeited by the obligor in case he does not comply with the conditions of the bond; money recoverable by virtue of a penal statute; a sum agreed to be paid on breach of an agreement or some stipulation in it." *** "The expression 'penalty' is a word of wide significance. Sometimes, it means recovery of an amount as a penal measure even in civil proceedi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be performed." "The words 'penal' and 'penalty' strictly and primarily denote punishment, whether corporal or pecuniary, imposed and enforced by the state for a crime or offence against its laws." *** "Penalty' ordinarily becomes payable when it is found that an assessee has wilfully violated any of the provisions of the taxing statute. [Associated Cement Co Ltd. v Commercial Tax Officer, (1981) 4 SCC 578, 600, para 23]" "Penalty is ordinarily levied on an assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute. (Pratibha Processors v UOI, AIR 1997 SC 138)." "Penalty' is a liability imposed as a punishment on the party committing the breach of contract. Karnataka Rare Earth v Senior Geologist, Deptt. of Mines & Geology, (2004) 2 SCC 783, 791, para 13." *** "Creating circumstances for compelling the assessee to discharge his statutory obligation cannot be termed to be a 'penalty'. The collection of tax being an act of the State for providing protection, security and other amenities to the society, cannot, in all circumstances, be termed to be a 'pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hable by the section is the contravention of the provisions of the Act and the prosecution is without prejudice to any award of penalty. The award of penalty is also based on the same contravention. Section 63 confers the power of confiscation of currency, security or any other money or property in respect of which a contravention of the provisions of the Act has taken place conferred equally on the adjudicating authority and the court, whether it be during an adjudication of the penalty or during a prosecution. Whereas Section 64(1) relating to preparation or attempt at contravention is confined to Section 56, the provision for prosecution, subsection (2) of Section 64 makes the attempt to contravene or abetment of contravention, itself a contravention, for the purposes of the Act including an adjudication of penalty under the Act. Section 68 relating to offences by companies, by sub-section (1) introduces a deeming provision that the person who was in charge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty along with the company of the contravention of the provisions of the Act and liable to be proceeded again....
X X X X Extracts X X X X
X X X X Extracts X X X X
....SCC (Cri) 101] is ordinarily defined as deserving of, or capable or liable to punishment. According to Concise Oxford English Dictionary, "punish" means, "inflict a penalty on as retribution for an offence, inflict a penalty on someone for (an offence)". In New Shorter Oxford English Dictionary (Vol. 2, 3rd Edn., reprint 1993), the meaning of punishment is given as, "infliction of a penalty in retribution for an offence; penalty imposed to ensure application and enforcement of a law". Going by Black's Law Dictionary (8th Edn.) it is: "A sanction-such as a fine, penalty, confinement, or loss of property, right, or privilege-assessed against a person who has violated the law." According to Jowitts Dictionary of English Law, Vol. 2, (2nd Edn. by John Burke), punishment is the penalty for transgressing the law. It is significant to notice that Section 68, both in sub-section (1) and in sub-section (2) uses the expression, shall be liable to be proceeded against and punished accordingly. There does not appear to be any reason to confine the operation of Section 68 only to a prosecution and to exclude its operation from a penalty proceeding under Section 50 of the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rea and is made the subject-matter of adjudication. In our view, penalty under Section 10(3) of the Act is compensatory. It is levied for breach of a statutory duty for non-payment of tax under the Act. Section 10(3) is enacted to protect public revenue. It is enacted as a deterrent for tax evasion. If the statutory dues of the State are paid, there is no question of imposition of heavy penalty. Everything which is incidental to the main purpose of a power is contained within the power itself. The power to impose penalty is for the purpose of vindicating the main power which is conferred by the statute in question. Deterrence is the main theme or object behind the imposition of penalty under Section 10(3)." (Emphasis added) 14. Upon a careful perusal of the multifarious definitions in the legal dictionaries and judgments noted herein above, one would come to the following conclusions: (a) The term 'offence' may have several meanings. It may be used in a statute to indicate a crime, a misdemeanour, felony or may be signifying a crime of lesser grade, or an act not indictable, but punishable summarily or by the imposition of a penalty. Any act committed against the la....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... does not necessarily under all circumstances mean a crime that is required to be tried by the criminal court. A contravention of a rule/law wherein criminal proceedings are not initiated but only penalty is imposed for the purpose of deterrence would also amount to an offence. Similarly, 'penalty' is a slippery word and the same has to be understood in the context in which it is used in a given statute. In ordinary parlance, the proceedings may cover penalties for avoidance of civil liabilities which do not constitute offences against the State. However, there would be circumstances for certain offences, penalty may not be imposed and the same may be punishable by incarceration. Penalty may be imposed in cases where there is a simple violation of a law or for omission to do a particular act without there being any mens rea. On the other hand, penalty may also be imposed for serious contravention of the law with or without mens rea that may amount to an offence for the purpose of deterrence and punishment. A statute may provide for further punishment by prosecution for the same offence/contravention, if the legislature deems it necessary. Interpretation of Statutes 16. Now, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ready been fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay." 18. Section 74 of the CGST Act provides for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or wilful mis-statement or suppression of facts to evade tax. Section 74 in its characterization is an anti-evasion provision in nature as it is aimed at curbing evasion of tax. This is a provision which in itself consists of two stages of taxing statute. It is a charging provision for the reason, it fixes the liability upon the person chargeable with tax. It is a machinery provision as it provides for determination/quantification of tax and penalty. Ergo, Section 74 at once is a charging and a machinery provision for the recovery of tax assessed and imposition of penalty. 19. Section 122 of the CGST Act provides for penalty on taxable persons for committing offences as mentioned in twenty-one sub clauses. It is aimed at discouraging tax payers from indulging in unlawful activities with regard to supplying goods without in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ose of the legislation of the presumption that the legislature would enact only for the purpose of bringing about an effective result. It is not the function of the Court to hunt out ambiguities by strained and unnatural meaning; close reasoning is to be adopted; harmonious construction is to be adhered to; all the relevant provisions are to be read together to gather the intention from the language employed, its context, and give effect to the intention of the legislature. Ingenious attempt to avoid tax is to be thwarted." (Emphasis added) 22. The Supreme Court in CST v. Shri Krishna Engg. Co. reported in (2005) 2 SCC 692 further held as follows: "35. This Court in A.V. Fernandez v. State of Kerala [1957 SCR 837 : AIR 1957 SC 657] opined that, however great the hardship may appear to the judicial mind, (SCR p. 847) "In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed." A fe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e relevant paragraph of the judgment is quoted herein below: "25. Shri Ashoke Sen drew pointed attention to the earlier affidavits filed on behalf of Bharat Coking Coal Limited and commented severely on the alleged contradictory reasons given therein for the exclusion of certain coke oven plants from the Coking Coal Mines (Nationalisation) Act. But, in the ultimate analysis, we are not really to concern ourselves with the hollowness or the self-condemnatory nature of the statements made in the affidavits filed by the respondents to justify and sustain the legislation. The deponents of the affidavits filed into court may speak for the parties on whose behalf they swear to the statements. They do not speak for the Parliament. No one may speak for the Parliament and Parliament is never before the court. After Parliament has said what it intends to say, only the court may say what the Parliament meant to say. None else. Once a statute leaves Parliament House, the Court is the only authentic voice which may echo (interpret) the Parliament. This the court will do with reference to the language of the statute and other permissible aids. The executive Government may place before t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a harmonious manner by reading all the provisions together to gather the intention from the language employed, its context, and give effect to the intention of the legislature. Ingenious attempt to avoid tax is to be thwarted. The Supreme Court in State of Tamil Nadu v. M.K. Kandaswami reported in (1975) 4 SCC 745 has categorically stated that where a particular section is a charging as well as a remedial provision, its main object is to plug leakage and prevent evasion of tax and in such circumstances in interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. 27. Section 74 is clearly a charging and machinery provision for determination/quantification of tax and penalty while Section 122 is a penal provision in discouraging the tax payers from indulging in unlawful activities of various kinds, and accordingly, is a penal provision for deterring evasion of taxes. 28. Upon perusal of the various judgments and interpretation of statute, one may conclude that both Sections 74 and 122 being charging sections are required to be interpreted strictly and plain meaning to the word used there....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Authorities is only a civil liability, though penal in character. It may be relevant to notice that sub-section (2-A) of Section 9 of the Act specifically refers to certain acts and omissions which are offences for which a criminal prosecution would lie and the provisions relating to offences have not been given retrospective effect by Section 9 of the Amending Act. The argument based on Article 20(1) of the Constitution is, therefore, rejected." (Emphasis added) 30. In Sukhpal Singh Bal (supra), the Supreme Court while pondering the vires of penalty imposed under Section 10(3) of the Uttar Pradesh Motor Vehicles Taxation Act, 1997, in relation to the object behind imposing penalty in tax statutes has held that the penalty provision is enacted to protect public revenue and deter tax evasion while serving a compensatory role for breaches of statutory tax duties. The relevant paragraph of the judgment is quoted herein below: "18. In the case of Rahimbhai Karimbhai Nagriwala v. B.B. Patel [(1974) 97 ITR 660 (Guj)] penalty under Section 271(1)(c) of the IT Act, as it stood at the relevant time, was levied on the assessee at Rs 13,854, equal to 100 per cent of the allege....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of penalty and, therefore, it is not possible to say that in the instant case the provision of Section 10(3) infringes Articles 14 and 19(1)(g) of the Constitution, as held in the impugned judgment. (Emphasis added) 31. The Supreme Court in Gujarat Travancore Agency (supra), relied upon by both the parties while distinguishing between imposition of civil penalty under Section 271 (1)(a) and criminal penalty under Section 276-C of the Income Tax Act, 1961 has essentially held in relation to penalty in tax delinquency matters that such penalty is a civil liability being remedial and coercive in character and far distinct from the penalty imposed in criminal or penal laws. The Supreme Court has heavily relied on the definition of penalty as given in Corpus Juris Secundum. The relevant paragraph of the judgment is quoted herein below: "4. Learned counsel for the assessee has addressed an exhaustive argument before us on the question whether a penalty imposed under Section 271(1)(a) of the Act involves the element of mens rea and in support of his submission that it does he has placed before us several cases decided by this Court and the High Courts in order to demonstrat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in Corpus Juris Secundum, Vol. 85, p. 580, para 1023: "A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws." (Emphasis added) 32. The Supreme Court in M.C.T. M. Corpn. (P) Ltd. (supra) relied upon by both the parties has held that mens rea is an essential element in criminal law for prosecuting an accused whereas in civil matters such as taxation mens rea is irrelevant for imposing civil liability. The Court while dealing with civil liabilities imposed under Section 14B of the Foreign Exchange Regulation Act, 1947 has held that imposition of penalty does not require the traditional proof of mens rea, only the breach of statutory provision or blameworthy conduct of the recalcitrant tax payers is enough to trigger the penalty in such matters The relevant paragraphs of the judgment are quoted in verbatim herein below: "7. "Mens rea" is a state of mind. Under the criminal law, mens rea is considered as the "guilty intention" and unless it is found that the 'accused' had the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with any "guilty intention" or not. Therefore, unlike in a criminal case, where it is essential for the 'prosecution' to establish that the 'accused' had the necessary guilty intention or in other words the requisite "mens rea" to commit the alleged offence with which he is charged before recording his conviction, the obligation on the part of the Directorate of Enforcement, in cases of contravention of the provisions of Section 10 of FERA, would be discharged where it is shown that the "blameworthy conduct" of the delinquent had been established by wilful contravention by him of the provisions of Section 10, FERA, 1947. It is the delinquency of the defaulter itself which establishes his 'blameworthy' conduct, attracting the provisions of Section 23(1)(a) of FERA, 1947 without any further proof of the existence of "mens rea". Even after an adjudication by the authorities and levy of penalty under Section 23(1)(a) of FERA, 1947, the defaulter can still be tried and punished for the commission of an offence under the penal law, where the act of the defaulter also amounts to an offence under the penal law and the bar under Article 20(2) of the Constitution of India in such a case woul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. (C) If, from the scheme, object and words used in the statute, it appears that the proceedings for imposition of the penalty are adjudicatory in nature, in contradistinction to criminal or quasi-criminal proceedings, the determination is of the breach of the civil obligation by the offender. The word 'penalty' by itself will not be determinative to conclude the nature of proceedings being criminal or quasi-criminal. The relevant considerations being the nature of the functions being discharged by the authority and the determination of the liability of the contravenor and the delinquency. (D) Mens rea is not essential element for imposing penalty for breach of civil obligations or liabilities. (E) There can be two distinct liabilities, civil and criminal, under the same Act." 34. This Court in M/s Hindustan Herbal Cosmetics vs State Of U.P (Neutral Citation No. - 2024:AHC:209) has held that penalty in tax matters in some cases may require an element of mens rea. The relevant paragraph of the judgment is quoted hereinbelow: "8. Upon perusal of the judgments, the principle that emerges is that presence of mens rea for evasion of tax is a sine ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d hereinabove, on the facts of this case, it has precisely been found that there was no intent on the part of the writ petitioner to evade tax and rather, the goods in question could not be taken to the destination within time for the reasons beyond the control of the writ petitioner. When the undeniable facts, including the traffic blockage due to agitation, are taken into consideration, the State alone remains responsible for not providing smooth passage of traffic." 36. In Veena Estate (P.) Limited v. Commissioner of Income Tax reported in [2024] 461 ITR 483 (Bombay), the Bombay High Court while dealing with the procedural defects in furnishing notice under Section 274 of Income Tax Act, 1961 has upheld the view of Tribunal in imposing penalty against assessee for concealment of his income due to presence of mens rea. 37. In Chemmancherry Estate Co. v. Income Tax Officer Ward VIII (2) reported in (2020) 268 Taxmann 29 (Madras), the Madras High Court has upheld the findings of Tribunal wherein the Tribunal has imposed penalty upon the assessee under Section 271(1)(c) for concealment of non59 agricultural land and knowingly furnishing inaccurate particulars of income in retu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ature of the functions being discharged by the authority and the determination of the liability of the contravenor and the delinquency. (iv) Mens rea is not an essential element for imposing a penalty for breach of civil obligations or liabilities. (v) There can be two distinct liabilities, civil and criminal, under the same Act. g. In relation to Section 129 of the CGST Act, this court in M/s Hindustan Herbal Cosmetics (supra) has held that the principle that emerges is that in certain cases the presence of mens rea for evasion of tax is a sine qua non for imposing of penalty. 39. Upon a perusal of the above principles, it is blatant that penalty may be imposed in cases where men rea is a requirement. It is the scheme of a particular statute that shall determine whether for imposition of penalty there is a requirement for men rea or not. However, when a taxing statute speaks of prosecution, for those offences mens rea or guilty intent is a sine qua non. As held in Cabot International Capital Corporation (supra), if from the scheme, objects and words used in the statute, it appears that the proceedings for imposition of penalty are adjudicatory in natu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d is fallacious in nature and is accordingly rejected. Under the present GST regime, persons who are not liable to pay tax under Sections 73/74 of the CGST Act may very well be liable for penalties as described in the twenty-one sub-sections of Section 122(1) and under sub-sections 122(2) and 122(3). 42. The second argument raised by Mr. Datar is that, Section 122 of the CGST Act falls under the Chapter XIX: 'Offences and Penalties' and the very heading of Section 122 reads 'Penalty for certain offences'. He argues that the definition of offences is not made available in the CGST Act and therefore has to be imported from either the General Clauses Act, 1897 or the Code of Criminal Procedure, 1973. Upon a plain reading of Section 2(38) of the General Clauses Act, 1897, and Section 2(n) of CrPC it is clear that an offence is any act or omission made punishable by law for the time being in force. Punishment need not always be imposed by way of a criminal trial and it could very well be imposed by way of penalty. 43. Moreover, Section 4(2) of CrPC states that all offences under any law shall be investigated, inquired into, tried, and otherwise dealt with, according to the provisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions. Thereafter, Section 131, categorically states that without prejudice to the provisions contained in CrPC, no confiscation made or penalty imposed under the provisions of this Act or the rules made thereunder shall prevent the infliction of any other punishment to which the person affected thereby is liable under the provisions of this Act or under any other law for the time being in force. Subsequent to this, is Section 132 of the CGST Act which relates to punishment for certain offences. The section that follows Section 132, all deal with punishments that are for serious offences enumerated under Section 132. Notably, Section 132 lists out only nine offences in contradiction to Section 122 of the CGST Act that enumerates twenty-one offences. Upon a perusal of these offences under Section 132, it is patently clear that these offences are far more serious in nature and therefore the legislature has chosen to impose criminal punishment for the same. One may also note that before imposing any such punishment, Section 132(6) specifically states that a person shall not be prosecuted for any of the offences provided in the section except with the previous sanction of the Commission....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lty is being imposed for the offences enumerated therein whereas in Section 132 of the CGST Act punishment is being imposed for the offences enumerated therein. Coupled with the fact that Section 132 categorically states that previous sanction of the Commissioner is required which is once again reiterated in Section 134 that further clarifies that criminal court that shall try the offences under Sections 132 to 138. 47. Mr. Datar has further relied on the notes on clauses of Section 122 of the CGST Act to submit that the word 'offence' has been used in the said notes on clauses. However, the notes on clauses make it categorically clear that for the list of offences enumerated under Section 122, the same shall only be liable to penalty. There is a stark omission in the notes on clauses with regard to any trial to be carried out before coming to the imposition of such a penalty. On a further reading of the sections provided in chapter XIX one may look at Section 128 of the CGST Act that provides for power provided to the Government to waive penalty or fees or both. It is seen that this provision empowers the GST Council to recommend waiver of any penalty referred to in Section 122....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ally excluded the proceedings under Section 122 for prosecution by criminal courts. He has further submitted that Section 122 does not contain any reference to proper officer and therefore it implies these proceedings can only be carried out in a criminal court. This argument would have to be rejected on the following grounds: a. Powers under Section 74 of the CGST Act are undoubtedly exercised by a proper officer. Explanation 1(ii) to Section 74 of the CGST Act clearly indicates that it is the proper officer who initiates the proceedings under Sections 73 and 74 is also the person who is initiating the proceedings under Sections 122 and 125 as the explanation provides for proceedings against the persons liable to pay penalty under Sections 122 and 125 are deemed to be concluded when the proceedings against the main person charged under Sections 73 and 74 are concluded. It may further be noted that Explanation 1(i) to Section 74 of the CGST Act categorically states that the expression "all proceedings in respect of the said notice" shall not include proceedings under Section 132 of the CGST Act. Inclusion of this particular sub-clause can only be interpreted to me....
X X X X Extracts X X X X
X X X X Extracts X X X X
....order under Section 122 of the CGST Act and nothing further remains in doubt. The arguments placed by Mr. Datar with regard to the above issue, though very eloquently presented do not seem to hold any water when one looks at the entire scheme of the Act as indicated above. In light of the same, one may conclude that a proper officer/adjudicating officer has the power to adjudicate on the penalty provision provided under Section 122 of the CGST Act. 51. With reference to the issue (II), it is submitted by the petitioner that if the proceedings under Section 74 of the CGST Act is dropped/concluded against the main person, the proceedings under Section 122 of the CGST Act shall also abate against the main person. The petitioner had relied on the explanation 1(ii) to Section 74 in support of this argument. However, from a reading of the circular no. 171/03/2022-GST dated July 6, 2022, it is clear that the contravention under Section 73/74 need not necessarily be a contravention covered under Section 122 of the CGST Act. Explanation 1(ii) of Section 74 categorically states that when the proceedings against the main person under Section 73/74 are dropped then the proceedings under Sec....