Imposition of Penalties within Realm of Tax Laws not to be Solely based on Insignificant Technical Errors Devoid of any Financial Consequences: Allahabad HC [Read Order]

In a recent decision, the Allahabad High Court observed that the imposition of penalties within realm of tax laws not to be solely based on insignificant technical errors devoid of any financial consequences. The writ petition was filed under Article 226 of the Constitution of India wherein the petitioner is aggrieved by the penalty order dated September 13, 2018 passed by the respondent No.4/Assistant Commissioner, State Goods and Services Tax, Agra and the order dated October 3, 2019 passed in appeal by the respondent No.3/Additional Commissioner Grade-2 (Appeal)-III, State Goods and Services Tax, Agra. The case of the petitioner was that the goods have been loaded on a particular vehicle, which broke down and upon such breaking down, the goods were loaded on another vehicle. At that point of time, the goods were seized. The petitioner had explained that the date on which the breakdown had taken place, there was Bharat Band and due to the same, the driver of the vehicle could not update the e-way bill.

The factual position is that the goods were accompanied by invoice and e-way bill reflecting earlier vehicle number. The appellate authority, while passing the order in appeal, has made categorical finding that even if the documents are accompanied with the goods but there is a technical error, the same would amount to violation of provisions of Section 129 of the Uttar Pradesh Goods and Services Tax Act, 2017 read with Rule 138 of the Uttar Pradesh Goods and Service Tax Rules, 2017, even though there is no intention to evade tax. A Single Bench of Justice Shekhar B. Saraf observed that “The imposition of penalties within the realm of tax laws should not be based solely on insignificant technical errors devoid of any financial consequences. The foundational principle guiding this approach is the commitment to maintain a tax system that is characterized by fairness and justice, where the severity of penalties corresponds to the gravity of the offense committed.

While penalties serve a pivotal role in ensuring compliance with tax laws, legal frameworks stress the importance of establishing the actual intent to evade taxes as a prerequisite for their just imposition.” “In light of the above, I am of the view that the orders impugned in this writ petition are not sustainable in law wherein the authorities have exceeded their jurisdiction and have not acted in accordance with the provisions of the statutes. Accordingly, the order September 13, 2018 and October 3, 2019 are quashed and set-aside. The amount deposited by the petitioner be refunded within a period of four weeks from date. Other consequential reliefs to follow” the Court noted.

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