Allahabad High Court Quashes GST Penalty

Chandrashekhar Yadav vs. Revenue (Writ Tax No. 357 of 2022)

Background of the Case

The Appellant, Mr. Chandrashekhar Yadav, received a show-cause notice (SCN) dated 12.10.2022 under Section 74 of the U.P. GST Act, 2017. The notice demanded tax of Rs. 13,55,943 along with interest and penalty amounting to Rs. 25,08,494. The Appellant had paid Tax amounting to Rs. 13,55,943 via DRC-03 on 14.11.2022 and contested the Interest and penalty. The Revenue justified the demand by pointing out that while the appellant had declared his tax liability in GSTR-3B, he failed to pay it initially. Additionally, the Department noted that the appellant did not respond to a prior notice issued under Section 61 of the Act.

Appellant Arguments

The Appellant, argued that the invocation of Section 74 was unjustified since the show-cause notice did not allege any fraud, wilful misstatement, or suppression of facts—essential conditions for applying this provision. He further contended that the tax demand had already been settled voluntarily before the final order was passed, making the subsequent imposition of interest and penalty arbitrary. The Appellant also highlighted that the order, issued in 2024 for the financial year 2017-18, was time-barred.

Respondent’s Response

The Respondent, Revenue defended its position, arguing that the Appellant had declared his tax liability in GSTR-3B but failed to pay it within the stipulated time. They emphasized that despite being issued a notice under Section 61 of the Act, the Appellant did not furnish any response, which warranted proceedings under Section 74. The Department maintained that the delay in payment and lack of compliance with notices justified the imposition of interest and penalty.

Court Findings and Decision

The Allahabad High Court ruled in favour of the appellant, quashing the penalty and interest demand stating that section 74 can be invoked only if there is fraud, wilful misstatement, or suppression. Since the notice did not allege any of these, the penalty is unsustainable. The fraud must be explicitly alleged & proven else, the penalty is illegal. The court further held that there is no Jurisdiction for Penalty without fraud. The court held that mere non-payment of tax does not mean fraud. The department failed to prove any mala fide intent.