Madras HC sets aside 300% Penalty for Belated GST Returns, Directs to Pass Fresh Order Considering Precedent [Read Order]

In a recent ruling, the Madras High Court set aside the penalty of 300% citing that the GST department did not consider the same High Court ruling that Section 27(4) Tamil Nadu Value Added Tax ( TNVAT ) cannot be invoked for belated filing of returns.

The petitioner-assessee, Clean Switch India, challenged an order dated March 18, 2024, which imposed both tax and a penalty related to the delayed filing of returns and the subsequent reversal of Input Tax Credit ( ITC ). The assessment order for the financial year 2016-2017 was originally issued on September 3, 2019.

Clean Switch India did not initially contest the assessment, either through a statutory appeal or a writ petition. However, on February 6, 2023, the petitioner filed a rectification application, which was later rejected by an order dated August 17, 2023. This rejection led the petitioner to file a writ petition challenging the order.

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The High Court, in its previous ruling on December 21, 2023, had set aside the rectification rejection on the grounds that it was a non-speaking order. Resultantly, the matter was remanded for reconsideration, leading to the issuance of the impugned order.

Counsel for the petitioner argued that while the GST department accepted the petitioner's rectification regarding an incorrect ITC claim amounting to ₹40,15,403, it failed to properly address the issue of the delayed filing of returns. The petitioner had requested copies of the returns, including a letter dated August 8, 2019, but the department confirmed the tax proposal without providing these documents, subsequently refusing to rectify the penalty, asserted counsel, Mr.Rajkumar P.

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The primary contention of the petitioner centredaround the application of Section 27(4) of the TNVAT Act, which the petitioner argued should not have been invoked merely for the delayed filing of returns. The petitioner cited a Division Bench ruling in M/s. Shree LaxmiJewellery Limited v. The State of Tamil Nadu (Tax Case (Revision) which held that such a penalty provision should not be applied under these circumstances. Despite presenting this precedent, the department failed to consider or mention it in the impugned order.

The earlier order was set aside purely because it was non-speaking and that the petitioner had located the old documents in question, submitted the department’s counsel. Further added that, however, the High Court noted that the respondent did not provide the returns to the petitioner, thus denying them a fair opportunity to defend against the penalty.

The bench of Justice Senthilkumar Ramamoorthy upheld the tax component but found that the imposition of a 300% penalty was unjustified due to the department's failure to consider the binding precedent.

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Consequently, the high court set aside the penalty and remanded the matter for reconsideration, instructing the respondent to issue a fresh order after providing the petitioner with a reasonable opportunity to present their case, including a personal hearing.

To Read the full text of the Order CLICK HERE

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