Imposition of 100% Penalty under GST Without Proving Fraud: Supreme Court Restores Review Petition for Fresh Consideration [Read Judgement]

In a recent ruling, the Supreme Court has directed the Andhra Pradesh High Court to reconsider a review petition challenging the imposition of 100% penalty under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act), on the ground that fraud or wilful concealment had not been established by the department.

The matter arose after the Andhra Pradesh High Court dismissed both the writ petition filed by the assessee, M/s Godway Funicrafts in 2020 as well as the subsequent review petition filed in 2021. The High Court had taken the view that the plea regarding absence of fraud or wilful concealment had not been urged during arguments in the writ petition and therefore could not be introduced for the first time in review proceedings.

Aggrieved, the assessee approached the Supreme Court. A Bench comprising Justice B.V. Nagarathna and Justice K.V. Viswanathan heard the matter and observed that the contention regarding imposition of 100% penalty had in fact been raised in the memorandum of writ petition, though it might not have been elaborated during oral submissions.

The Court noted that, “The appellant, in the facts and circumstances of this case, 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 writ petition. Therefore, we find that the High Court has to consider the same on merits in the review application.”

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

Accordingly, the Supreme Court set aside the order of the Andhra Pradesh High Court dated 6 May 2022 in Review I.A. No. 1 of 2021 and restored the review application for fresh adjudication.

The Bench of Justice B.V. Nagarathna and Justice K.V. Viswanathan directed the High Court to permit the appellant to raise all contentions regarding the imposition of penalty, particularly the grievance that 100% penalty under Section 74 could not have been sustained without establishing fraud or wilful concealment. It was further clarified that the appellant would also be entitled to raise the issue of interest imposed on the penalty in the review proceedings.

The Supreme Court concluded that the appeals would stand allowed in part, to the extent indicated, and observed that in the event the appellant was unsuccessful before the High Court, liberty was reserved to once again approach the Supreme Court on the limited aspect relating to penalty.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates