The Supreme Court invoked its power under Article 142 of the Constitution to reduce GST penalty imposed on a contractor which executed work for Gas Authority of India Limited (GAIL).

The Assistant Commissioner of State Tax, Central Section had issued a notice invoking Sections 129(3) of the Central Goods and Services Act, 2017 (CGST Act), 129(3) of West Bengal Goods and Services Act (WBGST Act), and Section 20 of Integrated Goods and Services Tax Act, 2017 (IGST Act). The notice directed the company to explain within seven days why the proposed tax and penalty of ₹54,00,000 each should not be imposed. A reply was submitted but the respondent confirmed the proposed tax and penalty through an Order.

The company filed a writ petition before the Calcutta High Court against this Order. On August 21, 2019, the Calcutta High Court directed the release of the company's goods, subject to specific conditions. These conditions included payment of the entire GST amount and 50% of the penalty in cash, with the remaining penalty to be covered by a bank guarantee. The appellant appealed this decision in the Supreme Court, contesting the quantum of penalty imposed.

A Division Bench of Justice Hima Kohli and Justice Ahsanuddin Amanullah observed “The appellant has been saddled with the tax amount of 54,00,000/- (Rupees Fifty four lakhs). The law also provides for imposition of penalty. Ordinarily, we may have refrained from interfering, but because there was an E-way bill that was generated and in view of the discussions made hereinabove, we are inclined to vary the orders passed by the High Court.

Senior Advocate R. Balasubramanian appeared for the appellant while Senior Advocate Rakesh Dwivedi appeared for the respondents.

The company was registered under the CGST Act and the WBGST Act and was engaged in horizontal directional drilling for underground utilities. The company executed work contracts for the Gas Authority of India Limited (GAIL) and faced issues during the transportation of machinery for a project in Durgapur, West Bengal.

On May 30, 2019, the appellant enlisted the services of M/s. Hariom Freight Carriers to mobilize a machine from Uttar Pradesh to Durgapur. Despite complying with the CGST Act, an order of detention was issued on June 17, 2019, leading to subsequent notices and a demand order for tax and penalty.

The Court held “In our opinion, ends of justice would be served if the penalty amount is reduced to 50% of the penalty imposed, i.e., 27,00,000/- (Rupees Twenty seven lakhs). Therefore, 54,00,000/-(Rupees Fifty four lakhs) being the tax imposed, is upheld and penalty would now be 27,00,000/- (Rupees Twenty seven lakhs), totalling to 81,00,000/- (Rupees Eighty one lakhs), which shall be paid by the appellant.

The Supreme Court upheld the tax imposed by the High Court and reduced the penalty amount to 50%.

Cause Title: Vardan Associates Pvt. Ltd v. Assistant Commissioner of State Tax, Central Section & Ors. (Neutral Citation: 2023 INSC 1087)


Appellant: Senior Advocate R. Balasubramanian, AOR Karunakar Mahalik, Advocates Mehul Sharma, Yash Tyagi, Manoranjan Mishra, and Sarbendra Kumar

Respondents: Senior Advocate Rakesh Dwivedi; AORs Madhumita Bhattacharje and Mukesh Kumar Maroria; A.S.G.(NP) Balbir Singh; Advocates Urmila Kar Purkayasthe, Srija Choudhury. Rupender Sinhmar, Shlok Chandra, Shantnu Sharma, and Naman Tandon

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