Govts Should Collect Taxes Like Honeybee, Without Disturbing Petals: Allahabad High Court While Quashing Penalty Order Against Hawkins

Recently, while quashing penalty order passed under Section 129 of the Goods and Service Tax Act, 2017 against M/s Hawkins Cookers Limited, the Allahabad High Court cited the Arthashastra by Chanakya.

“Governments should collect taxes like a honeybee collects honey from a flower without disturbing its petals.”

The Court held that in absence of any other discrepancy, incorrect address entered in four out of eight e-way bills is of the principal place of business of the petitioner, the same does not give rise to the presumption of intention to evade tax. Justice Shekhar B. Saraf held that “mere technical error committed by the petitioner cannot result in imposition of such harsh penalty upon the petitioner.”

Factual Background

Petitioner is engaged in the business of manufacturing and selling of pressure cookers under the brand name of Hawkins with principal place of business at Kanpur and factory at Jaunpur.

Petitioner purchases/stock transfers various parts/raw materials for manufacturing of pressure cookers from Maharashtra to Uttar Pradesh. The goods were to be delivered at the factory in Jaunpur. In 4 out of 8 e-way bills the delivery address was correctly recorded. However, in the remaining 4 e-way bills, address of the principal place of business at Kanpur was mentioned instead of the factory at Jaunpur.

The goods were intercepted and a detention memo was issued based on the discrepancies in the e-way bills.

Counsel for petitioner argued that the error was due to the place of business being automatically reflected at the time of entering the GSTIN(registration number) of the petitioner while generating the E-Way bills. Though it is the duty of the person generating the e-way bills to change the address, however, the accountants of the petitioner inadvertently did not change the address.

It was argued that the error was technical without any intention to evade tax. It was submitted that the goods could not be transported to the principle place fo business as they were raw materials required for manufacturing of pressure cookers.

Counsel for respondent defended the penalty order on grounds that error being grave in nature gives rise to assumption of intention to evade tax.

High Court Verdict

The Court observed that admittedly wrong addresses were mentioned in 4 out of 8 e-way bills. However, since there were no discrepancies in the 8 invoices and bilties, the Court observed that the argument of the petitioner regarding inadvertent error was not far-fetched. The Court observed that there was no intention to evade tax on part of the petitioner.

“As held by this Court in umpteen cases, where penalty is being imposed under Section 129 of the Act an intention to evade tax should be present. Now, such an intention to evade tax may be presumed by the department in cases where there is wholesole disregard of the Rules.”

The Court held that presumption of intention to evade tax may be made in cases where goods are not accompanied by invoices or e-way bills as the same can be rebutted by the assesee. However, in case where goods are accompanied by all documents and a technical/ clerical error has crept into one of the documents, such presumption cannot be made. The Court held that in such cases it is on the department to indicate the intention to evade tax.

The Court held that technical error in the e-way bill cannot lead to imposition of harsh penalty on the petitioner.

Accordingly, the writ petition was allowed and the penalty order against the petitioner was quashed.

Case Title: M/S Hawkins Cookers Limited vs. State Of U.P. And 2 Others 2024 LiveLaw (AB) 96 [WRIT TAX No. - 739 of 2020]

Case citation: 2024 LiveLaw (AB) 96

Counsel for Petitioner: Shubham Agrawal

Counsel for Respondent: Ravi Shanker Pandey

Click Here To Read/Download Order