No Penalty Under Section 129(3) Of CGST Act Could Be Imposed Without Providing A Hearing Opportunity U/S 129(4) Of The Act

While observing that a petitioner’s response to the show cause is required to be considered after due opportunity of hearing, in accordance with the statutory provisions, the Patna High Court has overturned the penalty imposed on a petitioner for moving goods without a valid e-way bill.

The Court ruled that no penalty under Section 129(3) of the Central Goods and Services Tax (CGST) Act could be imposed without providing a hearing as prescribed under Section 129(4) of the Act.

The case revolved around a vehicle intercepted on the Gaya-Dobhi Road for movement without a valid e-way bill, leading to the imposition of a penalty under Section 129(3) of the Central Goods and Services Tax (CGST) Act. The incident took place on 23rd February 2022 at 09:55 PM when the e-way bill was found to be expired.

Following the detection of goods in transit without a valid e-way bill, the proper officer under the CGST Act levied a penalty on the petitioner, as stated in the order dated 28th March 2022. Prior to that, a notice dated 28th March 2022 had been issued, summoning the petitioner to appear before the proper officer on 5th April 2022 at 11:00 AM.

Subsequently, the petitioner challenged both the penalty order issued by the proper officer and the rejection of their appeal by the first appellate authority through a writ petition.

Representing the petitioner, Mr. Sanjay Singh, senior counsel, made two primary submissions. Firstly, he argued that due to a vehicle breakdown, it was not possible to transport the goods within the validity period through the state of Bihar. The petitioner's bona fides were urged to be considered before imposing the penalty. Mr. Singh contended that the proper officer could not have imposed the penalty without taking this into account.

The second submission highlighted that the notice under Section 129(1)(a) of the Act and the order determining the penalty under Section 129(3) were issued simultaneously on the same date. The appellate authority, according to Mr. Singh, mechanically affirmed the proper officer's order without fulfilling the mandatory requirement of providing an opportunity for a show cause and hearing as stipulated in the Act. Consequently, he deemed both the penalty order and the appellate authority's decision to be illegal and in violation of statutory requirements.

On the other hand, the counsel representing the State argued that the e-way bill had been valid until 16th March 2022. It was further contended that the petitioner's vehicle was intercepted on 23rd March 2022, which was well after the e-way bill had expired. Additionally, it was emphasized that the extension of the e-way bill was only permissible within eight hours of its expiry, and no application for extension had been made by the petitioner.

After examining the notice under Section 129(1)(a) and the penalty order issued on the same date, the court observed that both orders were issued simultaneously by the same authority. The court further noted that the penalty order failed to document any record of the petitioner's appearance or hearing prior to its issuance. Consequently, the court concluded that the notice under Section 129(1)(a) had been an empty formality, as no time or opportunity had been granted to the petitioner before the penalty was imposed under Section 129(3).

While noting that the order imposing the penalty failed to indicate the petitioner's appearance or any hearing held before its issuance, the court observed, “This Court would find that the notice issued under Section 129(1)(a) was nothing more than an empty formality as no time/opportunity has been allowed pursuant to the notice, and immediately, on the same date, penalty has been recorded under Section 129(3).”

“The determination of penalty under Section 129(3) is, therefore, in contravention of the statutory requirement under Section 129 of the Act. The requisite compliance with principles of natural justice, inherent in Section 129(4) has thus been violated,” the court added while quashing the order imposing penalty.

The matter was subsequently remanded to the Joint Commissioner of State Tax, Magadh Division, Gaya.

“It is not in dispute that the petitioner is entitled to refund of 25 percent, amount deposited earlier by him for the purposes of maintaining his appeal. That being so, this Court would direct for refund of the amount to the petitioner within a week from his appearance before the proper officer,” the court concluded while allowing the writ petition.

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