CHALLENGE TO PENALTY AND FINE UNDER SECTIONS 130 & 122, PRAYER FOR NON-COERCIVE ACTION

BRIEF FACTS:

The petitioner, challenged the order dated 2 January 2025 issued in Form GST DRC-07 by the State Tax Officer, CT & GST Enforcement Unit, Sambalpur, whereby a demand of ₹12,05,880 (comprising fine of ₹4,58,246 and penalty of ₹7,47,634) was raised under Section 130 read with Section 122 of the OGST/CGST Act for the tax periods April 2023 to February 2024. The demand arose on the allegation that the petitioner had sold goods worth ₹45,82,458.62 without issuing tax invoices, making such goods liable to confiscation. The order required the petitioner to appear and submit a reply on or before 1 February 2025; however, despite granting time, the authority passed the final order on 2 January 2025, prior to the expiry of the show-cause period.

ASSESSEE'S CONTENTION:

The assessee contended that the impugned order dated 2 January 2025 in Form GST DRC-07 was wholly unsustainable, as the State Tax Officer had granted time to appear and show cause up to 1 February 2025, Yet passed the final order a month earlier, in violation of natural justice. It was argued that the authority could not have lawfully determined liability under Section 130 read with Section 122 of the GST Act before the expiry of the date fixed for appearance, thereby rendering the proceedings arbitrary and premature. The assessee further submitted that its statutory appeal before the Joint Commissioner (Appeals) was rejected merely on technical grounds of delay, without appreciating the genuine difficulties faced by the assessee in filing the appeal. As the GST Appellate Tribunal was not yet constituted, the assessee asserted that it had no efficacious alternative remedy under Section 112 of the Act, compelling it to approach the High Court for interim protection. The assessee also rebutted the Department's stand on the requirement of depositing 10% of penalty, pointing out that the newly inserted Section 112(8)—introduced through Section 130 of the Finance Act, 2025 would come into force only from 1 October 2025, as notified, and therefore had no applicability to the present matte

DEPARTMENT'S CONTENTION :

The Department contended that since the assessee's appeal before the Joint Commissioner (Appeals) had already been dismissed, the proper statutory remedy available to the assessee was to file a further appeal under Section 112 of the GST Act before the GST Appellate Tribunal. It was submitted that in view of the amendment introduced through Section 130 of the Finance Act, 2025, inserting sub-section (8) to Section 112, an assessee challenging an order demanding penalty alone is required to deposit 10% of the penalty amount as a pre-condition for maintaining the appeal. The Department argued that this mandatory pre-deposit requirement should apply even while seeking interim protection before the High Court. It was further asserted that the authority had rightly proceeded in accordance with the GST law while issuing the impugned DRC-07 order.

DECISION:

The High Court observed that the amendment inserting Section 112(8) of the GST Act - introduced through Section 130 of the Finance Act, 2025 - would come into force only on 1 October 2025, as notified, and therefore the Department's insistence on a pre-deposit of 10% of the penalty was untenable. Taking note of the fact that the GST Appellate Tribunal had not yet been constituted, and that the assessee's statutory appellate remedy was effectively unavailable, the Court held that coercive recovery could not be pursued in the interim. Accordingly, the High Court directed that no coercive action shall be taken against the assessee pursuant to the demand raised in the impugned order dated 2 January 2025 for the period April 2023 to February 2024, until the Appellate Tribunal becomes operational. The matter was directed to be listed along with a similar pending writ petition

BTA's COMMENT:

In conclusion, it is evident that the High Court has extended interim protection to the assessee solely on the ground that the statutory appellate mechanism under Section 112 of the GST Act is presently non-functional due to the non-constitution of the GST Appellate Tribunal. Until such time the Tribunal becomes operational, the impugned demand shall not be enforced, and no coercive steps shall be initiated against the assessee. This order reinforces the principle that taxpayers cannot be prejudiced for reasons attributable to administrative or statutory gaps in the appellate structure and underscores the necessity of ensuring a fair and effective appellate remedy before recovery proceedings are pursued.

Case Reference-Swastik Marketing v. Chief Commissioner of CT & GST, W.P. (C) No. 24609 of 2025 & I.A. No. 14508 of 2025.

Author: Madhurima Bose

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