GST Compliance & Penalty Framework: When Late Fee is Enough, No Additional Penalty Under Section 125, Says Madras High Court.

Landmark Ruling: Tvl. Jainsons Castors & Industrial Products v. ACST

The Madras High Court, in a recent and significant judgment (Tvl. Jainsons Castors & Industrial Products v. Assistant Commissioner (ST), W.P. No. 36614 of 2024), held that penalties under Section 125 of the CGST/TNGST Act cannot be simultaneously imposed with late fees under Section 47 for delay in GST return filing.

This is a relief to many taxpayers who are penalized under Section 125 despite already paying late fees for procedural delays.

Background of the Case

• The petitioner delayed filing their annual return under Section 44.
• The GST Department issued an order in Form DRC-07 invoking Section 73 r/w Section 125, demanding both late fees under Section 47 and penalty under Section 125.
• The petitioner accepted the late fee but challenged the penalty as it was unjustified and violated natural justice.

Court\'s Observation & Verdict

Key Judicial Findings:

1. Section 47 vs Section 125:
   • Section 47 specifically levies a late fee for failure to file returns.
   • Section 125 is a residuary provision, applicable only when no specific penalty is prescribed.
   • Therefore, when Section 47 is invoked, Section 125 cannot be simultaneously applied.
2. Proportionality & Mens Rea:
   • The court emphasized that penalties must be proportionate and imposed only when there is fraudulent intent.
   • There was no evidence of intent to evade tax, thus no case for additional penalty.
3. Natural Justice & Procedural Fairness:
   • The absence of a notice under Section 46 before invoking Section 73 was held as a violation of natural justice.
4. Conclusion:
   • The penalty under Section 125 was quashed.
   • The late fee under Section 47 was upheld.

Legal Framework at a Glance

Section 47 - Late Fee

• 100 per day (50 CGST + 50 SGST), capped at:
  • 5,000 for regular returns
  • 0.25% of turnover for annual return
• Automatically applicable without separate adjudication.

Section 125 - General Penalty

• Maximum 25,000
• Applicable only when no other specific penalty is prescribed.

Section 126 - No Penalty for Minor Breaches

• Safeguards against penalties for minor errors without intent to evade.

Section 127 - Opportunity of Being Heard

• Ensures fair hearing before imposition of penalties.

Supporting Judicial Precedents

Hindustan Steel Ltd. v. State of Orissa (1970)

“Penalty will not ordinarily be imposed unless the party acted in defiance of law or was guilty of dishonest conduct.”

Rathore Building Materials (2023 - Allahabad HC)

“Penalty under Section 125 cannot be imposed when late fee is already paid under Section 47.”

Ashoka PU Foam (2024 - Allahabad HC)

“Penalties must align with fairness and justice. Mere delay without malice should not invite penal action.”

What Tax Professionals and Taxpayers Should Note

Practical Takeaways:

• Do not accept dual penalties - challenge Section 125 penalty when Section 47 fee is paid.
• Insist on proper notices under Section 46 before any penalty proceedings under Section 73.
• Maintain documentation showing no intent to defraud - it helps in court challenges.
• Encourage voluntary compliance and educate clients on timelines to avoid penalties.

What Not To Do:

• Don\'t ignore show cause notices.
• Don’t blindly pay penalty demands-check legal validity first.
• Avoid delays that repeat-intent matters in legal scrutiny.

FAQs

Q1: Can GST officials levy both late fee and penalty?
No. If late fee under Section 47 is levied, Section 125 general penalty cannot be applied concurrently.

Q2: What if return is filed late but tax was paid on time?
Only late fee applies. No revenue loss = no penalty under Section 125.

Q3: Is Section 125 applicable for procedural lapses?
Only where no specific penalty exists. For return delays, Section 47 governs.

Q4: Can I appeal against penalty under Section 125?
Yes, you can file a reply or appeal citing this Madras HC judgment and others.

Q5: What documents should I keep if I miss a return filing?
Maintain proof of genuine reasons (tech issues, illness, etc.) and communicate with the department in writing.

Final Words

This ruling reinforces the principle that justice, not punishment, should be the cornerstone of tax compliance. The GST ecosystem must be guided by clarity, fairness, and proportionality. Taxpayers should not suffer undue financial burden for procedural delays, especially when the law itself has clear provisions for late fees.