M/s Tvl SAM Enterprises v. The Commercial Tax Officer & Ors

GST update /2026-27/0024

GST UPDATE

Pre-deposit requirement not to be complied with if there is undue hardship on the appellant in case where there is huge pre-deposit requirement.

Writ Petition No.: 2687 of 2026 and others

Court: High Court of Madras

Case Title: M/s Tvl SAM Enterprises v. The Commercial Tax Officer & Ors.

Outcome: Writ Petition is dismissed provided liberty to be given to the

petitioners to file an appeal without pre-deposit.

Judgement Date: 18.02.2026

BRIEF FACTS OF THE CASE:

M/s Tvl Sam Enterprises (petitioner) and others, have availed ITC based on fake invoices raised through circular trading for the period F.Y. 2020-21 to 2024-25. Consequently, order in the FORM DRC-07 was issued in which penalty was imposed under Section 122(1)(ii) and Section 122(1)(vii) of CGST Act 2017. Aggrieved Petitioners preferred writ petitions challenging the adjudicating order passed in the FORM DRC-07 under Section 74 of CGST Act 2017.

QUESTION BEFORE HON’BLE COURT:

• Whether registered person be given relief from severe and strict penalties equivalent to ITC wrongly availed if it is proved that the intention of appellant was not to evade tax?

• Whether doctrine of proportionality be applied on the basis of judicial pronouncements in the context of other laws?

• Whether pre-deposit requirement of filing an appeal be dispensed with if it causes unusual hardship on the appellant?

BRIEF ARGUMENTS BY PETITIONER:

Petitioner submitted following contentions: -

• Petitioners contended that their primary aim behind issuing fake invoices was not to take ITC on such fake invoices instead the main aim was to boost up sales of the business. This circular trading was done to avail loan facility from Bank by presenting themselves as big players. For this, petitioners relied upon Supreme Court judgement in which it was held that depending upon the facts of the case, reasonableness of penalty should be considered. All the cases cannot be covered in a straightjacket formula.

• Further, it was argued that the maximum penalty of Rs. 10,000/- can be imposed under Section 122(1) of the CGST Act 2017 in the instant case and that imposing penalty equivalent to ineligible ITC by invoking Section 122(1)(ii) and Section 122(1)(vii) is not justified.

• Petitioners placed reliance on the judicial pronouncements of Supreme court in the context of punishment under the labour law jurisprudence, service law jurisprudence in which it was held that the imposition of penalty should be in proportion with the gravity of offence by applying the doctrine of proportionality. Hence, it was argued that the punishment imposed should be commensurate to the nature and intent of misconduct.

Therefore, the penalty should be restricted to Rs. 10,000 and the impugned order should be set aside.

BRIEF ARGUMENTS BY REVENUE DEPARTMENT:

Revenue Department contended that:

• It was contended that the department officials to be provided time to file a counter affidavit as the writ petitions which deserve to be rejected in liminie have been taken up by the Court before its Division Bench.

• Reliance was placed by the department on the judicial pronouncements of Supreme Court in which it was held that willful concealment is not an essential ingredient for attracting civil liability and that law has made penalty imposition mandatory.

• It was argued that Section 122(1) of the respective GST enactments uses the expression Rs. 10,000/- or tax due, “whichever is higher”. Further, there are valid and adequate reasons recorded. Therefore, the impugned orders passed are correct and valid.

• In continuation of above, it was contended that decisions on which petitioners have relied upon cannot be applied to the petitioner’s case as the facts of the petitioner’s case are different due to the phrase “whichever is higher” used in Section 122(1) of CGST Act, 2017.

• Department contended that the judicial pronouncement in the case of Union of India Vs. Rajasthan Spinning and Weaving Mills, (2009) 13 SCC 448 should be confined to Section 11-AC of Central Excise Act 1944 as there is difference in respective GST enactments of Section 122 and provisions of Central Excise Act 1944.

• Further it was submitted that, petitioners have used ineligible ITC and have apparently raised invoices to boost up the turnover so as to take the advantage of the system in wrongful manner. Hence, they are prima facie liable to penalty under Section 122(1) of the CGST Act.

• In alignment with above, it was contended that even if Section 122(1A) of the respective GST enactments is applied, petitioners are primarily liable to a penalty of an amount equivalent to the evaded or ineligible ITC availed of or passed on.

• Further, Department contended that reliance should be placed on the judgement of Hon’ble Supreme Court in which it was held that after the insertion of Section 11-AC, penalty would apply to every case of non-payment or short-payment of duty regardless of the conditions expressly mentioned.

• In continuation of above, it was contended that once the Section 11-AC gets applicable, then quantification of penalty is not on the discretion of the authority. Further, it is contended that Section 11-AC specifies outer limit of the penalty is fixed and the stature provides that it should not exceed a particular limit, that itself indicates scope of. Therefore, applying the ratio precedent of the judgement in the instant case, the penalty cannot be limited to Rs. 10,000/-.

FINDINGS & JUDGEMENT:

Following are the findings of the Court in the instant case:

• It was observed that even though the Writ petitions are liable to be dismissed, therefore, petitioners should be provided with liberty to file an appeal before the Appellate Authority within a period of 30 days from the date of receipt of order.

• In continuation of above it was held that provisions of GST enactments contemplate a remedy by providing opportunity for filing appeal before appellate authority under Section 107 and Section 112 of CGST Act. Hence, petitioner cannot take short cut and bypass the alternate remedy available to him by relying upon the principle given under judicial pronouncements.

• Hon’ble Court observed judgements referred above in which it was held that writ court would not assume role of an appellate authority and that lesser penalty cannot be imposed merely because the court finds that the adjudicating authority has imposed heavy penalty. Hence, it was held that only in exceptional cases where the court finds that the penalty imposed by the adjudicating authority is so grave that it is not in proportion to the offence. Further, it was held that where there is evidence of malpractice, gross irregularity or illegality, interference is impermissible

• Further, It was held that as the pre-deposit of huge penalty under Section 107 of the CGST Act, 2017 will cause undue hardship to the respective petitioners which will make the appellate remedy unreal for the petitioners. Hence, the pre-deposit requirement was not required to be complied with and instruction was issued that the appeal if filed by the petitioners should be disposed of on merits of the case.

Thus, it was held that the writ petition should be dismissed provided that a liberty to the petiitoners to file appeal.

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