The recent ruling by the Hon’ble Patna High Court in the case of M/s Kedia Enterprises v. State of Bihar has significant implications for GST compliance procedures. The Court made it clear that any penalty order passed beyond the stipulated timeline for detained goods is not legally sustainable. This blog explores the key aspects of the ruling, highlighting the importance of adhering to the timelines set by Section 129(3) of the Central Goods and Services Tax Act, 2017 (“CGST Act”).

Case Background

In M/s Kedia Enterprises v. State of Bihar, the petitioner’s vehicle, carrying goods, was detained on March 30, 2024. A notice was issued on April 4, 2024, and the petitioner was given until April 11, 2024, to respond. Due to April 11 being a public holiday, the petitioner submitted their reply on April 12, 2024. Despite this, the authority issued the penalty order on April 18, 2024, which exceeded the seven-day limit stipulated by Section 129(3) of the CGST Act.

The petitioner challenged this penalty order, arguing that it was not in compliance with the statutory timelines. The Hon’ble Court agreed, emphasizing that any delay in passing such orders violates the CGST Act and is not sustainable.

Key Provisions Under Section 129(3) of CGST Act

Section 129(3) of the CGST Act states that a penalty order must be passed within seven days from the service of notice regarding the detention of goods or conveyance. In this case, the Court underscored that even though the petitioner filed their response promptly after the public holiday, the authority failed to comply with the statutory deadline.

The Court also referred to the directives under Section 68 of the CGST Act, which stress compliance with such timelines to ensure fair proceedings. The Court noted that adherence to procedural timelines is essential to uphold the principles of natural justice, making any penalty orders passed beyond the stipulated period untenable.

Court’s Findings and Analysis

The Patna High Court ruled that the penalty order, dated April 18, 2024, was invalid due to non-compliance with Section 129(3) of the CGST Act. The authority was obligated to issue the penalty order on the same day as the petitioner’s response submission, which was April 12, 2024.

The Court relied on earlier case law, including Pawan Carrying Corporation vs Commissioner CGST & Central Excise & Ors, which established that penalty orders passed beyond the prescribed timeframe are unlawful. The Court contrasted this with M/s Sangam Wires vs State of Bihar, emphasizing that while notices may be issued on time, any delay in issuing penalty orders undermines the legitimacy of the proceedings.

Significance of the Ruling

This ruling serves as a critical reminder for tax authorities to strictly adhere to the timelines prescribed under the CGST Act. The mandate under Section 129(3) is not merely procedural but ensures fair treatment of taxpayers. Any delay in issuing penalty orders undermines taxpayer rights and weakens the enforceability of the tax authority’s actions.

Taxpayers facing similar issues can draw from this judgment to challenge unjust penalty orders resulting from procedural lapses. The ruling also warns tax authorities about the importance of compliance with stipulated timelines, especially in cases involving detention and penalties.

The Patna High Court’s judgment in the case of M/s Kedia Enterprises reiterates the necessity for authorities to follow proper timelines outlined under the CGST Act. By setting aside the penalty order, the Court has upheld the importance of procedural compliance and natural justice in GST-related cases.

Taxpayers and professionals should be aware of these timelines when dealing with detained goods and associated penalty orders. Such awareness can protect their rights and ensure that authorities comply with the legal requirements under the CGST Act.