Madras HC Quashes Two Rs 20,000 GST Penalties Where Tax Was Under Rs 5,000, Orders Account Unfrozen After Tax And Interest Payment

Tvl. Royal Engineering Corporation challenged assessment orders dated 8 April 2024 and 28 August 2024 for the 2018–19 and 2019–20 tax periods.

The disputed tax was ₹324, with interest of ₹4,152, in W.P. No. 44265 of 2026, and ₹2,880, with interest of ₹2,256, in W.P. No. 44255 of 2026.

A penalty of ₹20,000 was imposed in each case, and the petitioner’s bank account had been frozen.

The petitioner sought to quash the orders; the State’s counsel accepted that the tax amounts constituted minor breaches under Section 126.

Section 126(1) of the Central Goods and Services Tax Act, 2017, and the corresponding Tamil Nadu Goods and Services Tax Act, 2017, provides that no officer shall impose a penalty for a minor breach of tax regulations or procedural requirements.

Under Explanation (a), a breach is a “minor breach” if the amount of tax involved is less than ₹5,000; Explanation (b) concerns easily rectifiable documentation errors.

The Court held that where the tax involved in each case was below the statutory threshold, the respondent had no statutory power to impose a penalty.

The tax amounts in both petitions—₹324 and ₹2,880—were each below ₹5,000, and the State’s counsel conceded that they constituted minor breaches.

Applying Section 126’s express definition, the Court concluded that the penalties of ₹20,000 in each case were legally unsustainable.

It nevertheless required payment of the disputed tax and interest and linked the bank’s obligation to release the account to proof of that payment.

It directed the petitioner to pay the disputed tax and interest within four weeks of receiving the order.

Upon production of proof of payment, the bank was directed to immediately unfreeze the account and permit its normal operation.

No costs were ordered.