Facts of the Case: Proceedings under Section 73 of the CGST Act, 2017 were initiated on the premise that the petitioner had availed inward supply from Shiv Trading Company, which was later found non-existent. The petitioner specifically contended that no inward supply was taken; instead, an outward supply was made, which was duly reflected in returns. Supporting evidence such as tax invoices, e-way bills, and bank statements were furnished.

Despite this, an order was passed, determining tax liability and imposing a penalty equal to the tax amount, which was rectified on the same date.

The petitioner preferred an appeal, but the appellate authority, vide order dated 22.07.2021, upheld the demand and penalty. Although the petitioner’s contention was noted in para 3 of the appellate order, it was not dealt with.

Issue: Whether the imposition of equal penalty under Section 73 and the failure to consider petitioner’s evidence of outward supply rendered the orders unsustainable.

Held that: The Court noted that the entire proceedings were premised on an incorrect assumption that the petitioner had availed inward supply from a non-existent firm, whereas the petitioner consistently maintained and proved through documentary evidence that only outward supply was made.

The tax invoices, e-way bills, and bank statements produced by the petitioner were not verified or considered by either the adjudicating authority or the appellate authority.

The appellate authority, despite recording the petitioner’s argument in para 3 of its order, failed to deal with it and merely reiterated the Department’s version.

The penalty equal to tax under Section 73 was held unsustainable, as Section 73 permits a penalty up to 10% of tax and not equal to the tax amount.

Since the orders suffered from serious non-application of mind and ignored relevant evidence, both the orders dated 15.02.2020 and 22.07.2021 were quashed.

The writ petitions were allowed.  Penalty equal to tax under Section 73 is impermissible; the ceiling is 10% of tax.

Case Name: M/s Subhash Chand And Company Versus The State Of U.P. And 2 Others dated 01.09.2025

To read the complete judgment 2025 Taxo.online 2140