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July 07, 2025
Supreme Court Upholds Right to Appeal Under GST Law Despite Payment of Penalty
In a transformative move, the Supreme Court of India has for the first time institutionalized reservation in staff appointments and promotions for Other Backward Classes (OBCs), Persons with Disabilities (PwDs), ex-servicemen, and dependents of freedom fighters. This follows an earlier circular dated June 24, 2025, that introduced long-awaited 15% and 7.5% reservations for Scheduled Castes (SCs) and Scheduled Tribes (STs), respectively, in non-judicial appointments within the Court. With the inclusion of OBCs through a second directive issued on July 6, 2025, the highest judicial authority has aligned its internal operations with the constitutional values it has historically upheld.
Case Summary: M/s ASP Traders v. State of U.P.
A two-judge bench of the Supreme Court, comprising Justices J.B. Pardiwala and R. Mahadevan, recently delivered a crucial judgment concerning procedural fairness and statutory appeal rights under the CGST Act. The Court allowed the appeal filed by M/s ASP Traders, whose consignment of arecanut was detained in Jhansi over alleged discrepancies during transit.
To avoid prolonged detention, the appellant paid the penalty under protest. However, the proper officer failed to pass a reasoned adjudication order under Section 129(3) of the Act—an essential prerequisite for triggering the right of appeal under Section 107 of the CGST Act.
The Allahabad High Court had earlier dismissed the appellant’s plea, holding that payment under Section 129(1) concluded the proceedings under Section 129(5). This interpretation was overturned by the Supreme Court.
Understanding Section 129 of CGST Act
- Section 129(1): Allows release of detained goods on payment of applicable tax and penalty.
- Section 129(3): Mandates that the proper officer issue a show cause notice within 7 days of detention and pass a reasoned adjudication order within 7 days of receiving the reply.
- Section 129(5): Provides that proceedings are deemed concluded upon payment, but only when a formal order has been passed under Section 129(3).
Supreme Court’s Key Observations
Payment of penalty ≠ Waiver of appeal rights:
The Court clarified that payment of tax and penalty under protest cannot be equated with a waiver or abandonment of the right to challenge the levy.
No appeal without a formal order:
A reasoned and speaking order under Section 129(3) is a precondition to file an appeal under Section 107. Without such an order, the right of appeal is rendered illusory.
Natural justice principles reinforced:
The Court strongly emphasized that procedural safeguards, including a fair opportunity to be heard and a reasoned order, are not mere formalities but constitutional requirements rooted in Articles 14 and 265.
Violation of constitutional principles:
Imposing a tax or penalty without a valid adjudicatory order amounts to levy without authority of law, in contravention of Article 265 of the Constitution.
Judgment Highlights
Justice Mahadevan, authoring the judgment, stated:
“While Section 129(5) provides that proceedings shall be deemed to be concluded upon payment, this fiction cannot be stretched to mean that the assessee has waived the right to challenge the levy—a right protected by the statute itself.”
The Court further directed the proper officer to:
- Pass a reasoned order under Section 129(3) in Form GST MOV-09.
- Upload the summary in Form GST DRC-07.
- Comply within one month from the date of receipt of the judgment.
- Ensure a hearing opportunity under Section 129(4) is granted.
Impact of the Judgment
- This ruling is a significant precedent for businesses and transporters operating under the GST regime. It clarifies that:
- Payment made under duress or protest does not preclude statutory remedies.
- Proper adjudication is not optional—it is mandatory before the penalty can be considered legally valid.
- It reinforces the fundamental doctrine of natural justice and due process in tax administration.
Conclusion
This decision restores fairness and procedural balance in tax enforcement under the CGST Act. It will offer much-needed protection to businesses from arbitrary actions and empower them to assert their right to appeal, especially when compliance is made under compulsion or business necessity.For taxpayers and professionals navigating GST compliance, this judgment serves as a reminder that reasoned orders and procedural fairness are non-negotiable elements of the legal process.
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