A writ petition cannot be used to resolve a contractual dispute over the payment of a statutory penalty; the remedy lies in a statutory appeal and a separate civil action.

A writ petition cannot be used to resolve a contractual dispute over the payment of a statutory penalty; the remedy lies in a statutory appeal and a separate civil action.

Issue

Can a taxpayer use a writ petition to seek an immediate refund of a confiscation penalty that was paid directly by their client (a third party) and then debited from their dues, especially when the statutory appeal against the confiscation order itself is still pending?

Facts

• The GST department confiscated the petitioner’s vehicle and materials, passing an order under Section 130 of the CGST Act that confirmed the confiscation and levied a penalty.
• The petitioner’s client, the Navy, went ahead and paid this penalty amount directly to the Tax Department.
• Subsequently, the Navy debited the penalty amount from the money it owed to the petitioner for services rendered, all without giving prior notice to the petitioner.
• Aggrieved by this deduction by the Navy, the petitioner filed a writ petition, effectively seeking a refund of the penalty amount from the Tax Department.

Decision

The High Court dismissed the writ petition, ruling in favour of the revenue (the Tax Department).

• The court first clarified that the dispute over the Navy paying the penalty and then recovering it from the petitioner’s dues is a contractual matter between the petitioner and the Navy. Such a dispute cannot be adjudicated or resolved in a writ petition.
• It held that the Tax Department’s act of receiving the payment, which was due under a statutory order, could not be termed illegal.
• The court pointed out that the petitioner’s correct legal remedy is twofold:
  1. To challenge the confiscation order itself through the statutory appeal process.
  2. If the petitioner succeeds in the appeal, they will then be entitled to claim a refund of the penalty amount.
• Since the petitioner had not yet succeeded in the appeal, the court could not direct the tax authorities to refund the amount at this stage.

Key Takeways

• Writ Jurisdiction is Not for Contractual Disputes: High Courts generally do not use their extraordinary writ jurisdiction to settle disputes that arise purely from the terms of a commercial contract. The proper forum for such issues is a civil court or arbitration.
• Statutory Remedies Must Be Exhausted First: The correct legal pathway to challenge a tax order (like a confiscation order) is to use the appeal mechanism provided within the tax law itself. A refund of a penalty can only be claimed after that order is set aside in an appeal.
• A Clear Distinction Between Disputes: This case highlights the need to separate different legal issues. The dispute between the taxpayer and the tax department (over the legality of the confiscation) is distinct from the dispute between the taxpayer and their client (over who should have paid the penalty).
• Payment to the Department is Legally Valid (Prima Facie): From the tax department’s perspective, receiving money against a penalty confirmed by a statutory order is a valid recovery. The method by which the payment is arranged between the taxpayer and a third party does not make the receipt of that money by the department illegal.