In a significant ruling dated 15 July 2025, the Supreme Court of India directed the Andhra Pradesh High Court to reconsider a review petition filed by M/s Godway Funicrafts, challenging the imposition of a 100% penalty under Section 74 of the CGST Act, 2017. The core issue raised was that no evidence of fraud, wilful misstatement, or suppression—which are essential prerequisites for invoking Section 74—had been established by the tax authorities.
This case highlights the critical distinction between procedural defaults and substantive rights in tax litigation. It affirms that even if a specific legal contention was not raised during the original writ proceedings, it can still be validly considered in a review petition—especially when it relates to a fundamental illegality in penalty imposition. The Supreme Court’s order reflects a robust approach to ensuring fairness, proportionality, and due process in the application of punitive provisions under GST law.
🧑⚖️ Case Title: M/s Godway Funicrafts v. Union of India & Ors.
🏛️ Court: Supreme Court of India
📅 Order Date: 15 July 2025
📂 Legal Provision Involved: Section 74 of the Central Goods and Services Tax (CGST) Act, 2017
1. Background & Facts
- M/s Godway Funicrafts, the petitioner, was subjected to a 100% penalty under Section 74 of the CGST Act, which is typically applicable when tax evasion involves fraud, wilful misstatement or suppression of facts.
- The petitioner challenged the imposition of penalty before the Andhra Pradesh High Court, but the Court dismissed the writ petition in 2020.
- A review petition was filed on the ground that no fraud or wilful misstatement was ever proven, a necessary condition under Section 74 for imposing a 100% penalty.
- However, the High Court dismissed the review petition in 2022, stating that the issue was never raised during the writ.
- The petitioner then approached the Supreme Court, arguing that the review petition should not have been dismissed without considering the core legal contention—that 100% penalty was unlawful in the absence of fraud.
2. Issue Before the Supreme Court
Whether a review petition can be entertained to raise a legal contention not argued in the original writ petition, especially one challenging the legality of 100% penalty under GST due to absence of fraud.
3. Supreme Court’s Observations
- The Court acknowledged that the contention regarding fraud (or lack thereof) was a purely legal one, going to the root of the penalty’s validity.
- It held that mere omission to raise a point earlier does not bar a court from examining it during review, especially if substantial injustice is at stake.
- The Apex Court observed that penalty under Section 74 can only be imposed where fraud or wilful misstatement is established, and this foundational element must be judicially examined.
4. Final Direction by Supreme Court
- The High Court’s order dismissing the review was set aside.
- The review petition was restored, and the High Court was directed to:
- Rehear the matter on merits, with specific attention to the presence or absence of fraud.
- Consider the legality of imposing a 100% penalty in the factual circumstances of the case.
- The Supreme Court clarified that if the High Court again dismisses the petition, the petitioner may approach the Apex Court again—but only limited to the penalty question.
5. Legal Principles Affirmed
| Principle | Applied |
|---|---|
| Review scope includes legal contentions not argued earlier if fundamental | ✅ |
| Section 74 penalty requires proof of fraud, wilful misstatement, or suppression | ✅ |
| Courts must scrutinize the basis for high penalties under tax law | ✅ |
| Natural justice & substantive fairness take precedence over procedural default | ✅ |
6. Significance of the Case
- Clarifies limits of penalty powers under GST: Reinforces that penalties cannot be mechanical and must be based on clearly proven intent to defraud.
- Strengthens taxpayer protection: Taxpayers can now raise key legal grounds even in review, especially if fundamental rights or high monetary penalties are involved.
- Guidance to High Courts: Emphasizes that review jurisdiction should be used meaningfully to prevent injustice, not just as a formality.
🔚 Conclusion
This case strengthens procedural fairness in GST adjudication. The Supreme Court’s intervention shows a shift toward substantive justice over procedural technicalities, particularly where heavy penalties and tax burdens are involved. It also reminds tax authorities to follow due process and prove fraud conclusively before invoking harsh penalty provisions.