Taxpayer Cannot Be Penalized For Department's Mistake In Deposit Of GST — Allahabad High Court Directs NOIDA To Compensate The Taxpayer For Wrongful Imposition Of Tax And Penalty

Once GST Was Paid To NOIDA, Petitioner Cannot Be Made To Suffer Twice — Allahabad High Court, in Surender Gupta v. Appellate Authority State GST & Others, WRIT TAX No.1892 of 2024, delivered a significant ruling emphasizing that a taxpayer cannot be penalized for the inadvertent mistake committed by the State agency in depositing GST under an incorrect head. Justice Piyush Agrawal held that the petitioner, having paid the legitimate GST to NOIDA, could not be burdened again with tax and penalty proceedings under Section 73 of the GST Act due to an internal accounting error by NOIDA. The Court directed NOIDA to compensate the petitioner by paying Rs.19,22,778/- within 15 days. 
 
The petitioner, Surender Gupta, acting as Karta of a Hindu Undivided Family, owned a commercial property at F-16, Sector-18, Noida, which was let out for commercial purposes, making it liable to GST. The petitioner had duly paid the GST of Rs.17,49,330/- along with the one-time lease rent of Rs.97,18,500/- to NOIDA, which in turn, was responsible for depositing it with the GST department. 
 
However, due to an admitted error on the part of NOIDA, the GST was deposited under the wrong head — leading to the petitioner’s GST liability showing as unpaid in the GST records. Consequently, proceedings under Section 73 of the GST Act were initiated against the petitioner, culminating in a demand for tax and penalty totaling Rs.19,22,778/-. 
 
Despite furnishing all documentary evidence, including NOIDA's acknowledgment of payment, both the Adjudicating Authority and the Appellate Authority rejected the petitioner’s defense, forcing him to approach the High Court. 

The Court, after scrutinizing NOIDA’s affidavit, found that the petitioner had indeed paid the GST and NOIDA had deposited the said amount under an incorrect head due to a misinterpretation by its tax consultant. The Court noted:  “The petitioner paid the legitimate tax to NOIDA, which was not deposited under the proper head and therefore, on account of that the petitioner has to face not only the proceedings of GST, but also imposition of penalty.” 
 
Justice Agrawal strongly emphasized: “The petitioner cannot be permitted to suffer due to the mistake committed on the part of NOIDA.” 

The Court made it clear that there was no dispute regarding the payment of GST by the petitioner, and NOIDA had candidly admitted its fault: “Since the GST Act was recently enacted and due to non-clarity and on the advice of the tax consultant of the Authority, the said tax was deposited by the Respondent Authority in the head of B2C.” 
 
The Court rejected NOIDA's excuse for the delay, stating: “NOIDA accepts its mistake for non-deposit of the due tax so paid by the petitioner under the proper heads.” 
 
Recognizing the financial prejudice suffered by the petitioner, the Court granted direct monetary relief by issuing a writ of mandamus: “A Writ of Mandamus under Article 226 of the Constitution of India is issued to the respondent no.4 i.e., NOIDA to pay/compensate the amount of Rs.19,22,778/- to the petitioner within 15 days from today.” 
 
The Court further authorized the District Magistrate to recover the said amount from NOIDA if it failed to comply: “In the event of failure of payment of compensation to the petitioner by NOIDA as mentioned here-in-above, the District Magistrate, Gautam Buddh Nagar is directed to recover the said amount from  NOIDA and pay the same to the petitioner within 15 days thereafter.” 
 
 Additionally, the Court gave liberty to NOIDA to recover the amount from the erring officer: “NOIDA is at liberty to recover the said amount from the erring officer of its department.” 
 
The Court referred to Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corporation Ltd., (2024) 2 SCC 375, where the Supreme Court held: “Computation of compensation should not be whimsical and absurd resulting in a windfall and bounty for one party at the expense of the other, and the damages should be commensurate with the loss sustained by the party.” 
 
Applying this principle, the Court held that the compensation must be equivalent to the penal liability wrongfully imposed upon the petitioner. 
 
This decision marks an important judicial safeguard against arbitrary action under the GST regime. The Allahabad High Court has firmly laid down that a taxpayer cannot be punished for errors committed by statutory authorities, especially when the taxpayer has duly discharged the liability. The ruling not only protects taxpayers but also cautions State agencies like NOIDA to exercise diligence in financial matters to avoid penalizing innocent assessees. 

Date of Decision: 28 March 2025