The Madras High Court has ruled that a ₹10,000 minimum penalty under GST cannot be automatically applied to minor breaches without proper hearings, reinforcing principles of proportionality and natural justice in tax law.
The Madras High Court has ruled that a minimum penalty of ₹10,000 under the GST framework cannot be applied mechanically to every breach, particularly where the alleged lapse appears to be minor and the case has not been heard properly. In the case involving Shri Shakti Ganapathi Tex, the court said the assessment order could not stand after it was issued without giving the taxpayer an opportunity to be heard.
Justice Senthilkumar Ramamoorthy treated the alleged contravention as, on its face, a minor breach and sent the matter back for reconsideration. Legal reporting on the decision said the court required the taxpayer to deposit the disputed tax amount, after which the department was directed to pass a fresh order within a set period and to lift the bank attachment tied to the dispute.
The ruling also drew a distinction between different penalty provisions in the GST law. According to analysis of the judgment, the court noted that Section 73 contains a minimum penalty, while Section 74 does not set out the same floor, a contrast that the bench said could raise constitutional concerns. However, because the taxpayer had not formally challenged the provision on constitutional grounds, the court declined to go further on that issue.
The decision sits within a broader debate over how far tax authorities should go in imposing penalties for procedural or low-value lapses. Commentary on GST penalties has stressed that Section 126 is meant to protect taxpayers from punishment for rectifiable, non-fraudulent minor breaches, while Section 125 provides a separate general penalty route for contraventions not otherwise specifically covered. The High Court’s approach reinforces the principle that penalties should be proportionate and that natural justice must be followed before an adverse order is made.
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