1994 (11) TMI 389 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of collecting sales tax and surcharge on rebate and cash discount.
2. Requirement to refund the collected sales tax and surcharge to stockists.
3. Justification for levying penalty under section 22(2) of the TNGST Act.

Issue-Wise Detailed Analysis:

1. Legality of Collecting Sales Tax and Surcharge on Rebate and Cash Discount:
The assessee, M/s. Amrutanjan Limited, granted commission to stockists in the form of incentives at 5% on the basic value of their products and claimed exemption from the payment of tax on turnover. The assessing officer found that the sales tax and surcharge portion of the rebate had not been refunded to the stockists, which led to the proposal of a penalty under section 22(2) of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act). However, the Tribunal held that the collection of sales tax and surcharge on the rebate and cash discount amounts was not in violation of any provisions of the Act since these were given at the end of the assessment year.

2. Requirement to Refund the Collected Sales Tax and Surcharge to Stockists:
The Tribunal directed the assessing officer to verify whether the assessee had refunded the sales tax and surcharge collected on the amounts given by way of rebate and cash discount. If the assessee had not refunded these amounts, the assessing officer was instructed to levy a penalty under section 22(2) of the Act. The assessee argued that the collected sales tax and surcharge were remitted to the Government and that the issue of refund was a matter between the stockists and the assessee, not warranting a penalty under section 22(2).

3. Justification for Levying Penalty under Section 22(2) of the TNGST Act:
Section 22(2) of the TNGST Act states that if any person or registered dealer collects any amount by way of tax in contravention of the provisions, the assessing authority may impose a penalty. The Tribunal initially deleted the penalty levied by the department, stating that the collection of sales tax and surcharge on the rebate and cash discount was not in contravention of the Act. However, the Tribunal's direction to levy a penalty if the refund was not made was contested. The High Court concluded that since the collection was deemed legal, section 22(2) could not be invoked for failure to refund the amounts. The penalty under section 22(2) is applicable only if the tax collection is illegal under section 22(1).

Conclusion:
The High Court set aside the Tribunal's direction to levy a penalty under section 22(2) if the assessee failed to refund the collected sales tax and surcharge, as the initial collection was deemed legal. The appeal filed by the assessee was allowed, and no costs were imposed.

Judgment:
Appeal allowed.