2009 (6) TMI 922 - HC - VAT and Sales Tax

Whether, in the facts and circumstances of the case, the Tribunal is legally correct in having deleted the penalty levied under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 based upon the decision in Appollo Saline Pharmaceuticals (P) Ltd. v. Commercial Tax Officer (FAC) 2001 (10) TMI 1100 - MADRAS HIGH COURT while for the assessment year 1980-81 penalty is leviable under section 12(5)(iii) of the Act for filing of incorrect and incomplete returns and therefore the said decision cannot be applied to this case? Held that - The conduct of the respondent-assessee in not including the freight charges and packing charges in the taxable turnover cannot be held to be a deliberate or intentional act on its part with a view to defeat its tax liability. On the other hand, the submission of the return of the respondent-assessee during the relevant year was fully supported by the Division Bench decision of this court which held the field till the year 1992 when it came to be reversed in the decision of the honourable Supreme Court in Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu 1992 (10) TMI 228 - SUPREME COURT OF INDIA . As held in the decision of this court reported in Appollo Saline Pharmaceuticals (P) Ltd. v. Commercial Tax Officer (FAC) supra , under section 12(4) specific expression used is may for the purpose of levying of penalty. We are convinced that the order of the Tribunal in having set aside that part of the order of the Assistant Commercial Tax Officer in having imposed penalty was justified and the same was perfectly in order. We therefore answer the question of law against the appellant and in favour of the assessee

Summary

Issues Involved:
1. Legality of the Tribunal's decision to delete the penalty levied under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959.
2. Whether the respondent's conduct in excluding freight and packing charges from the taxable turnover was justified and bona fide.

Issue-Wise Detailed Analysis:

1. Legality of the Tribunal's Decision to Delete the Penalty:

The primary question of law was whether the Tribunal was legally correct in deleting the penalty levied under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959. The respondent, a cement manufacturing company, was assessed for the year 1981-82. The penalty was imposed for filing incorrect and incomplete returns by excluding freight and packing charges from the taxable turnover. The Tribunal, however, set aside the penalty, reasoning that the respondent acted based on a bona fide belief supported by a prior decision of the High Court in (1982) 51 STC 171 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu). This decision was later reversed by the Supreme Court in (1993) 88 STC 151 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu).

2. Justification and Bona Fides of the Respondent's Conduct:

The respondent disclosed the freight and packing charges in the total turnover but excluded them from the taxable turnover, relying on the High Court's decision in (1982) 51 STC 171. The Supreme Court later reversed this decision, declaring that freight and packing charges should be included in the taxable turnover. Despite this reversal, the Tribunal found that the respondent's conduct was bona fide and not intended to evade tax liability. The Tribunal's decision was supported by the discretionary nature of penalty imposition under Section 12(4) and (5) of the Act, which uses the term "may," indicating that the imposition of penalty is not automatic but requires consideration of the circumstances, including the bona fides of the assessee.

The Court cited several precedents, including (2002) 125 STC 505 (Appollo Saline Pharmaceuticals (P) Ltd. Vs. Commercial Tax Officer (FAC) and Others) and (2000) 117 STC 457 (E.I.D. Parry (I) Ltd., Vs. Assistant Commissioner of Commercial Taxes and Another), to emphasize that penalty should not be imposed automatically. The Court concluded that the respondent's exclusion of freight and packing charges was based on a bona fide belief supported by the prevailing legal interpretation at the time. Therefore, the Tribunal's decision to set aside the penalty was justified.

Conclusion:

The Court upheld the Tribunal's decision, concluding that the respondent acted in good faith based on the legal position at the time. The imposition of penalty under Section 12(5)(iii) was not warranted as the respondent's conduct was not deliberate or intentional to evade tax liability. The revision petition was dismissed, and the question of law was answered in favor of the assessee.