1991 (10) TMI 302 - HC - VAT and Sales Tax

Issues Involved:
1. Defects in the accounts and incorrect/incomplete returns.
2. Justification of penalty under section 12(5) of the Tamil Nadu General Sales Tax Act, 1959.
3. Interpretation and scope of sections 12(4) and 12(5) of the Act.
4. Bona fide belief and its impact on penalty imposition.

Summary:

1. Defects in the accounts and incorrect/incomplete returns:
The respondents/assessees, engaged in the business of readymade garments, filed returns for the assessment year 1979-80 declaring a total turnover of Rs. 3,04,295 and taxable turnover of Rs. 78,935, claiming exemption on Rs. 2,25,360. The assessing authority identified two defects: (1) Purchase of hosiery goods under a brand name from outside Tamil Nadu for Rs. 35,124.29 was not separately accounted for, resulting in a taxable turnover of Rs. 42,990 at 5%. (2) Inter-State purchase of readymade goods amounting to Rs. 68,091 was wrongly included in the total purchase, leading to a taxable turnover of Rs. 83,341 at 2%. Consequently, the returns were rejected as incorrect and incomplete, and the turnover was determined u/s 12(2) of the Tamil Nadu General Sales Tax Act, 1959.

2. Justification of penalty under section 12(5) of the Tamil Nadu General Sales Tax Act, 1959:
The assessing authority proposed a penalty of Rs. 1,478, being 50% of the tax due on the undeclared turnover. The appellate authority upheld the assessment and penalty, noting that the assessees disclosed transactions in the accounts but failed to file a revised return. The Tribunal, however, found no deliberate concealment or dishonest conduct by the assessees, thus ruling out the penalty u/s 12(5) of the Act.

3. Interpretation and scope of sections 12(4) and 12(5) of the Act:
The Revenue argued that deliberate concealment or wilful suppression is not necessary for levying penalty u/s 12(5) of the Act. The assessees contended that a bona fide belief regarding exemption or tax rate does not warrant a penalty. The court examined the legislative intent behind sections 12(4) and 12(5), introduced by Tamil Nadu Act 47 of 1979, and distinguished them from sections 12(3) and 16(2) which involve wilful failure. The court emphasized that if the assessment is based on the accounts and the return is found incorrect or incomplete, penalty u/s 12(5) is justified.

4. Bona fide belief and its impact on penalty imposition:
The court referred to various judgments, including the Supreme Court's ruling in Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax, which held that a return cannot be deemed false unless there is deliberateness. The court acknowledged that bona fide legal pleas should not attract penalties even if found incorrect. It concluded that each case must be analyzed on its facts to determine if the return was incorrect or incomplete due to a bona fide belief or an intent to evade tax.

Conclusion:
The court found confusion in the assessing authority's findings regarding whether the assessment was based on the books of accounts or de hors the accounts. It remanded the case back to the assessing authority to clarify this aspect and determine the applicability of penalties u/s 12(3) or 12(5) of the Act, considering the observations made in the judgment. The petition was allowed, and the matter was remitted for fresh orders on the penalty issue.

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