2005 (11) TMI 457 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sale of motor vehicles to defense personnel amounts to a sale through the Canteen Stores Department (CSD) for claiming a concessional tax rate.
2. Legitimacy of the imposition of penalty for filing incorrect returns to evade tax.

Issue-wise Detailed Analysis:

1. Sale of Motor Vehicles to Defense Personnel and Concessional Tax Rate:
The primary issue was whether the sale of motor vehicles to defense personnel could be considered as sales through the CSD to claim a concessional tax rate under entry 6 of Schedule III to S.R.O. No. 1091/99. The petitioner claimed a concessional tax rate of six percent on the sale of motor vehicles, supported by certificates from the CSD. However, the assessing authority found the explanation unsatisfactory and issued a notice under section 45A of the Kerala General Sales Tax Act, 1963, for filing incorrect returns to evade tax.

The court examined the relevant provisions of Notification S.R.O. No. 1091/99 and concluded that the exemption is available only for sales effected to organizations like Military, Naval, Air Force NCC canteens, and CSD, not to individual personnel. The court noted that the sale invoices were issued in the names of individual purchasers, not the CSD, and hence, the assessees were not entitled to the concessional rate of tax. The court emphasized that exemption notifications must be interpreted strictly and that the assessees failed to produce any certificate showing that the motor vehicles were purchased by the CSD.

2. Imposition of Penalty for Filing Incorrect Returns:
The second issue was the legitimacy of imposing a penalty on the assessee for filing incorrect returns to evade tax. The learned single judge found that it was not a fit case for imposing a penalty and set aside the order imposing the penalty. The State appealed against this part of the order.

The court referred to the decision of the apex court in Hindustan Steel Ltd. v. State of Orissa, which held that penalty should not be imposed unless the party acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest. The court also cited Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax, which stated that a return filed under a bona fide belief should not be condemned as false. Considering the totality of circumstances, the court agreed with the single judge that the imposition of penalty could not be sustained, as there was no deliberate intention to defy the law or conscious disregard of obligations under the Kerala General Sales Tax Act.

Conclusion:
The court held that the assessee was not entitled to the concessional rate of tax since the motor vehicles were sold directly to defense personnel and not to the CSD. The judgment of the single judge was sustained, dismissing both the appeals and the writ petition. The imposition of penalty was also set aside, recognizing that the assessee acted under a bona fide belief and there was no deliberate intention to evade tax.