2008 (1) TMI 831 - HC - VAT and Sales Tax

Whether in the facts and circumstances of cases at hand the respondents were justified in imposing interest/penalty under section 26(4)(a) 26(4)(b) and 26(4)(c) of the M.P. Vanijya Kar Adhiniyam 1994? Held that - Penalty/interest could be levied if the dealer fails to furnish returns/revised return or pay tax due as per return in the prescribed manner and/or in time. An exception however is carved out to the extent that the failure must be without sufficient cause. Thus under the statute it is mens rea not to file return/pay tax without there being a bona fide reason which forms the bedrock for levying penalty/interest on the non-payment/ delayed payment. In the instant case as revealed from the facts noted above there was sufficient cause for not paying the tax for different periods between April 9 1990 to April 8 1999 which in fact is now covered by the eligibility certificate dated December 6 2005. Thus if there existed a dispute rendering non-grant of eligibility certificate which was ultimately granted from a retrospective date the petitioner was prevented by a sufficient cause. That being so the levying of penalty and interest was uncalled for. W.P. allowed.

Summary

Issues:
1. Imposition of interest/penalty under specific sections of the Commercial Tax Act.

Analysis:
The judgment revolves around the central issue of whether the imposition of interest/penalty under sections 26(4)(a), 26(4)(b), and 26(4)(c) of the M.P. Vanijya Kar Adhiniyam, 1994 (Commercial Tax Act) was justified in the given circumstances. The case involved a company that established a new industrial unit and applied for a deferment of tax payment under the Madhya Pradesh Deferment of Payment of Tax Rules, 1986. The Directorate of Industries initially rejected the application, but subsequent legal proceedings resulted in the issuance of an eligibility certificate retrospectively from April 9, 1990, to April 8, 1999.

The petitioner argued that the non-payment of tax was not deliberate and was due to the pending legal issues regarding the eligibility certificate. On the other hand, the Revenue contended that the company was obligated to pay taxes as per the return, regardless of the certificate's availability. The court examined the provisions of sections 26(4)(a), 26(4)(b), and 26(4)(c) of the Commercial Tax Act, which allow for the imposition of interest/penalty for failure to pay tax or file returns without sufficient cause.

The court emphasized that the key factor for levying penalty/interest is the absence of a bona fide reason for non-payment or delayed payment of tax. Citing a precedent, the court highlighted that if a dealer pays the full tax amount before filing returns with correct information, it indicates bona fide intent. In this case, the retrospective grant of the eligibility certificate constituted a sufficient cause for the delayed tax payment, justifying the petitioner's position.

Based on the analysis, the court allowed the writ petitions, setting aside the orders imposing penalty and interest. The judgment concluded that the penalty and interest levied were unwarranted in light of the circumstances surrounding the delayed tax payment due to the unresolved eligibility certificate issue.