2008 (2) TMI 828 - HC - VAT and Sales Tax

Summary

Issues:
Appeal against suo motu revisional orders of the Commissioner of Commercial Taxes under section 37 of the Kerala General Sales Tax Act, 1963 for assessment years 1987-88 to 1992-93.

Analysis:
The appellant, a manufacturer of tread rubber, purchased raw materials at concessional rates under section 5(3) of the KGST Act by issuing form 18. However, the appellant transferred a substantial quantity of products on a stock-transfer basis outside the State without paying the applicable taxes under the KGST Act or CST Act. Consequently, a penalty was levied, which was later reduced by the Deputy Commissioner but restored by the Commissioner of Commercial Taxes, citing that the reduction was prejudicial to the interest of the Revenue.

The appellant argued that the Commissioner had no jurisdiction to invoke suo motu revisional powers as the reduction in penalty was not prejudicial to the Revenue's interest. On the other hand, the Government Pleader contended that the initial reduction would have led to a loss of revenue, making it prejudicial. The court emphasized that the determination of prejudice to the Revenue should be based on the consequences of the revised orders. In this case, the appellant's actions resulted in a loss of revenue by avoiding payment of the full tax on purchased raw materials, which should have been used for goods sold within the State.

The court rejected the appellant's defense of lack of awareness regarding tax requirements and emphasized that the conduct led to revenue loss, justifying the penalty under section 45A(f) of the Act. The delay in levying the penalty ranged from four to eight years, and the court noted that the differential tax and interest would exceed the penalty amount. Upholding the Commissioner's decision to restore the penalty, the court concluded that the reduction granted by the Deputy Commissioner would have caused a loss to the State, affirming the penalty as a remedy to compensate for the revenue loss.

In conclusion, the court held that the reduction in penalty by the Deputy Commissioner was unjustified and prejudicial to the Revenue's interest. Given the delay in levying the penalty and the compensatory nature of the tax and interest, the court dismissed the appeals, upholding the Commissioner's orders and emphasizing the importance of penalties in cases of revenue loss due to non-compliance with tax regulations.