2007 (9) TMI 568 - HC - VAT and Sales Tax

Penalty imposed under section 10(d) of the Central Act - Held that - Having regard to the finding there was no reason to levy the penalty. Applicant was able to make out a case that there was a reasonable excuse in selling the raw materials after purchasing the same from outside the State of U.P. against form C. In view of the above, the Tribunal is not justified in restoring the order of the assessing authority. Revision allowed.

Summary

Issues: Violation of provisions of the Central Sales Tax Act, 1956; Penalty imposition under section 10(d) of the Central Act; Reasonable excuse for not using goods for specified purpose.

The judgment revolves around a revision under section 11 of the U.P. Trade Tax Act, 1948, concerning an order by the Tribunal related to the assessment year 1998-99. The applicant, engaged in manufacturing insecticides and pesticides, purchased raw materials but instead of using them for manufacturing, sold them as isoprotone and melathine. The assessing authority alleged a violation of section 10(d) of the Central Act, as the raw materials were sold without reasonable excuse. The applicant argued that the raw materials were unsuitable for use and were sold to prevent damage, with taxes duly paid. The assessing authority acknowledged the explanation but imposed a penalty. The first appellate authority reduced the penalty to a token amount, considering it a technical default. Subsequently, the Tribunal, in an appeal by the Commissioner of Trade Tax, reinstated the higher penalty. The court, after considering the arguments, found that there was a reasonable excuse for the sale of raw materials, and the penalty was unjustified. Therefore, the Tribunal's order was set aside, and the revision was allowed.

The key issue in this case was the alleged violation of the Central Sales Tax Act, 1956, specifically section 10(d), which penalizes the failure to use purchased goods for the specified purpose without reasonable excuse. The applicant's explanation that the raw materials were unsuitable for manufacturing and were sold to avoid damage was accepted by the assessing authority. Despite acknowledging the lack of intent to evade tax or violate provisions, a penalty was levied. The first appellate authority reduced the penalty, considering it a technical default. However, the Tribunal reinstated the higher penalty, leading to the present revision.

The crux of the matter was whether there was a reasonable excuse for not using the purchased raw materials for manufacturing, as required by the Central Act. The court analyzed the penalty order and found that the applicant had provided a valid explanation for the sale of raw materials, emphasizing the absence of intent to evade tax or breach the law. Given these circumstances, the court concluded that there was indeed a reasonable excuse for the actions taken by the applicant. Consequently, the Tribunal's decision to restore the higher penalty was deemed unjustified, leading to the setting aside of the Tribunal's order in favor of the applicant.