2008 (11) TMI 618 - HC - VAT and Sales Tax

Penalty under section 73(10) of the Orissa Value Added Tax Act, 2004 - Held that - There is no finding as to whether the Scheduled goods in question are manufactured in the local area or not, and, if brought from outside the local area, whether any opportunity was given to the petitioner to prove that such goods were already subjected to tax or that entry tax was paid on such goods. In absence of any such finding, levy and collection of entry tax on stock of Scheduled goods found in the business premises of a dealer is not authorized under law. In the above fact-situation, collection of penalty amounting to ₹ 35,000 under section 73(10) of the OVAT Act, collection of penalty of ₹ 7,000 and tax of ₹ 3,500 under OET Act is held to be without any authority of law. The petitioner is entitled to get refund of the said amount of ₹ 45,500. Since the petitioner is a registered dealer under the OVAT Act and OET Act, he is entitled to adjust the said amount of tax and penalty against its tax liability in the return filed under those two Acts. However, this order will not stand on the way of Department for initiation of fresh proceeding in accordance with law.

Summary

Issues Involved:
1. Justification of collecting penalty under section 73(10) of the OVAT Act without affording a reasonable opportunity of being heard.
2. Justification of imposing and collecting penalty under section 73(10) of the OVAT Act without passing any speaking order.
3. Justification of collecting entry tax without giving any opportunity of hearing or passing any order.

Issue-Wise Detailed Analysis:

1. Justification of Collecting Penalty under Section 73(10) of the OVAT Act:
The court examined whether the assessing officer was justified in collecting a penalty of Rs. 35,000 under section 73(10) of the OVAT Act without affording a reasonable opportunity of being heard to the petitioner. The court noted that section 73(10) mandates that penalty can only be imposed after giving the dealer an opportunity of being heard and conducting any necessary further inquiry. In this case, the officer collected Rs. 45,500 from the petitioner on February 4, 2008, without waiting for the reply to the show-cause notice, which was due on February 8, 2008. This action violated the statutory provisions and principles of natural justice. The court held that the collection of Rs. 35,000 under the OVAT Act and Rs. 7,000 under the OET Act without providing an opportunity of hearing was unjustified and arbitrary.

2. Justification of Imposing and Collecting Penalty without Passing a Speaking Order:
The court addressed whether the penalty could be collected without passing a speaking order. Although section 73(10) does not explicitly require a speaking order, the court emphasized that penal proceedings under fiscal statutes are quasi-judicial in nature and should include a speaking order with reasons. The absence of such an order violates the principles of audi alteram partem. The court cited several precedents, including the Supreme Court's rulings, to support that a speaking order is necessary to justify the imposition of penalty. The court concluded that the absence of a speaking order before collecting the penalty under section 73(10) of the OVAT Act and the OET Act was a grave error of law.

3. Justification of Collecting Entry Tax without Opportunity of Hearing:
The court examined whether the assessing officer was justified in collecting entry tax without giving any opportunity of hearing or passing any order. The court found that the officer neither provided an opportunity of hearing nor passed a speaking order before collecting the entry tax on the estimated value of the goods. The court noted that there was no evidence to show how the unaccounted goods were valued at Rs. 1.75 lakh or whether these goods were brought from outside the local area. The court concluded that the levy and collection of entry tax on the unaccounted stock were unauthorized by law.

Conclusion:
The court held that the collection of penalty amounting to Rs. 35,000 under section 73(10) of the OVAT Act, and the collection of penalty of Rs. 7,000 and tax of Rs. 3,500 under the OET Act were without any authority of law. The petitioner was entitled to a refund of Rs. 45,500, which could be adjusted against future tax liabilities. The court allowed the department to initiate fresh proceedings in accordance with the law. The writ petition was disposed of with these observations.