2007 (10) TMI 589 - HC - VAT and Sales Tax

Penalty levied under section 8D(6) of the U.P. Trade Tax Act deleted by Tribunal - Held that - On the facts and circumstances of the case, the Tribunal has held that the dealer had purchased the body and got it mounted over the chassis and it is not a case of works contract, placing reliance on the decision of the apex court in the case of T.V. Sundram Iyengar & Sons v. State of Madras reported in 1974 (10) TMI 81 - SUPREME COURT OF INDIA . Finding of the Tribunal is finding of fact. In any view of the matter whether the contract was works contract or the contract for sale was highly debatable and, therefore, if under the bona fide belief that the contract was for sale of body and not works contract the tax has not been deducted under section 8D(1), penalty could not be levied under section 8D(6) of the Act, as there was no deliberate or wilful defiance on the part of the dealer. Thus the penalty proceedings are of quasi-criminal nature and in the absence of any deliberate and wilful defiance, penalty should not be levied. Revision dismissed.

Summary

Issues:
1. Penalty under section 8D(6) of the U.P. Trade Tax Act, 1948 for assessment years 1989-90, 1990-91, 1992-93, 1993-94, 1994-95, and 1995-96.
2. Interpretation of whether the contract was a works contract or a contract for sale.
3. Applicability of section 8D(1) of the Act regarding tax deduction.

Analysis:
1. The revisions were filed against the Tribunal's order deleting penalties under section 8D(6) of the U.P. Trade Tax Act. The dealer was penalized for not deducting tax while making payments to a contractor for constructing a body over a chassis. The Tribunal held that the dealer had purchased the body and not entered into a works contract. The Tribunal's decision was based on factual findings and the interpretation of the nature of the contract.

2. The dispute revolved around whether the contract was a works contract or a contract for sale. The Standing Counsel argued that the contract was a composite indivisible contract for material and labor, making it a works contract. However, the dealer contended that the transaction was a sale of the body, not a works contract. The dealer cited legal precedents supporting their position, emphasizing that the Tribunal's finding was a factual determination not warranting interference.

3. The applicability of section 8D(1) of the Act regarding tax deduction was crucial. The dealer argued that due to the contentious nature of whether the contract was a works contract or a sale contract, there was no deliberate defiance in not deducting tax. The dealer highlighted the retrospective effect of re-enacted tax provisions and the lack of clarity in determining the contract's nature. The Court upheld the Tribunal's decision, emphasizing the absence of deliberate defiance and citing precedents supporting leniency in penalty imposition for non-wilful actions.

In conclusion, the High Court upheld the Tribunal's decision, dismissing all six revisions concerning penalties under section 8D(6) of the U.P. Trade Tax Act. The judgment underscored the factual nature of the Tribunal's findings, the debatable nature of the contract's classification, and the absence of deliberate defiance warranting penalty imposition.