2007 (10) TMI 594 - HC - VAT and Sales Tax

Whether on facts and in the circumstances of the case, any nexus exists between the alleged suppression and enhancement made by the authorities? Whether on facts and in the circumstances of the case, levy of penalty under section 12(8) of the Orissa Sales Tax Act, 1947 to the extent of ₹ 10,000 was justified? Held that - rom the operative portion of the re-assessment order under section 12(8) of the Act, it clearly reveals that penalty has been levied in a mechanical manner and no reason whatsoever has been stated in the order for the levy of such penalty. From Slip No. 2 and Slip No. 3 which were detected by the Inspector of Vigilance, the total suppression has been determined to ₹ 928.50 paise. Therefore, one we have come to a finding that the petitioner has, in fact, suppressed the sales, then in terms of the judgment in the case of Hindustan Steel Ltd. 1969 (8) TMI 31 - SUPREME Court we are of the view that the petitioner has failed to discharge its statutory obligation and the act of suppression on its part amounts to a deliberate defiance of law and/or establishes the petitioner s dishonest conduct and also establishes its conscious disregard of its statutory obligation and therefore, levy of penalty in the present case is wholly justified. But since we have determined the suppression of sales at ₹ 928.50 paise and further, answer the question No. 1 by directing enhancement of turnover to ₹ 18,570 and levy of tax thereon, we, therefore, answer question No. 2 framed above, in favour of the Revenue and hold that in the facts and circumstances of the case, levy of penalty under section 12(8) of the Act is justified but should be limited to an amount would extent equal to the tax amount that would be determined on the basis of the answer to question No. 1 framed above. Revision allowed.

Summary

Issues Involved:
1. Nexus between alleged suppression and enhancement made by the authorities.
2. Justification of the penalty levied under section 12(8) of the Orissa Sales Tax Act, 1947.

Issue-wise Detailed Analysis:

1. Nexus between alleged suppression and enhancement made by the authorities:

The petitioner, M/s. Bansi Tyres Services, challenged the suo motu revisional order under section 12(8) of the Orissa Sales Tax Act, 1947, which was based on a vigilance report alleging suppression of transactions amounting to Rs. 11,000. The authorities enhanced the turnover by Rs. 2,00,000, resulting in an additional tax demand of Rs. 20,000. The first appellate authority affirmed the suppression and enhancement but reduced the penalty from Rs. 20,000 to Rs. 10,000. The Sales Tax Tribunal dismissed the petitioner's appeal, leading to the present revision application.

The petitioner argued that the assessment enhancement was punitive and lacked a reasonable nexus to the alleged suppression. The petitioner relied on judgments in Bherodhan Jethmal (Private) Ltd. v. State of Orissa [1970] 26 STC 536 and Badriprasad Agarwalla v. State of Orissa [1993] 91 STC 114, emphasizing that the estimate of suppression must bear a reasonable nexus to the available materials.

The court examined the vigilance report, which identified three slips indicating unaccounted transactions. Slip No. 1 pertained to the unaccounted purchase of 16 tyres, which the court found irrelevant to sales suppression as no purchase tax was payable on tyres. Slip No. 2 and Slip No. 3 showed unaccounted sales of Rs. 712 and Rs. 216.50, respectively, totaling Rs. 928.50. The court noted that the assessing officer erroneously computed the total suppression at Rs. 11,000 and enhanced the turnover to Rs. 2,00,000, nearly 20 times the suppression amount. The court determined the correct enhancement should be Rs. 18,570, using the same multiplier of 20.

2. Justification of the penalty levied under section 12(8) of the Orissa Sales Tax Act, 1947:

The petitioner contended that the penalty of Rs. 10,000 was unjustifiable and imposed mechanically without discretion. The petitioner cited Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211; AIR 1970 SC 253, which held that penalty should not be imposed unless the party acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct.

The court noted that section 12(8) allowed the Commissioner to levy a penalty up to one and a half times the tax assessed if the dealer concealed particulars of turnover or furnished incorrect particulars. The court found that the penalty was levied mechanically without reasoning in the reassessment order. However, given the suppression of Rs. 928.50, the court held that the petitioner's act amounted to deliberate defiance of law and justified the penalty. The court limited the penalty to the tax amount determined on the enhanced turnover of Rs. 18,570.

Conclusion:

The court allowed the revision in part, determining the suppression of sales at Rs. 928.50 and enhancing the turnover to Rs. 18,570 for tax purposes. The penalty under section 12(8) was justified but limited to the tax amount on the enhanced turnover.