2009 (5) TMI 870 - HC - VAT and Sales Tax

Whether, on the facts and under the circumstances of the case the Karnataka Appellate Tribunal was right in holding that the levy of penalty under section 9(2) of the CST Act read with section 18A of the KST Act made by the assessing authority and confirmed by the first appellate authority is correct? Held that - There is failure to record a finding as to whether the incorrectness of the return, as claimed by the petitioner was due to want of care on the part of its employee and that there was no reasonable explanation forthcoming from the assessee for such want of care and therefore, it could be inferred that the returns filed are deliberate false returns. The authorities having failed to apply their mind to the contention, it cannot but be said that the orders of the assessing authority, annexure A , and the orders impugned of the appellate authorities are unsustainable. In the circumstances, the question of law as raised in the petition is answered accordingly. W.P. allowed.

Summary

Issues:
1. Imposition of penalty under section 9(2) of the CST Act and section 18A of the KST Act for incorrect tax calculations.
2. Bona fide mistake in declaring tax amount at four per cent instead of two per cent.
3. Consideration of guilty mind for invoking penalty under section 9(2) of the CST Act.
4. Failure to record a finding on the reason for incorrect return and want of care by the employee.

Analysis:
The case involved the imposition of a penalty on a public limited company for collecting Central Sales Tax (CST) at a rate of four per cent instead of two per cent due to a mistake in the accounting system. The assessing authority issued a penalty notice, which was upheld by the appellate authorities. The petitioner challenged the penalty, questioning the correctness of the penalty imposed under section 9(2) of the CST Act and section 18A of the KST Act.

The Court examined the provisions of the CST Act and the KST Act related to penalties for incorrect tax collections. It was noted that the penalty could be imposed if a registered dealer collected tax exceeding the rate at which they were liable to pay. The key question was whether the petitioner's declaration of four per cent tax was a bona fide mistake or done with mala fide intentions.

The Court emphasized that the imposition of penalty under section 9(2) of the CST Act is penal in nature and requires a guilty mind. Referring to precedents, the Court highlighted that unless the inaccurate return was filed with a guilty mind, the penalty provision could not be invoked.

Upon reviewing the orders of the assessing authority and the appellate authorities, the Court found a failure to consider whether the incorrect return was due to lack of care by the petitioner's employee. The Court concluded that there was no reasonable explanation for the lack of care, leading to the inference that the returns were deliberate false returns. As a result, the Court set aside the orders of the authorities and remitted the proceeding for fresh consideration.

In the final judgment, the Court allowed the petition, setting aside the previous orders and directing the Deputy Commissioner to reconsider the matter in light of the Court's observations and legal principles, while providing a reasonable opportunity of hearing to the petitioner. The Government advocate was instructed to file a memo of appearance, and a miscellaneous application for stay was rejected as unnecessary.