2009 (6) TMI 936 - HC - VAT and Sales Tax

Whether in the facts and circumstances of the case the Tribunal is legally correct in having deleted the penalty levied under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act 1959 based upon the decision in Appollo Saline Pharmaceuticals (P) Ltd. v. Commercial Tax Officer (FAC) 2001 (10) TMI 1100 - MADRAS HIGH COURT while for the assessment year 1980-81 penalty is leviable under section 12(5)(iii) of the Act for filing of incorrect and incomplete returns and therefore the said decision cannot be applied to this case? Held that - The conduct of the respondent-assessee in not including the freight charges and packing charges in the taxable turnover cannot be held to be a deliberate or intentional act on its part with a view to defeat its tax liability. On the other hand the submission of the return of the respondent-assessee during the relevant year was fully supported by the Division Bench decision of this court which held the field till the year 1992 when it came to be reversed in the decision of the honourable Supreme Court in Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu 1992 (10) TMI 228 - SUPREME COURT OF INDIA . As held in the decision of this court reported in Appollo Saline Pharmaceuticals (P) Ltd. v. Commercial Tax Officer (FAC) supra under section 12(4) specific expression used is may for the purpose of levying of penalty. We are convinced that the order of the Tribunal in having set aside that part of the order of the Assistant Commercial Tax Officer in having imposed penalty was justified and the same was perfectly in order. We therefore answer the question of law against the appellant and in favour of the assessee

Summary

Issues Involved:
1. Whether the Tribunal was legally correct in deleting the penalty levied under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959.

Detailed Analysis:

Issue 1: Legality of Deleting the Penalty

The core issue revolves around the penalty imposed on the respondent under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 for the assessment year 1980-81. The respondent, a cement manufacturing company, had disclosed freight and packing charges in the total turnover but excluded them from the taxable turnover. This was based on the decision in Ramco Cement Distribution Co. (P.) Ltd. v. State of Tamil Nadu [1982] 51 STC 171, which was later reversed by the Supreme Court in Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu [1993] 88 STC 151 (SC).

The Tribunal set aside the penalty, reasoning that the respondent acted on a bona fide belief in light of the earlier decision, which was only reversed later. The Tribunal's decision was challenged by the State, leading to this revision petition.

The court examined sections 12(4) and 12(5) of the Act, which stipulate the circumstances and quantum of penalty. Section 12(4) allows penalty for non-filing, late filing, or incorrect/incomplete returns. Section 12(5) specifies the penalty amounts. The court noted that the respondent had submitted returns on time and disclosed all charges, arguing that these charges should not be included in the taxable turnover based on the earlier court decision.

The court referred to the decision in Appollo Saline Pharmaceuticals (P) Ltd. v. Commercial Tax Officer (FAC) [2002] 125 STC 505 (Mad), which emphasized the discretionary nature of penalty imposition under section 12(4), requiring consideration of the assessee's bona fides. The court also cited E.I.D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes [2000] 117 STC 457 (SC), where the Supreme Court held that penalty should not be imposed if the assessee acted based on a bona fide belief supported by existing legal decisions.

Applying these principles, the court concluded that the respondent's exclusion of freight and packing charges from the taxable turnover was not deliberate or intentional to evade tax. The respondent acted based on a valid legal precedent at the time, which was only later overturned. Thus, the imposition of penalty was not justified.

The court upheld the Tribunal's decision to set aside the penalty, answering the question of law in favor of the respondent and dismissing the revision petition.