2009 (10) TMI 828 - HC - VAT and Sales Tax

Whether a dealer under the Bihar Value Added Tax Act, 2005 against whom neither any tax is found payable nor is due, could be subjected to the penal provisions of section 54(4) of the Act for reasons of non-submission of a report of audit in the prescribed form duly signed and verified by an accountant within the meaning of the Chartered Accountant Act, 1949 or by a person entitled to act as an auditor of companies by virtue of the provisions of section 226(2) of the Companies Act, 1956? Held that - As the respondents have not disputed the fact that there is no tax payable against the petitioner for the period in question, the case of the petitioner would not be covered by the penal provisions of section 54(4) of the Act and he orders imposing penalty impugned in the writ petition and affirmed by the appellant authority cannot be sustained and have to be set aside. Appeal allowed.

Issues Involved:
1. Applicability of penal provisions under Section 54(4) of the Bihar Value Added Tax Act, 2005 for non-submission of an audit report in the prescribed form.
2. Constitutional validity and fairness of Section 54(4) of the Act.
3. Interpretation of "tax payable" in the context of Section 54(4).

Detailed Analysis:

Issue 1: Applicability of Penal Provisions under Section 54(4)
The primary issue was whether a dealer, who neither had any tax payable nor due, could be subjected to penalties under Section 54(4) of the Bihar Value Added Tax Act, 2005, for not submitting an audit report in the prescribed form. The petitioner had submitted audit reports within the prescribed period but without the required signature and verification by an accountant as mandated by Section 54(2).

The court noted that Section 54(4) imposes a penalty for non-compliance with Section 54(2), but the penalty is linked to "tax payable." The court emphasized that the breach of procedural provisions should not be equated with tax evasion, especially when the dealer has paid all due taxes and the returns have been accepted without any tax found payable. The court held that the petitioner had substantially complied with the requirements by submitting the audit report, albeit unsigned, within a reasonable period.

Issue 2: Constitutional Validity and Fairness of Section 54(4)
The petitioner initially challenged the constitutional validity of Section 54(4), arguing it was arbitrary and unreasonable. However, during the hearing, the focus shifted to interpreting the provision to ensure it aligned with constitutional guarantees of fairness and reasonableness.

The court observed that penal provisions in taxing statutes aim to prevent tax evasion and secure revenue. It held that the legislative intent behind Section 54(4) was not to penalize honest taxpayers who had paid their taxes timely. The court found that the provision should be interpreted to apply only to dealers who had taxes payable and had not complied with the audit report requirements.

Issue 3: Interpretation of "Tax Payable"
The court scrutinized the language of Section 54(4), which repeatedly refers to "tax payable." It concluded that the penalty is applicable only in cases where taxes are found payable against the dealer. The court reasoned that non-submission of an audit report, while a procedural contravention, does not constitute a "default" unless it is accompanied by unpaid taxes.

The court emphasized that the statutory authority must consider whether the breach of Section 54(2) resulted in tax evasion or if any tax was found payable. The court held that in the absence of any tax liability, the imposition of penalties for procedural breaches would be unreasonable and an abuse of statutory powers.

Conclusion:
The court allowed the writ petition, setting aside the penalty orders imposed on the petitioner. It held that the petitioner, having paid all due taxes and substantially complied with the audit report requirements, should not be subjected to penalties under Section 54(4). The court ordered the refund of any amount realized by the respondents from the petitioner within three months.

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