2008 (8) TMI 854 - HC - VAT and Sales Tax

Penalty under section 4B(5) of the U.P. Trade Tax Act, 1948 - Whether the Trade Tax Tribunal was legally justified to set aside the penalty order passed by the assessing authority under section 4B(5) of the U.P. Trade Tax Act, 1948 despite the fact that the dealer had clearly acted in contravention of the provisions contained in section 4B of the Act? Held that - The amount of penalty shall not be less then the difference between the amount of the tax on the sale or purchase of such goods payable under the provisions of the Act and the amount of tax payable at concessional rate under section 4B, where the goods are purchased after paying a tax at concessional rate. The intention is to make good at least the loss of tax by providing the minimum penalty. It does not grant any exemption to such dealer holding recognition certificate to dispose of such raw material purchased at concessional rate of tax or without payment of tax in any manner. The raw material has necessarily to be used in the manufacture of the specified goods. On the unused portion of the raw material, may be waste for a dealer, it has to pay the tax by way of penalty as provided for under sub-section (5) of section 4B. It may be in such cases the minimum one. In view of the above discussions, the order of the Tribunal is indefensible and is liable to be set aside so far as it holds that no penalty can be levied on the glass sheet raw material amounting to ₹ 2,43,277.10. On the facts of the present case, the interest of justice will be served by levying the minimum penalty as per provisions of the Act on the said amount. For the purposes of calculation of penalty amount only, the matter is remitted back to the Tribunal.

Summary

Issues:
Penalty under section 4B(5) of the U.P. Trade Tax Act, 1948 for disposal of raw material; Interpretation of section 4B provisions regarding disposal of raw material purchased at concessional rate; Validity of Tribunal's decision to set aside penalty order.

Analysis:
The case involves a revision against the Tribunal's order in Appeal No. 332 of 1992 for the assessment year 1987-88 regarding the penalty under section 4B(5) of the U.P. Trade Tax Act, 1948. The dealer, engaged in the business of manufacturing and selling mirror and toughened glass, held a recognition certificate under section 4B for purchasing raw material at a concessional rate of tax. However, it was found that the dealer disposed of cuttings of glass-sheet, not used in toughened glass manufacture, on consignment basis outside the State of U.P., leading to a show-cause notice under section 4B(5) of the Act. The dealer argued that the disposed sheets were waste and not suitable for toughened glass production, citing a court judgment to support the disposal. The Tribunal set aside the penalty order, prompting the question of legal justification for the decision.

Upon review, it was established that the dealer admitted to not using a part of the raw material for toughened glass production but selling it on consignment. The dealer claimed the residue was waste and could serve as raw material for others. However, the law requires the purchased raw material to be used for manufacturing specified goods, and any disposal without permission may attract penalty under section 4B(5). A previous court ruling held that failure to utilize raw material for notified goods renders the dealer liable for penalty. In this case, the dealer avoided tax on the raw material purchase by using form IIIB, and the disposal through consignment sales further evaded tax collection by the Revenue.

Section 4B(5) mandates penalty if raw material purchased at concessional rates is utilized for other purposes or disposed of without authorization. The penalty aims to compensate for the tax loss, ensuring the raw material is appropriately utilized for specified goods. The Tribunal's decision to absolve the dealer of penalty for the disposed glass sheet raw material was deemed unjustifiable. Consequently, the order was set aside, and the case was remitted back to the Tribunal for calculating the minimum penalty amount. The revision was allowed with costs, emphasizing the importance of adhering to tax laws and utilizing raw materials as intended under the Act.