2010 (6) TMI 722 - HC - VAT and Sales Tax

Levy of penalty under section 27(3) of the Pondicherry General Sales Tax Act, 1967 challenged Held that - The expression within the date specified in the notice of assessment appearing in section 27(3), is only relatable to the fresh assessment made under section 16(1). The petitioner in this case has paid the tax found due as per the fresh assessment under section 16(1). In fact, the fresh assessment under section 16(1) was made on April 9, 2009. The tax found due thereunder, had already been paid by the petitioner. Therefore, the question of tax remaining unpaid within the dates specified in the notice of assessment, did not arise. Consequently, no liability to pay penalty under section 27(3) could be said to have arisen. Hence, the impugned order is bad, in so far as it seeks to levy penal interest under section 27(3). Appeal allowed.

Issues Involved:
1. Challenge to the levy of penalty under section 27(3) of the Pondicherry General Sales Tax Act, 1967.
2. Validity of penalty imposition after filing a revised return and cancellation of the best judgment assessment.
3. Interpretation of sections 13, 16, 18, and 27 of the Pondicherry General Sales Tax Act, 1967.

Issue-wise Detailed Analysis:

1. Challenge to the levy of penalty under section 27(3) of the Pondicherry General Sales Tax Act, 1967:
The petitioner, a registered dealer under the Pondicherry General Sales Tax Act, challenged the penalty of Rs. 25,72,186 levied under section 27(3) for the assessment year 2005-06. The penalty was imposed despite the petitioner having paid the differential tax before the assessment order was passed. The petitioner contended that once a revised return was filed and the best of judgment assessment was canceled, there was no basis for imposing a penalty on the tax due under the original assessment.

2. Validity of penalty imposition after filing a revised return and cancellation of the best judgment assessment:
The respondents argued that the correct turnover was reported only in the revised return filed on February 18, 2009, and the penalty under section 27(3) was justified due to the incorrect monthly returns initially filed. They maintained that the waiver of penalty under section 16(3) did not absolve the liability under section 27(3). The court examined the scheme of the Pondicherry General Sales Tax Act, highlighting that section 27(3) imposes a penalty for non-payment of tax assessed within the specified time in the notice of assessment.

3. Interpretation of sections 13, 16, 18, and 27 of the Pondicherry General Sales Tax Act, 1967:
The court analyzed the provisions of the Act in detail:
- Section 13: Deals with self-assessment and best of judgment assessment, allowing the assessing authority to impose a penalty for incomplete or incorrect returns.
- Section 16: Provides for fresh assessment upon application by the dealer, leading to the cancellation of the best of judgment assessment and the penalty imposed under section 13(3).
- Section 18: Pertains to the assessment of escaped turnover, allowing the imposition of a penalty for wilful non-disclosure.
- Section 27: Specifies the conditions under which a penalty for non-payment of assessed tax is imposed.

The court emphasized that section 27(3) is compensatory, not punitive, and is meant to prevent unjust enrichment by dealers who retain tax collected from customers. The court noted that the liability to pay interest under section 27(3) arises only if the tax assessed is not paid within the time specified in the notice of assessment.

The court concluded that since the best of judgment assessment under section 13(2) was canceled and a fresh assessment was made under section 16(1), the penalty under section 13(3) was also canceled. The petitioner had already paid the tax due as per the fresh assessment, and therefore, no liability to pay penalty under section 27(3) arose.

Conclusion:
The court allowed the writ petition, setting aside the impugned order in so far as it related to the levy of penal interest under section 27(3) of the Act. The court emphasized that the penalty under section 27(3) could not be imposed once the best of judgment assessment was canceled and a fresh assessment was made, with the petitioner having paid the tax due as per the fresh assessment.

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