2010 (2) TMI 1086 - HC - VAT and Sales Tax

Whether the information collection centre authorities appointed under the Punjab General Sales Tax Act, 1948, can detain the goods and impose penalty under section 14B of the Act even if the incharge of the vehicle has voluntarily came to the information collection centre and produced all the papers including bill and goods receipt, if there is a bona fide difference of opinion regarding rate of tax leviable on the goods under transport? Held that - In the absence of any cogent material and specific finding that there has been an attempt to avoid or evade the tax due or likely to be due, no penalty can be imposed on the assessee as contemplated under section 14B(7) of the Act. The substantial question of law as framed by this court is answered in favour of the assessee.

Summary

Issues Involved
1. Whether the authorities under the Punjab General Sales Tax Act, 1948, can detain goods and impose a penalty under section 14B if there is a bona fide difference of opinion regarding the rate of tax leviable on the goods under transport.

Issue-wise Detailed Analysis

Detention of Goods and Imposition of Penalty
The core issue was whether the authorities at the Information Collection Centre (ICC) under the Punjab General Sales Tax Act, 1948, could detain goods and impose a penalty under section 14B when there is a bona fide difference of opinion regarding the applicable tax rate. The appellant-assessee, engaged in trading scrap and other goods, purchased unserviceable crawler tractors from MSTC Ltd., a Government of India enterprise, which deducted tax collected at source at 1.1% under section 206C of the Income-tax Act. The tractors were sold to a Kolkata firm with a 2% Central Sales Tax (CST), but the vehicle was detained for not charging the 4% tax applicable to machinery.

Legal Provisions and Interpretation
Section 14B of the Act was scrutinized, particularly subsections (6) and (7), which allow detention of goods and imposition of penalties if there is an attempt to evade tax. The court emphasized that penalties under section 14B(7) can only be imposed if there is "sufficient material and specific finding that an attempt to avoid or evade the tax due or likely to be due has been made by the assessee."

Judicial Precedents
The court cited several precedents, including:
- Mool Chand Chuni Lal v. Shri Manmohan Singh: Emphasized that penalty imposition requires a finding of an attempt to evade tax.
- Prakash Roadlines (P) Ltd. v. Commissioner of Commercial Taxes: Stated that mere failure to produce documents is insufficient for penalty.
- Xcell Automation v. Government of Punjab: Held that bona fide disputes over taxability should not attract penalties if there is no concealment or mis-declaration.
- Hindustan Steel Ltd. v. State of Orissa: Asserted that penalties should not be imposed for technical breaches or bona fide mistakes.

Application to the Present Case
The court found that the assessee had provided all necessary documents and had a reasonable explanation for charging 2% CST, believing the goods were scrap. The court noted that whether the tax should be 2% or 4% is a matter for annual assessment, not for penalty imposition at the ICC. The court emphasized that "strong suspicion, strange coincidences and grave doubts cannot take the place of legal proof" and highlighted the absence of any cogent evidence or specific finding of an attempt to evade tax.

Conclusion
The court concluded that the penalty under section 14B(7) was unjustified as there was no attempt to evade tax. The appeal was accepted, and the impugned orders were set aside. The substantial question of law was answered in favor of the assessee, emphasizing that penalties should only be imposed when there is clear evidence of tax evasion attempts.

Final Judgment
The appeal was accepted, and the orders imposing penalties were set aside. The court ruled that in the absence of specific findings of tax evasion attempts, penalties under section 14B(7) of the Punjab General Sales Tax Act, 1948, cannot be imposed.