2010 (2) TMI 1104 - HC - VAT and Sales Tax

Levy of penalty challenged - Held that - An assessee claiming a non-existing exemption when there is no express exemption granted in respect of the particular goods in terms of section 8A of the Act, cannot be characterised as an assessee acting with any bona fides, as in the first instance, there is no exemption at all under the State enactment. It is for this reason that we are rejecting the contentions urged by Mr. G. Rabinathan, learned counsel for the petitioner, that a second sale in respect of de-oiled rice bran is exempted from levy of sales tax under the State enactment and therefore we are answering the questions against the assessee-petitioner and in favour of the Revenue to affirm the order passed by the lower authorities. Revision petition dismissed.

Summary

Issues Involved:
1. Justification of the levy of penalty for non-payment of tax on inter-State sales of de-oiled rice bran.
2. Applicability of the judgment of the Supreme Court in State of Madras v. S.G. Jayaraj Nadar & Sons regarding the non-levy of penalty on disclosed sales found from the books of accounts.

Issue-Wise Detailed Analysis:

1. Justification of the Levy of Penalty:
The primary issue revolves around whether the levy of penalty on the petitioner for non-payment of tax on inter-State sales of de-oiled rice bran is justified under section 12A(1A) of the Karnataka Sales Tax Act, 1957. The assessee, a manufacturer of rice bran oil and de-oiled rice bran, claimed that the inter-State sales of de-oiled rice bran were exempt from tax under section 8(2A) of the Central Sales Tax Act, 1956. The assessee argued that since rice bran is subjected to a single point levy under the Karnataka Sales Tax Act, a second sale within Karnataka does not attract further sales tax liability. Consequently, the inter-State sale of de-oiled rice bran should also be exempt from tax.

The assessing authority initially allowed this exemption but later reassessed and levied a penalty for non-payment of tax. The first appellate authority reduced the penalty to 70% of the tax liability, which was affirmed by the Karnataka Appellate Tribunal. The court examined whether the circumstances justified the levy of penalty under section 12A(1A) of the Act, which mandates a penalty for wilful non-disclosure of assessable turnover.

The court found that the assessee's claim of exemption was based on a non-existent exemption and was not bona fide. The court emphasized that an exemption under tax laws must be express and precise, granted by a legislative act, and not inferred by implication or analogy. Since there was no specific notification under section 8A of the Act granting exemption for inter-State sales of de-oiled rice bran, the assessee's claim was unfounded. The court concluded that the assessee's conduct did not demonstrate bona fides, and the levy of penalty was justified.

2. Applicability of the Supreme Court Judgment:
The petitioner cited the Supreme Court judgment in State of Madras v. S.G. Jayaraj Nadar & Sons [1971] 28 STC 700, which held that no penalty is leviable on sales found from the books of accounts and brought to tax. The petitioner argued that since the inter-State sales of de-oiled rice bran were disclosed in the books of accounts and returns filed, the levy of penalty was unjustified.

The court distinguished the present case from the Supreme Court judgment, noting that the issue was not merely about disclosure but whether the non-payment of tax was due to a bona fide belief in an exemption. The court found that the assessee's claim of exemption was not based on any express provision of law and was a convenient assumption to avoid tax liability. Thus, the Supreme Court judgment did not apply to the present case, and the levy of penalty was upheld.

Conclusion:
The court concluded that the levy of penalty on the petitioner for non-payment of tax on inter-State sales of de-oiled rice bran was justified under section 12A(1A) of the Karnataka Sales Tax Act, 1957. The petitioner's claim of exemption was not bona fide and was based on a non-existent exemption. The Supreme Court judgment in State of Madras v. S.G. Jayaraj Nadar & Sons did not apply to the present case. The revision petitions were dismissed, and the orders of the lower authorities were affirmed.