2010 (10) TMI 963 - HC - VAT and Sales Tax

Whether in view of the language of the Explanation the burden of establishing that the appellant is not liable for penalty is on the appellant and the appellant is bound to prove all the necessary facts in order to discharge that burden including the fact that the goods in question were in fact used in the Union Territory of Lakshadweep? Held that - Neither of these factors were indicated in the show-cause notice and therefore could not have validly formed part of the grounds which could lead to the conclusion that the sales in issue were not genuine apart from the fact that it was not the case of the Department in the show-cause notice that the sales were not genuine. Their simple case as already noticed from the show-cause notice is that the goods did not actually reach the Union Territory of Lakshadweep. It is possible in a given case where the sales are undisputedly genuine, the purchaser after purchasing the goods may change his intentions originally communicated to the vendor and alter the destination of the goods. Merely because the goods did not reach the destination in such a case it cannot be said that the sale itself was not genuine. Thus we are of the opinion that the order dated December 28, 2006 levying penalty on the company cannot be sustained and the same is required to be set aside. For the same reasons, we are of the opinion that the order of assessment cannot be sustained.

Issues Involved:
1. Legality of the assessment order dated January 21, 2010.
2. Legality of the penalty order dated December 28, 2006, and subsequent confirmations by revisional authorities.
3. Interpretation of the exemption notification S.R.O. No. 1091/99 and its applicability.
4. The responsibility of the selling dealer to ensure the actual use of goods in the Union Territory of Lakshadweep.
5. Principles of natural justice and procedural fairness in imposing penalties.

Issue-wise Detailed Analysis:

1. Legality of the assessment order dated January 21, 2010:
The assessment order for the year 2004-05 rejected the company's claim of a concessional tax rate of 4% on sales of HSD to two purchasing dealers, holding the company liable for a 24% tax rate. The court found that the assessment order was based on findings from a dismissed writ petition and observations that the goods did not reach Lakshadweep, which the company did not dispute. However, the court held that the selling dealer is not obligated to ensure the actual use of goods in Lakshadweep, and thus, the assessment order was unsustainable.

2. Legality of the penalty order dated December 28, 2006, and subsequent confirmations by revisional authorities:
The penalty order imposed a penalty of Rs. 5,04,79,164 on the company for allegedly evading tax by irregularly availing of the concessional rate. The court noted that the show-cause notice did not mention collusion, but the final order and revisional authorities introduced new grounds and findings of collusion. The court held that the penalty was imposed without proper notice and violated principles of natural justice. The order was based on extraneous factors not indicated in the show-cause notice, making it unsustainable.

3. Interpretation of the exemption notification S.R.O. No. 1091/99 and its applicability:
The exemption notification allowed a concessional tax rate for sales to dealers recognized by the Administrator of Lakshadweep, provided the goods were intended for use in Lakshadweep. The court interpreted that the notification did not require the selling dealer to ensure actual use in Lakshadweep. The court rejected the Revenue's argument that actual use must be proven, holding that the selling dealer's obligation ends with verifying the purchaser's status and intention at the time of sale.

4. The responsibility of the selling dealer to ensure the actual use of goods in the Union Territory of Lakshadweep:
The court held that the selling dealer is not responsible for monitoring the movement or actual use of goods in Lakshadweep. The court emphasized that once the sale is completed, the selling dealer loses control over the goods. The court found that holding the selling dealer liable for the purchaser's actions would be arbitrary and not supported by law.

5. Principles of natural justice and procedural fairness in imposing penalties:
The court found that the penalty was imposed in violation of principles of natural justice. The show-cause notice did not provide adequate grounds, and the final order introduced new findings without proper notice to the company. The court emphasized that the selling dealer must be given a fair opportunity to respond to specific allegations, and the penalty process must follow due process of law.

Conclusion:
The court allowed both W.P. (C). No. 5893 of 2010 and W.A. No. 1946 of 2009, setting aside the penalty order and the assessment order. The court held that the selling dealer is not responsible for ensuring the actual use of goods in Lakshadweep and that the penalty imposed was procedurally flawed and violated principles of natural justice.

← Previous Next →