2011 (6) TMI 699 - HC - VAT and Sales Tax

Whether going by the reassessment proceedings under section 16 of the Tamil Nadu General Sales Tax Act, unless the assessing officer records a definite finding as to the wilfulness on the suppression of turnover, penalty could not be sustained? Held that - A reading of the order of the Tribunal shows that it misdirected itself in treating the assessment as one under section 12(2) of the Tamil Nadu General Sales Tax Act. When it is not the case of the Department that the assessment was made under section 12(2) but one under section 16 as a case of reassessment, we fail to understand how the Tribunal considered the assessment as falling under section 12, to sustain the penalty under section 12(3). Considering the fact that the levy of penalty does not satisfy the requirement of section 16(2) of the Tamil Nadu General Sales Tax Act, we have no hesitation in setting aside the order of the Tribunal. It is also relevant to note that the levy of penalty is discretionary and not an automatic concomitant of reassessment. As far as section 16(2) proceedings are concerned, in the absence of consideration of any materials therein as to the wilful non-disclosure of assessable turnover, we do not find any ground to affirm the view of the Tribunal. Appeal allowed of assessee.

Summary

Issues:
1. Whether the addition of freight charges and gross profit to the purchase turnover constitutes best judgment assessment attracting penalty under section 12(3)(b) of the Act?
2. Applicability of specific court decisions to the present case regarding turnover estimation based on book figures.
3. Determination of whether the addition of charges to turnover amounts to revision under section 16 or best judgment assessment under section 12(3) and the consequent levy of penalty.

Analysis:

1. The case involved an appeal against the Tribunal's order concerning the addition of turnover under sand and brick heads, along with freight charges, to the original assessment of a building contractor for the assessment year 1994-95. The Appellate Assistant Commissioner canceled the penalty under section 12(3)(b) due to lack of wilful suppression by the assessee, despite the penalty being levied. The Tribunal, however, reinstated the penalty, leading to the present revision by the assessee.

2. The appellant contended that penalty could not be sustained unless the assessing officer established wilful non-disclosure of assessable turnover, as per section 16 of the Act. The Special Government Pleader supported the penalty levy based on inspection results. The High Court emphasized that reassessment erases the initial assessment's effect and penalty imposition in reassessment must align with section 16(2) of the Act.

3. The High Court found the Tribunal's misdirection in treating the assessment under section 12(2) instead of section 16, which led to the incorrect penalty application under section 12(3). As penalty under section 16(2) requires a definite finding of wilful non-disclosure, the Tribunal's decision was set aside. The Court reiterated that penalty under section 16 is discretionary and not automatic, emphasizing the need for evidence of wilful non-disclosure in such cases.

In conclusion, the High Court ruled in favor of the assessee, setting aside the Tribunal's order and allowing the tax case without costs. The judgment clarified the necessity of aligning penalty levies in reassessment with the specific provisions of the Act, particularly emphasizing the requirement of establishing wilful non-disclosure for penalty under section 16.