2011 (6) TMI 700 - HC - VAT and Sales Tax

Whether in the facts and circumstances of the case the deletion of penalty levied under section 22(2) of the TNGST Act by the Tribunal is legally sustainable? Held that - We have no hesitation in confirming the order of the Tribunal cancelling the levy of penalty. Accordingly the order of the Tribunal is confirmed and the tax case (revision) is dismissed.

Summary

Issues:
- Whether the deletion of penalty under section 22(2) of the TNGST Act by the Tribunal is legally sustainable?

Analysis:
The High Court of Madras heard a revision petition filed by the Revenue against the Sales Tax Appellate Tribunal's order for the assessment year 1995-96. The primary issue was the legality of deleting the penalty levied under section 22(2) of the Tamil Nadu General Sales Tax Act. The assessee had collected tax at a higher rate of eight per cent on overhead travelling cleaners used in textile machinery, based on past practices and a lack of objection from the Revenue during the assessment year. However, the Revenue sought to assess the same at a lower rate of four per cent for the year in question, leading to the penalty imposition. The Tribunal, citing previous court decisions, including State of Tamil Nadu v. Oil Dale Trading Private Ltd., concluded that in cases of mutual mistake regarding tax rates, penal liability should not be imposed. The Tribunal also highlighted the consistency in assessments from previous years, rendering the penalty unsustainable.

The Revenue argued that the assessing authority must levy a penalty under section 22(2) of the Act if tax is collected in contravention of the law. They relied on the decision in A. Vinayagamurthy Nadar v. Joint Commissioner-II, emphasizing that the assessing authority has no discretion once a contravention is established. However, the High Court distinguished this argument by referencing the case of State of Tamil Nadu v. Jaya Pharmacy, where mutual mistakes regarding tax rates prevented the imposition of penalties. The Court further differentiated another case, A. Vinayagamurthy Nadar v. Joint Commissioner-II, where the assessing authority's realization of an error precluded the claim of mutual mistake and upheld the penalty.

Additionally, the Court referred to the case of State of Tamil Nadu v. K. Mohammed Ibrahim Sahib, where it was established that if the Revenue directs the collection of tax at a certain rate, the subsequent imposition of penalties for contravention is unjust. In the present case, the Commissioner's clarification on the tax rate was issued shortly before the assessment order, and the previous year's assessment was finalized at the higher tax rate without revision. The Court concluded that the situation constituted a mutual mistake, as both parties operated under the assumption of the higher tax rate until the clarification was issued. Therefore, the Tribunal's decision to cancel the penalty was upheld, dismissing the tax case revision.

In summary, the High Court of Madras confirmed the Tribunal's decision to cancel the penalty imposed under section 22(2) of the TNGST Act, citing mutual mistake and past assessment practices as justifications. The Court emphasized the importance of consistency in assessments and the lack of objections from the Revenue during the relevant assessment year, leading to the dismissal of the tax case revision with no costs awarded.