2011 (7) TMI 1067 - HC - VAT and Sales Tax

Restoration of penalty imposed on the petitioner under section 45A of the Kerala General Sales Tax Act 1963 for evasion of tax - Held that - The conclusion drawn by the Tribunal are purely on findings of fact based on evidence and we do not find any justification to interfere with the same. However the Tribunal has not considered whether it is a fit case for levying maximum penalty i.e. double the amount of tax sought to be evaded. We accordingly allow the revision in part by sustaining the order with regard to the percentage of gross profit added to the turnover for the purpose of determining the tax evaded but reduce the penalty to one and a half times the tax so evaded. The assessing officer is directed to issue revised order in accordance with the above order without any delay.

Summary

Issues:
Challenge to penalty imposed under section 45A of the Kerala General Sales Tax Act, 1963 for evasion of tax.

Detailed Analysis:

1. Background and Penalty Imposition:
The petitioner, a bar attached hotel, faced penalty proceedings under section 45A of the Kerala General Sales Tax Act, 1963 for evasion of tax. The Intelligence Officer discovered discrepancies in the petitioner's accounting, leading to the imposition of a penalty of Rs. 13,72,770 for the year due to suppression of taxable turnover and underpayment of tax.

2. Appellate Proceedings:
Upon appeal, the first appellate authority confirmed the penalty in principle but directed a 50% gross profit to be considered for re-estimating the evaded tax and imposing the penalty. Subsequently, both the assessee and the Department appealed to the Tribunal, which upheld the penalty, leading to the petitioner filing a revision challenging the Tribunal's decision.

3. Legal Arguments:
The petitioner's counsel cited various legal precedents to argue against the imposition of the penalty, emphasizing the lack of concrete evidence establishing tax evasion. In contrast, the Government Pleader highlighted the recovery of 24 original sale bills showing a significant difference between the actual gross profit and the profit recorded in the petitioner's accounts.

4. Judicial Analysis and Decision:
The Court scrutinized the evidence, noting the substantial discrepancy in gross profit percentages. It emphasized the reliability of the recovered sale bills and the absence of denial regarding their authenticity. The Court also considered the viability of the business based on the petitioner's accounted margins.

5. Estimation of Turnover and Penalty Reduction:
The Court discussed the methodology for estimating turnover in cases of unreliable accounts and emphasized the importance of accurate pricing information. It found the Tribunal's conclusions based on factual evidence sound and declined to interfere. However, it noted the lack of consideration for maximum penalty imposition and decided to reduce the penalty to one and a half times the evaded tax amount, considering potential seasonal margin variations.

6. Final Order:
The Court partially allowed the revision, maintaining the gross profit percentage for tax evasion calculation but reducing the penalty amount. It directed the assessing officer to issue a revised order promptly in line with the Court's decision.

In conclusion, the judgment upheld the penalty for tax evasion but adjusted the penalty amount, showcasing a balance between enforcement and leniency based on the specific circumstances of the case.