2010 (11) TMI 896 - HC - VAT and Sales Tax

Whether the Tribunal was justified in confirming the order of the first appellate authority modifying the penalty levied on the petitioner under section 67(1) of the Kerala Value Added Tax Act? Held that - On facts and based on records verified by the intelligence officer what is clear is that the petitioner made an attempt to camouflage the spare parts sales as sale of scrap because the bills disclose the price fixed based on weight which is factually incorrect. In the first place nobody purchases pieces of iron scrap from an automobile spare dealer. Scrap is generally sold in bulk and the petitioner did it in the breaking yard itself. The balance items brought and sold under the guise of scrap were really found to be old parts recovered from dismantled vehicles. The attempt of evasion is established beyond doubt and therefore, the petitioner has no escape from the penalty. We therefore uphold in principle the orders of the lower authorities in confirming the penalty on the petitioner for evasion of tax. It is not known whether the petitioner remitted the tax or whether the turnover is assessed to tax at higher rate. Since the petitioner is only a small scrap dealer, we feel the petitioner can be granted reduction of penalty provided the petitioner pays tax based on the assessment orders. We accordingly grant a conditional reduction of penalty to 50 per cent of the tax provided the petitioner pays the tax based under the assessment orders on the turnover involved at higher rate.

Summary

Issues:
1. Justification of Tribunal in confirming modification of penalty under section 67(1) of the Kerala Value Added Tax Act.
2. Determination of tax rate applicable to spare parts sold as scrap by the petitioner.
3. Assessment of penalty for evasion of tax by the petitioner.
4. Consideration of reduction in penalty amount based on assessment orders.

Issue 1: Justification of Tribunal in confirming modification of penalty under section 67(1) of the Kerala Value Added Tax Act.
The Tribunal confirmed the order of the first appellate authority modifying the penalty levied on the petitioner under section 67(1) of the Kerala Value Added Tax Act. The petitioner contended that old spares were sold as scrap, taxed at four per cent, based on weight. However, the intelligence officer found that the spare parts sold were usable automobile spare parts, not scrap. Even though the penalty was initially double the differential tax amount, the first appellate authority reduced it to an equal amount of tax. The Tribunal upheld this decision, leading to the petitioner filing revisions.

Issue 2: Determination of tax rate applicable to spare parts sold as scrap by the petitioner.
The petitioner argued that spare parts were sold by weight, as shown in sale bills. However, the intelligence officer's findings revealed that the spare parts were sold at different rates per unit weight, indicating they were not scrap but usable spare parts. The court noted that spare parts obtained from dismantling old automobiles may not have suffered uniform erosion, making them fit for re-use. The rate of tax applicable to the sale of old spare parts is the rate for automobile spare parts, not scrap, as correctly determined by the intelligence officer.

Issue 3: Assessment of penalty for evasion of tax by the petitioner.
The court found that the petitioner attempted to disguise spare parts sales as scrap sales by fixing prices based on weight in the bills, which was factually incorrect. The petitioner's evasion of tax was evident as the spare parts were not typically purchased as scrap, and the attempt to evade tax was established beyond doubt. Therefore, the court upheld the penalty imposed on the petitioner for tax evasion.

Issue 4: Consideration of reduction in penalty amount based on assessment orders.
While upholding the penalty, the court considered granting a reduction to 50 per cent of the tax amount, provided the petitioner paid tax based on assessment orders at a higher rate. As the petitioner was a small scrap dealer, this conditional reduction was deemed appropriate. The intelligence officer was directed to ensure tax collection based on assessment orders and to grant the relief after consultation with the assessing officer.

In conclusion, the court upheld the penalty on the petitioner for tax evasion but allowed a conditional reduction in the penalty amount contingent on the petitioner paying tax based on assessment orders at a higher rate.