2011 (3) TMI 1544 - HC - VAT and Sales Tax

Whether the Tribunal was justified in sustaining penalty at equal amount of tax for dishonour of cheques given towards payment of tax and consequent delay in payment of tax? Held that - Considering the fact that taxes were paid along with interest on issuing notice by the assessing officer, and the assessing officer himself delayed issue of notice by six months and in view of the financial difficulty expressed by the petitioner consequent upon his heart ailment, we refix the penalty at ₹ 25,000 per month, i.e., ₹ 50,000 as total penalty for delay in payment of tax for the months of February and March, 2009. O.T. revision cases are allowed in part

Summary

Issues:
1. Justification of penalty for dishonour of cheques towards tax payment.
2. Delay in payment of tax and imposition of penalty.
3. Applicability of penalty provisions under the Kerala Value Added Tax Act.

Analysis:
1. The primary issue in this case revolved around the justification of sustaining a penalty equal to the amount of tax for the dishonour of cheques intended for tax payment and the subsequent delay in tax payment. The petitioner, a dealer in coffee and pepper, filed monthly returns under the Kerala Value Added Tax Act. The cheques provided for tax payment were dishonoured, leading to a delay in tax remittance. Despite the petitioner eventually paying the taxes with interest, the assessing officer imposed a penalty under section 67 of the Act. The Tribunal upheld the penalty, albeit modifying the amount to be equal to the tax due. The petitioner contested these penalty orders through revision cases.

2. The petitioner argued that health issues, specifically a heart condition, hindered their ability to arrange funds to honour the cheques. Conversely, the Government Pleader contended that the petitioner's lack of proactive measures post-cheque dishonour indicated a lack of bona fides. The court acknowledged the dealer's obligation to promptly pay collected taxes to the government, emphasizing the need for timely communication and resolution in case of cheque dishonour. Critically, the court noted the assessing officer's significant delay in addressing the dishonoured cheques, attributing fault more to the officer than the assessee. The court highlighted the low interest rate for tax payment delays as an incentive for traders to defer payments, underscoring the importance of stringent enforcement by tax authorities.

3. The court delved into the statutory framework, distinguishing between penalties under section 67 for general violations and section 68 for specific defaults in tax payment. While section 67 covers all violations, penalties for non-payment or default in tax fall under section 68. The court referenced a previous judgment to clarify that penalties should align with specific violation provisions rather than a general penalty clause. In this context, the court exercised discretion to set the penalty at Rs. 50,000 for the delay in tax payment for the relevant months, considering the circumstances, including the delayed notice issuance by the assessing officer and the petitioner's health-related financial constraints.

In conclusion, the court partially allowed the revision cases, adjusting the penalty amount in light of the delay in tax payment and the circumstances surrounding the cheque dishonour issue.