2011 (5) TMI 888 - HC - VAT and Sales Tax

Whether the Tribunal VAT is correct in observing that the appellant has become liable for action of penalty under section 86 (10)(b) of the DVAT Act, 2004 automatically if the claim of deductions under rule 3(2) of the DVAT rule are denied for which the appellant has recorded the claim in the books of accounts? Whether the penalty becomes automatic under section 86(12) of the DVAT Act, 2004 where there is no tax deficiency at the time of filing of return with its proper claims as per rule 3(2) of the DVAT Rules without showing any deliberate action on the part of the appellant? Held that - The claim was bona fide may be the assessee was not able to prove the same, even otherwise, we find that it was an arguable case. For this reason, we are of the opinion that the provision to sub-section (10) of section 86 could not be invoked in a matter like this. This condition stipulated therein is not satisfied and we, thus, decide the question of law No. 1 in favour of the assessee and delete the penalty imposed under section 86(10) of the Act. While ascertaining whether there is a tax deficiency or not, the question of bona fide on the part of the assessee is completely alien and irrelevant. Once the tax deficiency is found, sub-section (12) thereof comes into play, as per which, the penalty is leviable on the said amount of tax deficiency. Question of law No. 2 is thus decided in favour of the Revenue and against the assessee thereby maintaining the penalty under section 86(12) of the Act.

Summary

Issues Involved:
1. Validity of the turnover disclosed by the appellant.
2. Justification of expenses on account of labour/services and consumables.
3. Imposition of penalty under sections 86(10) and 86(12) of the Delhi Value Added Tax Act, 2004.

Issue-wise Detailed Analysis:

1. Validity of the Turnover Disclosed by the Appellant:
The appellant filed a VAT return showing a turnover of Rs. 15,36,120 for the second quarter of the assessment year 2005-06. The tax authorities, however, contended that the turnover should be Rs. 61,30,514, leading to a default assessment notice. The appellant argued that, as per section 5(2) of the Delhi VAT Act, it was entitled to exclude charges towards labour, services, and consumables, resulting in the disclosed turnover. The Value Added Tax Officer (VATO) confirmed the demand and interest, and imposed a penalty, which was upheld by the Objection Hearing Authority (OHA) and the Appellate Tribunal.

2. Justification of Expenses on Account of Labour/Services and Consumables:
The appellant claimed expenses of Rs. 28,61,766 for labour/services and Rs. 17,32,629 for consumables. The OHA found that the appellant could not substantiate the labour/services expenses with specific details for Delhi operations. The expenses were allocated proportionally from a centralized profit and loss account, which was not accepted. Consequently, the OHA applied the proviso to section 5 read with rule 3, allowing only 25% of the total contract value as expenses. The Tribunal concurred, noting the appellant's failure to prove the expenses based on books of accounts, leading to the application of the 25% rule for deductions.

3. Imposition of Penalty under Sections 86(10) and 86(12) of the Delhi VAT Act, 2004:
The penalty of Rs. 6,87,232 was imposed under sections 86(10) and 86(12). Section 86(10) pertains to furnishing a false, misleading, or deceptive return. The court found that the appellant's return was not false or misleading, as the approach was bona fide, albeit unproven. Thus, the penalty under section 86(10) was deleted. Section 86(12) imposes a penalty for tax deficiency, defined as the difference between the tax payable and the tax paid. The court upheld this penalty, as the appellant's tax paid was less than the tax found payable, making the penalty under section 86(12) applicable.

Conclusion:
The appeal was dismissed, affirming the Tribunal's findings. The penalty under section 86(10) was deleted, while the penalty under section 86(12) was upheld. The court found no merit in the appellant's arguments regarding the turnover and expenses, and no perversity in the findings of the OHA and the Tribunal.