2013 (2) TMI 639 - HC - VAT and Sales Tax

Tax evasion - penalty imposed - revised return filed by assessee paying the differential tax with interest and settlement fee - petitioner alleges that electronic filing of the return was introduced for the first time - Held that - Under the KVAT Act and the scheme, the law provides for self-assessment. But, at the same time, rule 35 sets a time-limit for rejecting the return and conveying the reasons. Also, provisions relating to e-filing contained in section 24D(4) contemplated an active role for the officer, the whole purpose being the interest of the Revenue is safeguarded and money pours into the public coffers as it should promptly. But, this by itself will not obviate the duty of the assessee to file the return correctly. Obviously, ignorance of the law is no excuse. The amendment enhancing the rate of tax came into force by a public document. The petitioner has shown the rate of tax incorrectly, rendering the return an incorrect return. Therefore, we do not think that in the facts of this case we should interfere with the decision of the authority as confirmed by the two appellate authorities to impose penalty on the petitioner. But considering that the petitioner has paid the entire amount of tax with interest and settlement fee, the amount of penalty should be further reduced to ₹ 1,50,000 in place of what is ordered by the Tribunal.

Summary

Issues:
1. Incorrect filing of returns leading to penalty imposition under the Kerala Value Added Tax Act, 2003.
2. Interpretation of provisions under sections 22(9) and 79B regarding acceptance of revised returns after penalty initiation.
3. Application of settlement fee payment under section 22(5) as a bar against penalty imposition.
4. Analysis of rules 35 and 24D(4) in the context of rejection of returns and officer's role in e-filing processes.

Issue 1: Incorrect filing of returns and penalty imposition:
The petitioner, operating a metal crusher unit, filed a return for the year 2009-10 showing a tax rate of four per cent instead of the correct 12.5 per cent for granite metal. The petitioner claimed the error was due to e-filing introduced for the first time, resulting in misclassification. The Intelligence Officer proposed a penalty under section 67 for incorrect returns. The Tribunal reduced the penalty from double the evaded tax to the evaded tax amount. The High Court upheld the penalty, emphasizing the misclassification and lack of justification for the error, despite the petitioner's argument of bona fide mistake due to lack of awareness of the amendment.

Issue 2: Interpretation of sections 22(9) and 79B for revised return acceptance:
The High Court highlighted the bar against accepting revised returns once penalty proceedings are initiated, as per sections 22(9) and 79B of the Act. The petitioner's attempt to file a revised return after penalty initiation was deemed impermissible under the law, even with the extension for filing the annual return. The Court emphasized the legal restrictions on revised returns in penal cases, reinforcing the validity of penalty imposition in this scenario.

Issue 3: Application of settlement fee payment as a bar against penalty imposition:
While the petitioner had paid the settlement fee under section 22(5), the Court clarified that this payment does not preclude penalty imposition under section 67. The absence of an explicit bar against penalty imposition post-settlement fee payment further supported the authority's decision to levy the penalty for incorrect filing, despite the settlement fee compliance by the petitioner.

Issue 4: Analysis of rules 35 and 24D(4) in return rejection and officer's role:
The Court acknowledged the diligence expected from officers in rejecting incorrect returns promptly under rule 35. The e-filing provisions in rule 24D(4) emphasized the officer's role in ensuring accurate filings to safeguard revenue interests. Ignorance of the law was deemed unacceptable, with the petitioner's incorrect rate declaration considered a violation. Despite considerations for penalty reduction due to tax payment and procedural aspects, the Court maintained the penalty imposition while reducing the amount to &8377; 1,50,000 from the Tribunal's order.

In conclusion, the High Court upheld the penalty imposition on the petitioner for incorrect filing, citing legal provisions and lack of justifiable grounds for the error, while reducing the penalty amount based on the overall circumstances of the case.