2012 (2) TMI 447 - HC - VAT and Sales Tax

Whether the Appellate Tribunal is correct in sustaining the penalty levied under section 22(2) of the Tamil Nadu General Sales Tax Act and refixed by the Appellate Assistant Commissioner, when there was no excess or illegal collection of tax by the petitioner? Held that - The assessee was under the bona fide impression that they could make an application for registration within 30 days or before February 24, 1994. With that belief only, the application was made on February 24, 1994. Even assuming that the date should be calculated from the date of change in the constitution, i.e., on January 23, 1994, the application has been made on February 24, 1994 with a delay of one day. In these circumstances, the explanation offered by the assessee for not applying the registration within a period of 30 days should have been accepted by the assessing officer. If that explanation is accepted, in our opinion, the penalty is not automatic and the assessing authority ought to have exercised its discretion not to levy penalty. Though the assessee had collected the tax, the amount had been paid. In these circumstances, the imposition of penalty by invoking the provisions of section 22(2)(i) of the Act is unwarranted. Hence, the substantial question of law raised in the revision is answered in favour of the assessee.

Summary

Issues Involved:
1. Applicability of Section 22(2) of the Tamil Nadu General Sales Tax Act for penalty imposition.
2. Determination of bona fide belief in the delayed application for registration.
3. Discretionary power of the assessing officer in penalty imposition.
4. Quantum of penalty and its mandatory nature.

Detailed Analysis:

1. Applicability of Section 22(2) of the Tamil Nadu General Sales Tax Act for Penalty Imposition:
The core issue was whether the penalty under Section 22(2) of the Tamil Nadu General Sales Tax Act was justifiably imposed on the assessee, who collected tax without being registered due to a change in business constitution. The assessee, a dealer in food and drinks, had a change in business constitution on January 23, 1994, but filed for registration a day late on February 24, 1994. The assessing officer imposed a penalty under Section 22(2)(ii) at 150% of the tax collected.

2. Determination of Bona Fide Belief in the Delayed Application for Registration:
The court examined whether the delay in filing for registration was due to a bona fide belief. The assessee argued that the delay was minimal (one day) and was due to awaiting clarification from the assessing officer, which was received on February 4, 1994. The court found that the assessee's explanation was reasonable and that the delay was not intentional but due to a bona fide misunderstanding.

3. Discretionary Power of the Assessing Officer in Penalty Imposition:
The court analyzed the discretionary power granted to the assessing officer under Section 22(2), which uses the term "may" for imposing penalties. This indicates that the penalty imposition is not automatic but subject to the officer's discretion, especially in cases where a bona fide belief is established. The court emphasized that if the delay in registration is justified, the penalty should not be imposed automatically.

4. Quantum of Penalty and Its Mandatory Nature:
The court noted that the Appellate Assistant Commissioner had already reduced the penalty to 100% of the collected tax, recognizing the bona fide belief of the assessee. The court affirmed that the provision for penalty under Section 22(2) is not mandatory in terms of quantum. Given the circumstances and the bona fide belief, the imposition of a 150% penalty was deemed unwarranted.

Conclusion:
The court concluded that the imposition of the penalty under Section 22(2) was not justified given the bona fide belief and minimal delay in filing for registration. The assessing officer should have exercised discretion and considered the explanation provided by the assessee. Consequently, the substantial question of law was answered in favor of the assessee, and the tax case revision was allowed without costs.