2015 (12) TMI 1630 - HC - VAT and Sales Tax

Purchase tax - penalty - By Notification No.336, dated 17.09.1964, there is an exemption granted for sales in the canteen run under the statutory obligations - The Petitioner only buys the provisions, cooks and supplies to the MFL employees on subsidise basis - petitioners claim that the purchases were only from the registered dealers and sales tax was not paid, because there was subsidised supply by MFL as a welfare measure and there was no sale to employees and that there was only a catering service - whether the turnover in relation to the sales effected in the canteen run by the Petitioner during the relevant assessment years is exempt from sales tax by reason of the N/N. 336 of 1964, dated 01.09.1964? Held that - Under the said notification, the exemption granted is for the sales by all canteens run by an employer or by the employees on cooperative basis on behalf of the employer. The further requirement to be satisfied, before the benefit of that notification can be claimed, is that running of such canteen must be under a statutory obligation without profit motive and the employer should subsidise at least 25% of the total expenses incurred in running the canteen. Whether the petitioner is coming under the category of a canteen run on co-operative basis or not? - Held that - the Petitioner is an independent contractor and he is not running the canteen on cooperative basis. Therefore, the Petitioner is not entitled to claim exemption provided under the said notification dated 17.09.1964, as he did not satisfy the essential requirements laid down in the notification for claiming the benefit therefor. Since the Petitioner doing business has to produce the books of accounts, but the Petitioner did not maintain and produce the same, in the absence of original purchase bills, the Respondent assessed on the basis of the data available and passed the impugned order, the Petitioner is liable to pay tax. Relying upon the decision of the case of Industrial Catering Services P Limited Vs. Commercial Tax Officer, Chennai 2003 (3) TMI 675 - MADRAS HIGH COURT , penalty set aside. Petition disposed off - direction to the Respondents to re-examine the question of penalty - decided partly against assessee as regards imposition of tax.

Summary

Issues Involved:
1. Validity of the imposition of purchase tax and penalty on the Petitioner.
2. Applicability of Notification No.336 dated 17.09.1964 for tax exemption.
3. Assessment of penalty under Section 12(3)(a) of the TNGST Act.

Detailed Analysis:

1. Validity of the Imposition of Purchase Tax and Penalty on the Petitioner:

The Petitioner, an independent contractor running a canteen on behalf of MFL, challenged the Respondent's order dated 24.03.2006, which imposed purchase tax and penalty for the assessment years 1997-1998 to 2002-2003. The Respondent's order was based on the findings from an inspection conducted on 22.03.2003, which revealed the absence of maintained books of accounts. Consequently, the Respondent treated 40% of the total receipts as taxable purchases from unregistered dealers under Section 7-A of the Tamil Nadu General Sales Tax Act, 1959. The Petitioner argued that the purchases were from registered dealers and that the canteen was run under a statutory obligation and subsidized by MFL, thereby claiming exemption from tax.

2. Applicability of Notification No.336 dated 17.09.1964 for Tax Exemption:

The core issue was whether the sales turnover in the canteen run by the Petitioner was exempt from sales tax under Notification No.336 dated 17.09.1964. This notification exempts sales by canteens run by an employer or by employees on a cooperative basis under a statutory obligation without profit motive, provided the employer subsidizes at least 25% of the total expenses. The court observed that the Petitioner, being an independent contractor, did not meet the criteria of running the canteen on a cooperative basis or under a statutory obligation. The court referenced a Division Bench decision in 2003-132-STC-35, which clarified that the exemption applies only to canteens run directly by the employer or by employees on a cooperative basis, not by independent contractors. Consequently, the Petitioner was not entitled to the exemption.

3. Assessment of Penalty under Section 12(3)(a) of the TNGST Act:

The Respondent imposed a penalty at the rate of 150%, the maximum permissible, under Section 12(3)(a) of the TNGST Act. The Petitioner contended that the penalty was contrary to the Explanation in Section 12(3) and that he was willing to pay taxes based on actuals and maintained books of accounts. The court noted that the imposition of penalty is discretionary and should consider the bona fides of the assessee. Citing the Division Bench decision in 2003-132-STC-35, which emphasized the need for assessing officers to evaluate the bona fides of the assessee while imposing penalties, the court found that the assessing officer had not addressed this factor. The court acknowledged the Petitioner's partial compliance with the interim order by depositing Rs. 15,00,000 and his willingness to pay taxes as per the books of accounts.

Conclusion:

The court confirmed the levy of tax liability but set aside the penalty, directing the Respondent to re-examine the question of penalty in light of the law and the Petitioner's bona fides. The Writ Petition was disposed of with these directions, and no costs were awarded. The connected miscellaneous petitions were also closed.