2015 (10) TMI 2632 - HC - VAT and Sales Tax

Penalty u/s 67 (1)(d) of the KVAT Act - works contract - tripartite agreement or not - Held that - orders suffer from a patent non-application of mind and therefore, deserve to be quashed for that reason alone. I also find however, that there is no consideration by the respondent Intelligence Officer, of the aspect of whether the petitioner had willfully evaded payment of tax that was due and payable by him. This aspect assumes importance in matters of penalty. Writ petitions, challenging a proposed assessment of the petitioner for the relevant assessment year u/s 25 (1) of the KVAT Act, were subsequently withdrawn by the petitioner and the said assessments are now pending before the assessing authority, that I felt it would be in the interests of justice, and to avoid a multiplicity of proceedings, that directions should be issued to the assessing authority of the petitioner namely, the Commercial Tax Officer, Works Contract, Kozhikode, to consider the issue of imposition of penalty on the petitioner as well. Appeal allowed by way of remand.

Summary

Issues:
1. Imposition of penalty under Section 67(1)(d) of the Kerala Value Added Tax Act (KVAT Act).
2. Non-application of mind by the respondent authority in passing penalty orders.
3. Consideration of mens rea before imposition of penalty.
4. Impact of Supreme Court judgments on penalty imposition.

Analysis:
Issue 1: The petitioner challenged penalty orders (Exts.P9 and P10) imposed under Section 67(1)(d) of the KVAT Act. The contention was that the respondent authority mechanically followed a previous Supreme Court decision without considering the factual aspects of the petitioner's case. The High Court found merit in the argument, noting a lack of application of mind in the penalty orders.

Issue 2: The High Court observed a failure by the respondent Intelligence Officer to assess whether the petitioner willfully evaded tax payment, a crucial consideration for penalty imposition. Citing the Supreme Court ruling in E.I.D. Parry Ltd. v. Assistant Commissioner of Commercial Taxes, the Court emphasized the necessity of establishing mens rea before penalizing an assessee.

Issue 3: Regarding the impact of Supreme Court judgments on penalty imposition, the High Court highlighted the doubt cast on the applicability of a previous decision in Raheja Development Corporation. The Court directed the assessing authority to reconsider the imposition of penalty in light of subsequent Supreme Court rulings, particularly the judgment in Larsen and Toubro Limited v. State of Karnataka.

Separate Judgments: The High Court allowed the writ petition by quashing Exts.P9 and P10 orders and remanding the matter to the assessing authority for a fresh consideration. Additionally, the Court directed the assessing authority to evaluate the imposition of penalty in accordance with the principles of mens rea and the latest Supreme Court pronouncements. The Court also issued directions to avoid multiple proceedings and ensure a comprehensive review of penalty imposition in related cases.

In conclusion, the High Court's judgment emphasized the importance of a thorough assessment of facts, consideration of mens rea, and adherence to evolving legal interpretations in determining the imposition of penalties under the KVAT Act.