2016 (7) TMI 1427 - HC - VAT and Sales Tax

Penalty - Since the petitioner was of the view that Gujarat Sales Tax was payable in terms of the provisions of the Act, the demands were raised on the aforesaid customer and the entire amount so received by the petitioner was deposited with the Sales Tax Department - Held that - the petitioner had already paid the tax, in view of the provisions of Section 46 of the Gujarat Sales Tax Act, initiation of penalty proceedings is misconceived and bad in law. Therefore, the impugned orders are required to be quashed and set aside - the petitioner is not bound to pay the taxes, therefore, the question of penalty will not arise - petition allowed.

Summary

Issues:
Challenge to penalty orders under Section 46(1) of Gujarat Sales Tax Act, 1969 for assessment year 1986-87.

Analysis:
1. The petitioner, a government company engaged in the business of hydrocarbon exploration, challenged penalty orders under Section 46(1) of the Gujarat Sales Tax Act, 1969 for the assessment year 1986-87. The petitioner raised invoices to a customer, mentioning an amount towards Gujarat Sales Tax liability. The petitioner believed Gujarat Sales Tax was payable, collected the amount, and deposited it with the Sales Tax Department. However, the Sales Tax Tribunal held that sales tax could not be levied on such transactions, leading to the petitioner's challenge before the High Court.

2. The petitioner argued that the transaction of sale of natural gas was not within the State of Gujarat and, therefore, not liable to tax under the Gujarat Sales Tax Act. The petitioner contended that since the tax was already paid, no penalty should have been imposed. The petitioner emphasized that the transaction occurred beyond Gujarat's boundaries, making the Act inapplicable. Thus, the petitioner sought to quash the penalty orders.

3. On the other hand, the respondent argued that the petitioner, having collected sales tax from the customer, could not withhold the amount and must make the payment to avoid unjust enrichment, which is impermissible under the law. The respondent contended that the petitioner's collection of tax necessitated payment, irrespective of the subsequent tribunal decision.

4. The High Court analyzed Sections 46 and 56(1) of the Gujarat Sales Tax Act, emphasizing that if tax is collected in contravention of Section 56, penalties are imposed. However, since the petitioner had already paid the tax and the transaction occurred outside Gujarat, penalty proceedings were deemed misconceived and legally flawed. Citing previous judgments and the specific circumstances of the case, the High Court ruled in favor of the petitioner, allowing the petition and quashing the penalty orders.

5. The High Court clarified that since the petitioner was not obligated to pay taxes, the question of penalty did not arise. The petition was allowed, with no costs imposed on the petitioner. Additionally, the State Government was advised to pursue any further actions in accordance with the law.