2011 (3) TMI 1444 - HC - VAT and Sales Tax

Revision petitions modification in penalty Kerala Value Added Tax Act, 2003 - penalty for violations by dealers - Held that - finding of the Tribunal that there is violation of section 67 is correct, dealer has remitted tax and interest on receipt of assessment order. Further the State has not so far challenged the order of the Tribunal converting penalty levied under section 22(7) to one under section 67, State directed to treat the matter as concluded by accepting the order of the Tribunal with regard to penalty as well, Revision petitions are dismissed

Summary

Issues Involved:
1. Disallowance of input-tax credit.
2. Modification of penalty orders.

Issue-wise Detailed Analysis:

1. Disallowance of Input-Tax Credit:
The petitioner, a dealer in paints and hardware, claimed a lower tax rate of 0.5% under section 6(5) of the Kerala Value Added Tax Act, 2003, on the premise that their turnover would be below Rs. 50 lakhs. However, it was found that the petitioner's turnover exceeded Rs. 50 lakhs as of January 1, 2008, making them ineligible for the lower tax rate. The petitioner continued to pay the lower rate and filed quarterly returns until the assessing officer issued a notice in November 2008.

The Tribunal rejected the petitioner's claim for input-tax credit up to the filing of revised returns in November 2008, upholding the first appellate authority's orders. The petitioner argued that input-tax credit is an entitlement once they start paying tax under section 6(1) of the Act. However, the Government Pleader contended that strict adherence to the Rules is necessary for the transition from section 6(5) to section 6(1).

The court referred to rule 12(7) and (8) of the Kerala Value Added Tax Rules, 2005, which outline the procedure for switching from the lower tax rate to the standard rate. The petitioner failed to comply with these rules within the stipulated 15 days after crossing the Rs. 50 lakhs turnover threshold. Consequently, the assessing officer disallowed the input-tax credit claimed by the petitioner for the period before December 2008. The court agreed with the statutory authorities and the Tribunal, emphasizing that compliance with rule 12(7) is mandatory for claiming input-tax credit upon transitioning to section 6(1).

2. Modification of Penalty Orders:
The Tribunal modified the penalty imposed by the first appellate authority, exonerating the petitioner from penalty under section 22(7) but imposing a penalty equal to the tax amount under section 67. The petitioner contended that the Tribunal lacked jurisdiction to impose a penalty under section 67 for the first time. The Government Pleader argued that the petitioner's violation is covered by both sections 22(7) and 67.

Section 22(7) mandates a penalty of three times the tax amount for dealers paying tax under section 6(5) if they are found to have paid less tax than liable. Section 67 allows for a penalty of up to twice the tax amount or Rs. 10,000 for various violations. The court found that section 22(7) specifically addresses violations by dealers paying the lower tax rate and mandates a higher penalty to ensure compliance.

The court held that the Tribunal's decision to impose a penalty under section 67 was incorrect, as section 22(7) specifically covers the petitioner's violation. However, considering that the petitioner had remitted tax and interest upon receiving the assessment order and the State had not challenged the Tribunal's order, the court decided not to disturb the Tribunal's modification of the penalty. The court directed the State to accept the Tribunal's order regarding the penalty.

Conclusion:
The revision petitions were dismissed, affirming the Tribunal's orders on disallowance of input-tax credit and modifying the penalty, while clarifying the legal position regarding the applicable penalty provisions.