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2015 (3) TMI 131 - HC - VAT and Sales TaxImposition of the penalty for non-payment of sales tax pertaining to the parts used in the execution of the annual performance of maintenance contract - Bonafide belief of non payment - Held that - In the decision of COFFEE BOARD BANGALORE v. JOINT COMMISSIONER OF COMMERCIAL TAXES 1969 (10) TMI 58 - SUPREME COURT OF INDIA it is held that when the amount of tax is paid by the assessee in advance for the whole year in the aggregate is less than the tax payable for the year or month as finally assessed being more than 15% is the difference in tax a penalty which shall not be less than one and half of the tax so paid in short but not exceeding one and half times the amount by which the tax so paid falls short of the tax payable for the month or quarter or for the whole year as the case may be could be imposed after hearing the assessee. - It is not a case of payment of less tax. It is a case of nonpayment of tax in respect of the contract of FSMA and SSMA. The reason for nonpayment is it forms part of the service to be rendered and tax is service tax and not the sales tax for the value of the parts which are used in the services are declared and exemption is sought. The assessee is claiming exemption from 1992 - 93. However the department is refusing to grant the exemption. - The assessee has gone upto the Supreme Court and it is only on 24.08.2005 the Supreme Court pronounced judgment holding the assessee liable to pay tax and clarifying the conflicts of it s own earlier judgments which was the cause for bona fide doubts in the mind of the assessee in not paying the tax. Though the returns were filed for the year 2000 - 01 within the prescribed time no assessment orders has been passed till the passing of the judgment of the Supreme Court. The assessment order was passed on 21.03.2006 immediately the payment is made. Therefore this nonpayment of tax along with the returns or at the end of the financial year cannot be said to be willful deliberate or contumacious and that the assessee was acting deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. This aspect has been completely missed by the authorities while exercising the powers of imposing the penalty. It is settled law that penalty cannot be imposed merely because it is lawful to do so. A discretion is conferred on the authority while imposing penalty. It is a judicious discretion. The law on the point is also well settled. The authorities as well as the appellate tribunal did not keep in mind the settled legal position while imposing the penalty or upholding the penalty which is imposed. In that view of the matter the order passed by the Tribunal cannot be sustained. The Tribunal proceeded on the basis that the assessee himself has taken a decision not to pay the amount of tax without any judicial support for nonpayment of tax. Assessee was relying on the earlier decisions of the Apex Court for denying the liability to pay tax and therefore the Tribunal was not justified in the aforesaid observations. The Tribunal was of the view that once the judgment was delivered on 24.08.2005 the assessee should have paid the money immediately thereafter. The same having not been done it amounts to deliberate noncompliance of the law. We find it difficult to accept this reasoning. On 24.08.2005 the Supreme Court passed the order; on 21.03.2006 the assessment order has been passed and immediately thereafter the payment has been made. In that view of the matter in our view both the authorities committed a serious error in not taking into consideration the facts of this case the conduct of the assessee prior to the Supreme Court judgment after the Supreme Court judgment and after the assessment orders in levying penalty which cannot be sustained - Decided in favour of assessee.
Issues Involved:
1. Imposition of penalty for non-payment of sales tax. 2. Bona fide doubt regarding liability to pay tax. 3. Applicability of the Supreme Court judgment. 4. Discretionary power to impose penalty. Detailed Analysis: 1. Imposition of Penalty for Non-Payment of Sales Tax: The dealer/assessee challenged the order imposing a penalty for non-payment of sales tax related to parts used in the execution of the annual performance of maintenance contracts. The assessee, a company engaged in trading multi-functional devices and service maintenance agreements, had been declaring turnover from maintenance agreements in its monthly returns, deducting the same while calculating taxable turnover under the Karnataka Sales Tax Act. The assessing authorities demanded taxes on the turnover representing FSMA and SSMA from 1992-93 onwards, which the petitioner contested up to the Supreme Court. 2. Bona Fide Doubt Regarding Liability to Pay Tax: The petitioner had a bona fide belief that FSMA and SSMA were service contracts, and the materials supplied were incidental to the principal objective of service contracts. This belief was based on several judgments of the Supreme Court, which led to conflicting views. The Supreme Court, in the case of Xerox Modi Corporation Limited vs. State of Karnataka, clarified that the property in goods like toner and developer passed to the customer when put into the machine, thus making them tangible goods subject to sales tax. The petitioner had furnished bank guarantees as per the interim order of the Supreme Court. 3. Applicability of the Supreme Court Judgment: For the assessment year 2000-01, the authorities did not issue any assessment order due to the pending matter before the Supreme Court. After the Supreme Court's judgment on 24.08.2005, the assessment order was passed on 21.03.2006, and the assessee promptly paid the tax and interest. However, the department initiated penalty proceedings under Section 12 A of the Act, resulting in a penalty order on 16.03.2007. The assessee's appeal against this penalty was dismissed by the appellate authorities, leading to the present revision petition. 4. Discretionary Power to Impose Penalty: The learned Senior Counsel for the assessee argued that the imposition of penalty was unjustified due to the bona fide doubt regarding tax liability, which was settled only on 24.08.2005. The department contended that the assessee should have voluntarily paid the tax immediately after the Supreme Court's judgment. The court noted that the assessee had a bona fide doubt based on earlier Supreme Court judgments and promptly paid the tax and interest after the assessment order. The court referred to the Apex Court's ruling in Hindustan Steel Limited vs. The State of Orissa, which held that penalty should not be imposed unless there was deliberate defiance of law or contumacious conduct. The court emphasized that the penalty provision under Section 12 B(4) of the Act allows discretion to the assessing authority, which should be exercised judicially, considering whether the default was willful or accidental. The court found that the authorities and the appellate tribunal erred in not considering the bona fide doubt and the conduct of the assessee before and after the Supreme Court judgment. The court held that the non-payment of tax was not willful, deliberate, or contumacious, and the penalty imposed could not be sustained. Order: The appeal was allowed, and the impugned orders were set aside.
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