2015 (5) TMI 339 - HC - VAT and Sales Tax

Imposition of penalty under S.72(2) of the KVAT Act - Understatement of tax liability - Held that - Imposition of penalty under S.72(2) of the KVAT Act was not warranted in the present case - Once a revised return has been filed and accepted by the Department, the original return gets obliterated and the only return which remains for consideration would be the revised return, as there cannot be two live returns pending consideration of the Department. In the present case, as a matter of fact, not only the revised return had been filed by the petitioner, but the same was also accepted by the respondents, and the validity of the revised return is not in question or in dispute. Once the revised return has been accepted and acted upon by the parties, then it is only the revised return which has to be taken as the sole return for the purpose of sub-section (2) of S.72. For the prescribed tax period, the return to be considered was the revised return filed on 16.3.2009 and not the original return filed on 20.02.2009, which had been nullified or obliterated after the filing and acceptance of the revised return. Then, it cannot be said that there was any understatement of the tax liability by the petitioner to any extent in its revised return (which was the only return to be considered), as in terms of the said revised return, the entire tax along with interest, had been paid. In such view of the matter, we are of the opinion that in the facts of the present case, the provision of sub-section (2) of S.72 of the KVAT Act would not be attracted. Imposition of penalty is not being automatic unless the intention to evade tax is made out or any malafide act is made out, the penalty cannot be imposed. Although the reasons for arriving at such conclusion in the aforesaid case were different, but in the said judgment also it has been held that imposition of penalty in the facts similar to the facts of the present case, could not be justified under S.72(2) - Decided in favour of assessee.

Summary

Issues:
1. Imposition of penalty under S.72(2) of the KVAT Act for understatement of tax liability.
2. Validity of revised return filed by the petitioner.
3. Interpretation of the term "return" under the KVAT Act.
4. Consideration of original return versus revised return for penalty imposition.

Analysis:
1. The petitioner, engaged in providing telecom services, filed a 'nil' return for January 2009 due to software issues, later voluntarily filing a revised return disclosing a turnover of over Rs. 7 crores. The Department accepted the revised return without questioning its validity. However, after three years, a penalty notice was issued for understatement of tax liability exceeding 5% of the tax paid, resulting in a penalty of Rs. 8,82,408. The petitioner appealed, challenging the penalty imposition under S.72(2) of the KVAT Act.

2. The petitioner argued that penalty imposition is not automatic, especially after filing a revised return and paying the admitted tax and interest, which was accepted by the authorities without questioning its accuracy. The respondents contended that the initial 'nil' return followed by a revised return showing over Rs. 88 lakhs tax liability indicated an understatement, justifying the penalty as a civil liability without requiring mens rea.

3. The Court analyzed relevant sections like S.35, S.42, and S.72 of the KVAT Act, defining 'return,' filing procedures, and penalty provisions. The definition of 'return' includes a revised return, emphasizing that once a valid revised return is filed and accepted, it supersedes the original return, aligning with precedents under the Income Tax Act where only the revised return is considered for assessment.

4. The Court determined that the revised return, filed within the prescribed period and accepted by the Department, should be the sole return considered for penalty assessment under S.72(2) of the KVAT Act. As the revised return disclosed and paid the entire tax liability along with interest, there was no understatement, negating the applicability of the penalty provision. A previous case also supported this stance, emphasizing that penalty imposition requires evidence of tax evasion or malafide intent, which was absent in the present case.

In conclusion, the Court allowed the revision petition, setting aside the penalty orders, emphasizing that penalty imposition should not be automatic and requires evidence of intentional tax evasion.