2015 (10) TMI 109 - HC - VAT and Sales Tax

Levy of penalty on the Appellant Assessee under Section 86(10) of the DVAT Act without issuing notice to the Assessee - Held that - No notice was issued to the Assessee by the VATO on the aspect of penalty. The mere fact that the Assessee had paid the penalty under protest would not preclude it from questioning the levy of penalty on the ground that the basic procedural requirement was not fulfilled by the VATO. - Assessment of penalty is an exercise separate from the main assessment for determining the tax and interest payable. This is evident from a perusal of Sections 31 and 32 (which talk of the self assessment and default assessment) and Section 33 of the DVAT Act which deals with the penalty assessment - on the basis of the survey, a notice was issued to the Assessee under Section 59 of the DVAT Act as regards the assessment to tax. The Assessee did not participate in the assessment proceedings and an ex parte Notice of Default Assessment of Tax and Interest was issued on 24th February 2013 by the VATO under Section 32 of the DVAT Act read with Rule 36 (1) of the DVAT Rules in Form 24. On the same day the VATO passed the penalty order, without any service of prior notice on the Assessee. The VATO sent to the assessee the penalty order as a Notice of Assessment of Penalty under Rule 36 (2) of the DVAT Rules in Form 24A. The Assessee was simply called upon to deposit the penalty amount already determined by the VATO. As the penalty order dated 24th February 2013 under Section 86 (10) of the DVAT Act was passed by the VATO without service of prior notice of penalty on the Assessee and without affording the Assessee an opportunity of being heard on the question of penalty, the said order is held unsustainable in law and is hereby set aside. The consequential order dated 21st January 2014 of the OHA and the impugned order dated 28th April, 2015 of the AT are also set aside. - matter remanded back - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty order without prior notice to Assessee under Section 86(10) of DVAT Act.

Analysis:
The appeal was filed by the Assessee, Bansal Dye Chemical Private Ltd., challenging the penalty imposed by the Value Added Tax Officer (VATO) without issuing a prior notice under Section 86(10) of the DVAT Act. The main question was whether the Appellate Tribunal (AT) was justified in affirming the penalty without providing an opportunity of being heard to the Assessee. The Objection Hearing Authority (OHA) had dismissed the appeal based on the Assessee's payment of the penalty. The Assessee contended that no separate notice was issued before the penalty order was passed, questioning the lack of procedural fairness.

The Assessee's premises were surveyed, leading to the VATO enhancing the gross profit and imposing tax, interest, and penalty without a separate notice for penalty. While the Assessee did not dispute the tax and interest, it objected to the penalty order due to the absence of a hearing opportunity. The Respondents argued that since the Assessee admitted filing incorrect particulars, no mitigating circumstances existed for Section 86(10) penalty.

The Court emphasized the importance of natural justice principles in penalty assessment under Section 33 of the DVAT Act. The VATO failed to serve a notice or provide a hearing opportunity before imposing the penalty, violating procedural requirements. The Court cited precedents where penalties were set aside due to the absence of a hearing opportunity. The penalty assessment is distinct from tax and interest determination, requiring a separate process with due consideration and a fair hearing for the Assessee.

The Court set aside the penalty order, OHA's decision, and the AT's affirmation, remanding the penalty matter back to the VATO for a fresh decision in compliance with the law. The judgment allowed the appeal without costs, emphasizing the necessity of following procedural fairness and natural justice principles in penalty assessments under the DVAT Act.