2015 (11) TMI 96 - HC - VAT and Sales Tax

Levy of penalty in respect of tax which became due on account of non-furnishing of C Forms - Held that - in the instant case, on production of C Form at the appellate stage, the Appellate Authority has granted the benefit of concessional rate which had been denied by the Assessing Authority on the ground that the C Forms were not furnished. Therefore, it is not a case of assessee trying to understate his liability to tax. His conduct in claiming concessional rate of tax in his return cannot be construed as a deliberate act in defiance of law or contumacious or dishonest or acted in conscious disregard of its obligations. But, by no stretch of imagination it could be said that he had any intention of avoiding any payment of tax or his action is contrary to any law or that he is understating his liability to pay tax in the returns. Therefore, he cannot be saddled with the liability to pay penalty for no fault of his. Therefore, the order passed by the authorities levying penalty is unjustified and illegal. - Decided partly in favour of assessee.

Issues Involved:
1. Initiation of reassessment under Section 39(1) of the KVAT Act without recording satisfaction/belief.
2. Treatment of Rule 6(b)(i) of the Central Sales Tax (Karnataka) Rules, 1957 regarding 'C' Forms.
3. Denial of concessional rate of tax for furnishing 'duplicate' instead of 'original' 'C' Forms.
4. Concessional rate of tax and invoices in 'C' Forms pertaining to a different quarter.
5. Chargeability of interest under Section 9(2-B) of the CST Act read with Section 36 of the KVAT Act.
6. Penalty under Section 72(2) of the KVAT Act for non-furnishing of statutory forms like 'C' Forms.

Issue-wise Detailed Analysis:

1. Initiation of Reassessment under Section 39(1) of the KVAT Act:
The court examined whether the prescribed authority can initiate reassessment without first recording satisfaction/belief. Section 39 of the KVAT Act requires the Prescribed Authority to have "grounds to believe" that any return furnished understates the correct tax liability. The court emphasized the need for these reasons to be recorded in writing to ensure the power is not exercised arbitrarily. The court found that in this case, the Assessing Authority had recorded reasons in writing, and the assessee did not object at the earliest opportunity. Therefore, the court held that the initiation of reassessment proceedings was valid.

2. Rule 6(b)(i) of the Central Sales Tax (Karnataka) Rules, 1957:
The court referred to the Apex Court's judgment in India Agencies (Registered), Bangalore v. Additional Commissioner of Commercial Taxes, Bangalore, which held that the original 'C' Form must be attached to the return to claim the concessional rate of tax. This requirement is not merely a formality but is intended to prevent misuse and fraud. Therefore, the court concluded that the provision is mandatory and not directory.

3. Furnishing 'Duplicate' Instead of 'Original' 'C' Forms:
The court reiterated the necessity of producing original 'C' Forms to claim the concessional rate of tax. The Apex Court's judgment emphasized that without the original 'C' Form, the dealer is not entitled to the concessional rate. The court found no substance in the contention that duplicate 'C' Forms should suffice.

4. Concessional Rate of Tax and Invoices in Different Quarters:
The court referred to a circular issued by the Commissioner of Commercial Taxes, which provided that 'C' Forms should not be rejected merely because the date of the invoice does not match the quarter of the declaration form. The primary objective is to ensure that goods are accounted for by the dealer in the other state. The court found that the authorities were not justified in denying relief based on this ground and set aside that portion of the impugned order.

5. Chargeability of Interest:
The court referred to its earlier judgment in State of Karnataka v. Maintec Technologies Private Limited, which held that interest is compensatory in nature and arises only after the determination of tax liability. In this case, the court concluded that the assessee is liable to pay interest on the tax due under the KVAT Act, as the interest compensates for the delay in payment.

6. Penalty under Section 72(2) of the KVAT Act:
The court analyzed Section 72(2) of the KVAT Act, which provides for a penalty if a dealer understates his tax liability by more than 5%. The court emphasized that the imposition of penalty is not automatic and requires an opportunity for the dealer to show cause. The court found that the assessee's conduct did not indicate an intention to evade tax, as the claim for concessional rate was made in accordance with the CST Act. The court concluded that the imposition of penalty was unjustified and set aside the order.

Conclusion:
The revision petitions were partly allowed. The court upheld the initiation of reassessment proceedings, the mandatory nature of original 'C' Forms, and the chargeability of interest. However, it set aside the denial of concessional rate based on invoice dates and the imposition of penalty.

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