2015 (11) TMI 881 - HC - VAT and Sales Tax

Evasion of duty - Imposition of penalty - whether levy of penalty is automatic under RVAT - Held that - There is no substance in the argument of the officer in-charge that penalty under section 61 of the 2003 is automatic on short-payment of tax due being found. Section 61(1) of the 2003 Act delineates the situations in which avoidance/evasion of tax through acts of concealing and misleading or in any other manner (underlining1 mine) can be visited with penalty. The language of section 11AC(1)(a) of Central Excise Act, 1944 is in someways similar to that of section 61 of the 2003 Act, inasmuch as while first specifically detailing the occasions for levy of penalty, it also later provides a general ground for the levy of penalty, i.e., contravention of any of the provision of this Act or Rules made thereunder - Penalty for non-payment or short-payment of excise duty can be levied under section 11AC of the Central Excise Act, 1944. Section 11AC(1)(a) of the 1944 Act provides that penalty for shortlevy or non levy of duty in certain cases. It, inter alia, provides that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or other rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under section 11A shall also be liable to pay a penalty equal to the duty so determined. All sale transactions conducted by the assessee in the year relevant to levy of tax in the State of Rajasthan were indicated in its books of accounts and also duly invoiced. There was no attempt to defraud the revenue by any concealment or misinformation. No finding of reckless/mala fide classification sought with regard to the goods sold has been arrived at. The dispute between the assessee and the Revenue was bona fide and related merely to the issue of classification and consequent rate of tax under the 2003 Act leviable on the sale of goods by the assessee, i.e., Priyagold TM Toffito Mango Cream Toffee . The dispute was therefore a bona fide one as to the interpretation/ classification of the products sold by the assessee for the purpose of levy of tax. Such a dispute did not supply any of the pre conditions for levy of penalty under section 61 of the 2003 Act. - Decided against Revenue.

Issues Involved:
1. Tax Rate Discrepancy
2. Levy of Penalty under Section 61 of the Rajasthan Value Added Tax Act, 2003
3. Interpretation of "Avoidance or Evasion of Tax" under Section 61
4. Discretionary Nature of Penalty under Section 61
5. Applicability of Mens-Rea for Levy of Penalty

Detailed Analysis:

1. Tax Rate Discrepancy:
The primary issue revolves around the tax rate applied by the assessee for branded confectionery "Priyagold TM Toffito Mango cream toffee." The assessee paid tax at a rate of 4%, whereas the Revenue contended that the applicable rate was 12.5%. The assessing officer found the assessee liable to pay the differential tax of 8.5% and imposed interest and penalty.

2. Levy of Penalty under Section 61 of the Rajasthan Value Added Tax Act, 2003:
The assessing officer levied a penalty under Section 61, which was contested by the assessee. The Deputy Commissioner (Appeals) upheld the additional tax and interest but set aside the penalty. The Tax Board also dismissed the Department's appeal against this decision, relying on the Supreme Court judgment in Sree Krishna Electricals v. State of Tamil Nadu.

3. Interpretation of "Avoidance or Evasion of Tax" under Section 61:
The Department argued that the short-payment of tax itself constituted "evasion" under the broad terms "or has avoided or evaded tax in any other manner" in Section 61. However, the court applied the principle of ejusdem generis, interpreting these general words in a limited manner, akin to the specific instances of concealment and deliberate misinformation detailed earlier in the section. The court emphasized that penalty under Section 61 requires a specific finding of deliberate wrongdoing or fraudulent conduct by the assessee.

4. Discretionary Nature of Penalty under Section 61:
The court noted that the language of Section 61 ("may direct that such dealer shall pay by way of penalty") indicates that the imposition of penalty is discretionary. This discretion implies that mens-rea, or intent to evade tax, must be established. The court cited the Supreme Court's decision in Bharjatiya Steel Industries, which held that the existence of mens-rea is a relevant factor for exercising discretion in levying penalties.

5. Applicability of Mens-Rea for Levy of Penalty:
The court highlighted that penalties for tax discrepancies are not automatic and require evidence of deliberate intent to defraud. The court referenced several Supreme Court judgments, including Sree Krishna Electricals and Maruti Suzuki Ltd., which support the view that penalties should not be imposed for bona fide disputes over tax liability or classification. The court found that the assessee had disclosed all transactions in its account books, indicating no intent to defraud the Revenue.

Conclusion:
The court dismissed the revision petition, upholding the Tax Board's decision to set aside the penalty. The judgment emphasized that penalties under Section 61 are not automatic and require evidence of deliberate intent to evade tax. The court reinforced the principle that bona fide disputes over tax classification do not warrant penalties without proof of fraudulent conduct.

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