2015 (12) TMI 177 - HC - VAT and Sales Tax

Levy of penalty - Forfeiture of remitted tax under section 47(2)(b) of the Karnataka Value Added Tax Act, 2003 - Levy of penalty - Held that - Assessee sold naphtha and collected sales tax from the purchaser. Though in the earlier returns the assessee had declared nil sales and nil tax, on receipt of a portion of amount, he filed a revised return within 11 days from the date of filing of original returns and paid the entire tax with interest for 11 days. Therefore, the assessee had never disputed the tax liability. - levy of penalty was not justifiable because the assessee had filed a revised return, paid tax and interest within a span of 11 days. Hence, imposition of penalty is not being automatic unless the intention to evade tax is made out or any mala fide act is made out, the penalty cannot be imposed. Therefore, the order of imposing penalty is unsustainable. Accordingly, it is hereby set aside - Decided partly in favour of Revenue.

Summary

Issues:
1. Validity of penalty imposed on the assessee.
2. Whether the isolated transaction of sale of naphtha constitutes a business activity.
3. Authority of the Tribunal to decide on tax liability and forfeiture of tax collected.

Analysis:
1. The case involved a revision petition challenging the order passed by the Karnataka Appellate Tribunal regarding the imposition of a penalty under section 72(2) of the Karnataka Value Added Tax Act, 2003. The Tribunal had imposed a penalty equivalent to 10% of the tax paid by the assessee. The lower authorities upheld the penalty, leading to the appeal before the Tribunal.

2. The Tribunal, however, deviated from the issue of penalty imposition and delved into the question of the tax liability of the assessee. It concluded that the isolated transaction of selling naphtha did not amount to a business activity as defined under the Act. The assessee had sold the naphtha to M/s. BPCL after obtaining necessary permissions, and subsequently filed revised returns to declare the sales and paid the full tax amount along with interest for the delay.

3. The High Court observed that the Tribunal had overstepped its jurisdiction by deciding on the tax liability issue, which was not the subject of the appeal. The primary question before the Tribunal should have been the validity of the penalty imposed. The Court emphasized that the imposition of a penalty should not be automatic and must be based on the intention to evade tax or any mala fide acts. In this case, since the assessee had promptly paid the tax and interest within a short period, the penalty was deemed unjustifiable.

4. The Court further ruled that the forfeiture of the tax amount collected and remitted to the Government under section 47(2)(b) of the Act was beyond the Tribunal's jurisdiction. The amount collected by the assessee from the purchaser represented legitimate tax and interest due to the Government. Therefore, the Court set aside the order of forfeiture, stating that the amount rightfully belonged to the Government and should not be forfeited.

5. Consequently, the High Court partly allowed the revision petition, setting aside the penalty imposed on the assessee and declaring the forfeiture of the tax amount collected as illegal. The Court emphasized the importance of adhering to the jurisdictional limits of authorities and ensuring that penalties are imposed judiciously based on the circumstances of each case.