2016 (2) TMI 859 - HC - VAT and Sales Tax

Levy of penalty under section 72(2) of the KVAT Act 2003 and interest under section 36 of the said Act for all the Tax periods under consideration i.e., 2006-07 to August 2012 - the grounds urged by the petitioner in the memorandum of petitions whereby it is contended that the returns filed by the assessee disclosed the deduction of input tax claimed, for all the tax periods under consideration. The returns filed by the assessee have been accepted by the department and in such circumstances, imposing the penalty on the ground that the petitioner has understated the tax liability in the returns is uncalled for. Held that - the assessee has claimed the input tax deduction on the purchase of manure like pesticides, chemicals etc, used in the course of business declaring the same in the returns filed. As such, there is no understatement of tax liability made by the assessee, the same are disclosed in the returns to claim input tax deductions. In such circumstances, the Assessing Officer levying penalty as mandatory is not acceptable. The view of the Assessing Authority is confirmed by the appellate authority and Tribunal without appreciating the provisions of Section 72(2) of the Act. Hence, we are of the opinion that the Assessing Officer ought to have considered the objections filed by the assessee in a right perspective and would have passed a speaking order for levying penalty. Levy of interest confirmed - levy penalty set aside - Decided partly in favor of assessee.

Summary

Issues:
Challenge to the levy of penalty under Section 72(2) and interest under Section 36(1) of the KVAT Act, 2003 for multiple tax periods.

Analysis:
The petitioner, a Public Limited Company engaged in managing coffee estates, claimed input tax credit on purchases of chemicals, fertilizers, pesticides, and insecticides for the assessment years 2006-07 to 2011-Aug 2012. The Assessing Authority initially accepted the returns filed by the petitioner, allowing the input tax credit. However, reassessment proceedings were initiated, denying the input tax claimed, based on a court judgment. The Assessing Officer also levied penalty under Section 72(2) and interest under Section 36(1) of the Act. The First Appellate Authority and the Tribunal upheld these decisions.

The petitioner challenged the Tribunal's judgment, questioning the justification for imposing penalty and interest for all the tax periods under consideration. The petitioner argued that since the returns disclosed the input tax claimed, imposing a penalty for understating tax liability was unwarranted. The petitioner cited legal precedents to support their case.

The counsel for the revenue contended that the returns claiming input tax wrongly indicated an understatement of tax liability, justifying the penalty under Section 72(2) as mandatory. Additionally, it was argued that interest under Section 36(1) was necessary to compensate for the delayed payment of tax.

Upon review, the court found that the Assessing Authority did not provide sufficient reasoning for imposing penalty and interest. It noted that the petitioner had declared the input tax deductions in the filed returns, indicating no understatement of tax liability. The court emphasized that penalty is not automatic and should be imposed only if there is an actual understatement. While interest under Section 36(1) was deemed appropriate, the penalty under Section 72(2) was set aside.

The court confirmed the levy of interest but remanded the issue of penalty back to the Assessing Officer for reconsideration. The Assessing Officer was directed to decide on the penalty after providing both parties with an opportunity to be heard, emphasizing a proper evaluation of objections. The court instructed prompt resolution of the matter within three months.

In conclusion, the court partially allowed the appeals, confirming the interest levy but setting aside the penalty imposition, directing a fresh assessment by the Assessing Officer.