2016 (2) TMI 1238 - HC - VAT and Sales Tax

Failure to declare tax dues - Imposition of penalty equal to 100% tax - Section 53(3) of the A.P. Value Added Tax Act, 2005 - fraud and suppression of facts or not - HELD THAT - While both Sections 53(1) and 53(3) confer power to impose penalty for under declaration of tax by a dealer, the distinction between the former and the latter is that the ingredients of the latter are attracted where fraud or commission of neglect has been established - In the present case, the show notice does not even allege fraud or commission of wilful neglect. The impugned order, whereby penalty was imposed, does not even state that the dealer had committed fraud or wilful neglect, much less establish its ingredients. In VICEROY HOTELS LIMITED VERSUS COMMERCIAL TAX OFFICER, GENERAL BAZAR CIRCLE, HYDERABAD AND OTHERS 2011 (2) TMI 1311 - ANDHRA PRADESH HIGH COURT , the Division Bench of this Court observed that, while under declaration of tax was liable for penalty under Section 53(1) if fraud or wilful neglect has not been established, and penalty is 10%/25% of the under declared tax, it is only where, in terms of Section 53(3) of the Act, fraud or wilful neglect is established in the under declaration of tax, is the dealer liable to pay penalty equal to the tax under-declared; the jurisdictional facts necessary for imposing penalty under Section 53(3) of the Act must be discernible from the show cause notice; and, in the absence of any such basis being disclosed in the show cause notice, the order levying penalty under Section 53(3) must be set aside. As the SCN in the present case, does not even allege that the petitioner had committed fraud or wilful neglect, the impugned order of penalty must be and is, accordingly, set aside - Petition allowed - decided in favor of petitioner.

Summary

Issues involved:
- Imposition of penalty under Section 53(3) of the A.P. Value Added Tax Act, 2005 without establishing fraud or wilful neglect.

Analysis:

The judgment concerns a writ petition challenging an order imposing a penalty equal to 100% tax under Section 53(3) of the A.P. Value Added Tax Act, 2005. The petitioner argued that the order did not reference the requirements of Section 53(3) and cited a previous Division Bench ruling to support their case. Section 53(3) of the Act allows penalties for failure to declare tax due, with different rates based on the percentage of under-declared tax. It stipulates that if fraud or wilful neglect is established, the penalty is equal to the tax under-declared. The proviso mandates giving the dealer a reasonable opportunity to be heard before levying a penalty under Section 53. The key distinction between Sections 53(1) and 53(3) lies in the establishment of fraud or wilful neglect.

The Division Bench's precedent highlighted that for penalties under Section 53(3) to apply, fraud or wilful neglect must be proven, unlike Section 53(1) where the penalty is a percentage of the under-declared tax. The judgment emphasized the importance of disclosing the jurisdictional facts in the show cause notice for imposing penalties under Section 53(3). In the absence of such disclosure, the order levying the penalty must be set aside. Since the show cause notice in this case did not allege fraud or wilful neglect, the penalty order was deemed invalid and set aside, allowing for fresh penalty proceedings if warranted by law.

In conclusion, the writ petition was disposed of, and any related pending petitions were also resolved without costs. The judgment underscores the significance of establishing fraud or wilful neglect before imposing penalties under Section 53(3) of the Act and the necessity of disclosing jurisdictional facts in the show cause notice for such penalties to be valid.