2018 (6) TMI 1632 - HC - VAT and Sales Tax

Simultaneous orders of assessment and penalty - transaction entered into by HLL with UCIL - HLL would claim that it merely chartered UCIL's trawlers on lease and paid a lump sum amount per month, which was inclusive of the lease rental, and in consequence, UCIL delivered the month's catch to it - export turnover - section 5(3) of the Central Sales Tax Act, 1956 - HELD THAT - There is no embargo in the statutory scheme as to passing of orders of assessment and penalty simultaneously, it would essentially depend upon the individual facts of the case to decide the correctness of such procedure. Presently, when the issue of penalty was specifically remanded to be decided along with main assessment, no demonstrable prejudice was caused to HLL by passing of orders simultaneously. Levy of penalty - HELD THAT - In Hindus- tan Steel Ltd. v. State of Orissa 1969 (8) TMI 31 - SUPREME COURT , the Supreme Court observed that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceeding and penalty would not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation. It was further observed that penalty should not be imposed merely because it is lawful to do so and it would be a matter of discretion to be exercised judicially, upon consideration of all relevant circumstances. However, the mere fact that there was disagreement between the Members of the earlier Bench of the STAT is not enough to make the subject issue so contentious as to extend the benefit of the above decisions to HLL.-Significantly, the levy of penalty on HLL under the proceedings dated December 28, 1998 was not for the first time. The earlier levy of penalty was set aside by the ADC and the matter was remanded back to the CTO to be decided along with the quantum addition - There was no necessity for the CTO to again call upon HLL to explain as to why it should not be visited with penalty, as the order of remand covered both the quantum addition as well as the penalty. In consequence, passing of the assessment order and the penalty order on the same day, viz., December 28, 1998, does not amount to a vital irregularity. Even otherwise, the facts bear out that but for the inspection of UCIL's premises and detection of the agreement dated October 12, 1984 and the supporting material, the non-disclosure of purchase of shrimps by HLL from UCIL would not have come to light and HLL would have gotten away with suppression of this transaction. Such a deliberate and wilful act of non-disclosure therefore attracted penalty and as there were no mitigating circumstances, the levy of highest penalty also cannot be found fault with. This court finds no merit in the claims of HLL - petition allowed.

Issues Involved:
1. True import and interpretation of the transaction between HLL and UCIL.
2. Nature of the transaction (purchase of shrimps vs. rental agreement for trawlers).
3. Consideration payable under the agreement (purchase of shrimps vs. lease rental).
4. Impact of failure to specify the quantity and quality of shrimps in the agreement.
5. Necessity of issuing a show-cause notice before fresh assessment.
6. Necessity of issuing a show-cause notice before levy of penalty.
7. Impact of HLL's failure to produce documentary evidence after remand.

Issue-wise Detailed Analysis:

1. True Import and Interpretation of the Transaction:
The court examined the transaction between HLL and UCIL based on the MoU and the agreement dated October 12, 1984. The MoU indicated HLL's intention to charter trawlers from UCIL, while the agreement detailed the sale of the catch from these trawlers to HLL. The court found that the agreement's terms, including clauses 3, 8, and 10, clearly indicated a sale transaction, not merely a lease of trawlers. The court applied principles of contract interpretation, emphasizing the need to give effect to all clauses and favoring a commercially sensible construction.

2. Nature of the Transaction:
The court held that the transaction under the agreement dated October 12, 1984, was for the purchase of shrimps by HLL from UCIL, not merely a rental agreement for trawlers. The agreement's clauses indicated that HLL agreed to purchase the catch from UCIL's trawlers, and the consideration included a fixed monthly payment and reimbursement of operating expenses.

3. Consideration Payable:
The court determined that the fixed monthly payment of ?3,55,000 under clause 8(a) of the agreement included both the lease rental for the trawlers and the purchase price for the shrimps. HLL failed to provide evidence of the prevailing lease rental for trawlers during the relevant period, leading to an adverse inference against it. Consequently, the entire monthly payment was appropriated towards the purchase of shrimps.

4. Failure to Specify Quantity and Quality:
The court found that the failure to mention the quantity and quality of shrimps in the agreement did not negate the conclusion that the transaction was for the purchase of shrimps. The agreement's terms and the conduct of the parties indicated that the payment was for the shrimps, and the rest of the catch was considered a bounty.

5. Necessity of Show-Cause Notice Before Fresh Assessment:
The court held that the failure to issue a fresh show-cause notice before the fresh assessment was not fatal. The taxable event was already established based on the material found during the inspection of UCIL's premises, and the remand was for HLL to disprove the sale transaction. HLL's failure to produce relevant documents justified the adverse inference against it.

6. Necessity of Show-Cause Notice Before Levy of Penalty:
The court found that the failure to issue a separate show-cause notice before the levy of penalty was not fatal. The penalty proceedings were remanded along with the main assessment, and HLL was fully aware of the parameters of the remand. The simultaneous passing of the assessment and penalty orders did not amount to a vital irregularity.

7. Impact of HLL's Failure to Produce Documentary Evidence:
The court held that HLL's failure to produce documentary evidence as directed by the STAT justified drawing an adverse inference against it. The burden was on HLL to disprove the sale transaction, and its failure to do so led to the presumption that the entire payment was for the purchase of shrimps.

Conclusion:
The court found no merit in HLL's claims and answered the questions of law against it. The transaction was for the purchase of shrimps, and the payments made included the purchase price and lease rental. The failure to issue fresh show-cause notices was not fatal, and the adverse inference against HLL was justified due to its failure to produce relevant documents. The highest penalty was warranted due to HLL's deliberate and wilful act of non-disclosure.

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