2018 (2) TMI 1908 - HC - VAT and Sales Tax

Waiver of penalty - Demand of security deposit on detention of goods - whether the Tribunal was right in deleting the penalty imposed on the ground that there was no evasion of tax since the transaction was reflected in the accounts? - HELD THAT - Sub-section (6) of section 47 enables imposition of penalty only if there is evasion of tax - In the present case, we find that by annexure A, there is no explicit finding but however, it can easily be inferred that the imposition of penalty was on account of there being no delivery note accompanying the transport which was a clear attempt to evade tax. We, hence, do not find any reason to accept the claim of the assessee. There has been an estimation made of the value of the goods to demand security deposit. This is without any basis. The invoice accompanying the transport showed the value of ₹ 78,000. Hence, the evasion would be only with respect to the tax element as per the invoice. Computation of tax being possible, the penalty imposed has to be confined to maximum of twice the amount of tax sought to be evaded. Revision allowed.

Summary

Issues:
1. Challenge to order of Kerala Value Added Tax Additional Appellate Tribunal regarding security deposit and penalty imposition.
2. Whether penalty was rightly deleted by the Tribunal due to no tax evasion as transaction reflected in accounts.
3. Classification of iron scrap as notified goods under Kerala Value Added Tax Act, 2003.
4. Impact of goods not accompanied by delivery note on penalty imposition under section 47 of KVAT Act.
5. Requirement of explicit finding of tax evasion for penalty imposition under section 47(6) of KVAT Act.

Analysis:
1. The State challenged the Tribunal's order imposing penalties in a batch of cases for non-accompaniment of delivery notes with goods. The State was criticized for not appealing against all penalty orders. However, the High Court differentiated the instances, stating each penalty imposition was distinct. The Court ruled that failure to appeal against other penalties does not bar challenging one penalty order.

2. The State raised a legal question on the Tribunal's deletion of penalties due to no tax evasion as transactions were accounted for. The Court clarified that non-accompaniment of delivery notes, a requirement under the KVAT Act, justifies penalty imposition under section 47, regardless of transactions being reflected in accounts.

3. The respondent argued that iron scrap is not a notified good under the KVAT Act, citing Section 2(xxx). The Court examined the Third Schedule, noting iron scrap is not separately listed, concluding that iron scrap falls under the broader category of iron and steel, thus taxable similarly.

4. Regarding the absence of delivery notes with goods, the Court emphasized the necessity of compliance with the KVAT Act. Even if transactions were accounted for, failure to provide delivery notes justifies penalty imposition under section 47, emphasizing the importance of accompanying documents during transport.

5. The respondent contended that penalty imposition requires explicit findings of tax evasion under section 47(6) of the KVAT Act. The Court inferred tax evasion from the absence of delivery notes, justifying penalty imposition. The Court calculated the penalty based on the evaded tax amount, limiting it to twice the tax evaded, allowing a refund if applicable, and holding the State liable for any excess recovery. The revision was allowed in favor of the State.