2018 (6) TMI 1652 - HC - VAT and Sales Tax

Imposition of penalties - section 67 of Kerela VAT Act - Compounded rate of tax - clause (b) of Section 8 of Kerala VAT Act - petitioner had installed a Vertical Shaft Impactor Machine, in addition to crushing machines, in their crusher unit - proposal to impose penalty on the petitioner on the sole basis that the output production capacity of the Vertical Shaft Impacter Machine in terms of the information furnished by the manufacturer of the machine in their website is 120 to 200 metric tonnes per hour. Whether there can be a proceeding for imposition of penalty under Section 67 (1) of the Act solely based on website information? HELD THAT - It is trite that penalty cannot be imposed for failure to carry on statutory obligations unless the party obliged to perform the act has either acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of his obligation. Such proceedings being quasi-criminal in nature, the factual allegations, on the basis of which penalty is proposed, must be clearly established from the materials on record. There is absolutely no scope for any inference in such proceedings and the facts are to be established by positive proof. Needless to say, mere suspicion of the facts is not enough. There is no presumption in law that website information relating to merchandise are correct. It is common knowledge that website information, especially that of merchandise, may or may not be correct. Indian Courts had occasion to consider the issue whether print outs of the judgments taken from websites can be relied on and the stand taken is that the same can be relied on, if its authenticity and reliability are not doubted. The pretensions of a manufacturer as regards the products manufactured by them would not bind even the manufacturer, in the absence of fraud, in the light of the principle caveat emptor - there cannot be penal proceedings at all on the presumption that the website information as regards merchandise are correct. The impugned order, in the circumstances, is one issued without jurisdiction. Petition allowed.

Summary

Issues:
1. Interpretation of clause (b) of Section 8 of the Kerala Value Added Tax Act regarding compounded tax rates for crusher units.
2. Allegation of false declaration by the petitioner regarding the output production capacity of a Vertical Shaft Impactor Machine.
3. Imposition of penalty under Section 67(1) of the Act based on website information.
4. Consideration of alternative remedy of appeal under the Act.

Analysis:

Issue 1: The petitioner, a registered dealer under the Kerala Value Added Tax Act, sought permission to pay tax at compounded rates for the assessment year 2014-15 under clause (b) of Section 8 of the Act. The Act provides a provision for dealers with Vertical Shaft Impactor Machines to pay only sixty percent of the tax prescribed for such machines as compounded tax. The petitioner installed a Vertical Shaft Impactor Machine in addition to crushing machines, offering to pay 60% of the compounded tax amount. The competent authority accepted this offer, and the petitioner paid tax accordingly.

Issue 2: A notice was issued to the petitioner alleging that the output production capacity of the Vertical Shaft Impactor Machine was higher than declared, leading to a demand for a higher compounded tax payment. The petitioner denied making a false declaration, stating that the machine's capacity was never tested by the authorities. Despite the petitioner's request for a test check to establish the capacity, no further action was taken by the authorities for about a year.

Issue 3: Subsequently, a new authority continued the proceedings based on website information from the manufacturer, imposing a penalty of ?27 lakhs on the petitioner. The petitioner contested this penalty, arguing that penal proceedings solely based on website information are not valid. The court emphasized that penalties should be based on clear evidence of deliberate non-compliance or dishonest conduct, not on presumptions from website data.

Issue 4: The court highlighted that penalties cannot be imposed solely based on website information, as the authenticity and reliability of such data are not guaranteed. The judgment referenced a previous case to emphasize that penalties must be supported by clear evidence and should not rely on presumptions. While acknowledging the availability of an alternative appeal remedy, the court decided to intervene due to the lack of jurisdiction in the penalty imposition, ultimately quashing the order and allowing the writ petition.

In conclusion, the court's judgment focused on the importance of concrete evidence in penalty proceedings, emphasizing the need to establish non-compliance or dishonest conduct unequivocally. The decision highlighted the limitations of relying on website information for imposing penalties and underscored the significance of due process and fair assessment in such matters.