2022 (12) TMI 1393 - HC - VAT and Sales Tax

Levy of penalty equal to two times of tax assessed under Section 43-(2) of the OVAT Act - absence of observation by the Assessing authority that the underassessment tax is without any reasonable cause - Whether the facts and circumstances of the case the Division Bench-II Odisha Sales Tax Tribunal Cuttack is right in law to hold Section-43 provides for best judgment assessment whose part and parcel is imposition of penalty. If the use of word may is liberally used then the purpose of escape assessment under VAT regime would disappear? - HELD THAT - It is seen that in the assessment order dated 5th February 2013 while raising a demand on the basis erroneous claim of Input Tax Credit (ITC) the Sales Tax Officer (STO) Ganjam-I Circle Berhampur proceeded to impose penalty under Section 43(2) of the Odisha Value Added Tax Act 2004 (OVAT Act) without actually coming to any conclusion that ITC with differential tax wrongly availed by the Petitioner-Assessee was without reasonable cause . As far as present case is concerned the assessment order of the Assessing Officer does not record the satisfaction of the Assessing Officer that wrongful availment of ITC by the Petitioner was without reasonable cause . Thus the essential component of Section 43(2) of the OVAT Act for attracting the penalty viz. the satisfaction of the Assessing Officer that the escapement of tax was without reasonable cause is absent in the present case. The issue is answered in the negative i.e. in favour of the Petitioner and against the Department and the impugned order of the Tribunal and the corresponding orders of the First Appellate Authority and the Assessing Officer levying penalty on the Petitioner under Section 43 (2) of the OVAT Act are hereby set aside - application disposed off.

Summary

Issues:
1. Imposition of penalty under Section 43(2) of the Odisha Value Added Tax Act, 2004 without the Assessing Officer concluding that the Input Tax Credit (ITC) was wrongly availed without reasonable cause.
2. Interpretation of Section 43 providing for best judgment assessment and imposition of penalty.

Analysis:

Issue 1:
The High Court admitted the revision petition against the Odisha Sales Tax Tribunal's order dismissing the appeal filed by the Assessee. The Court framed questions regarding the imposition of penalty under Section 43(2) of the OVAT Act without the Assessing Officer establishing that the underassessment of tax was without reasonable cause. The Court referred to a previous case to explain that there is discretion for the Assessing Officer to impose a penalty, but it is crucial for the officer to be satisfied that the underassessment was without any reasonable cause. In the present case, the assessment order did not show that the wrongful availment of ITC was without reasonable cause. Consequently, the Court ruled in favor of the Petitioner, setting aside the penalty levied under Section 43(2) of the OVAT Act.

Issue 2:
Regarding the interpretation of Section 43 and the imposition of penalty, the Court's decision on the first issue rendered it unnecessary to address the second question. Since the Court found that the essential requirement for penalty imposition under Section 43(2) was not met in the present case, it disposed of the matter accordingly.

In conclusion, the High Court's judgment revolved around the proper application of Section 43(2) of the OVAT Act concerning the imposition of penalties for underassessment of tax without reasonable cause. The Court emphasized the importance of the Assessing Officer's satisfaction in such cases and ruled in favor of the Petitioner, setting aside the penalty imposed by the Tribunal and other authorities.