2016 (10) TMI 83 - HC - VAT and Sales Tax

Imposition of penalty under Section 53(3) of the A.P. Value Added Tax Act, 2005 - milling of paddy - sale of rice - difference between turnover reported in the returns and turnover reported in the audited books of accounts - alternative remedy of appeal - under-declaration of tax - Sections 53(1) and 53(3) of the Act - is imposition of penalty justified was there any wilful attempt to avoid tax? - Held that - The distinction between Sections 53(1) and 53(3) of the Act is the dealers intent. While a bonafide error would fall within the ambit of Section 53(1) of the Act, wilful or intentional under-declaration of tax would fall within the scope of Section 53(3) of the Act. The respondents were justified, in imposing penalty under Section 53(3) of the Act on their coming to the conclusion that the under-declaration of tax by the dealer was with wilful intent - no reason to interfere with the impugned order, passed by the Appellate Deputy Commissioner, in proceedings under Article 226 of the Constitution of India - petition dismissed - decided against petitioner.

Issues Involved:
1. Legality of penalty imposition under Section 53(3) of the A.P. Value Added Tax Act, 2005.
2. Whether the under-declaration of tax by the petitioner was due to fraud or wilful neglect.
3. Applicability of Section 53(1) versus Section 53(3) of the Act.
4. The jurisdiction of the High Court under Article 226 to interfere with findings of fact by statutory authorities.

Issue-wise Detailed Analysis:

1. Legality of Penalty Imposition under Section 53(3):
The proceedings challenged in the writ petition pertain to the order passed by the Appellate Deputy Commissioner on 07.06.2016, confirming the penalty imposed by the 2nd respondent on 26.03.2016 under Section 53(3) of the A.P. Value Added Tax Act, 2005. The petitioner, a registered dealer engaged in milling paddy and selling rice, was penalized for under-declaring sales turnover in their VAT 200 returns for the tax periods 2013-14 and 2014-15. The audit revealed a significant discrepancy between the reported turnover and the audited books, leading to the imposition of a 100% penalty on the under-declared tax amounting to ?24,85,358.

2. Under-declaration Due to Fraud or Wilful Neglect:
The 1st respondent's show cause notice highlighted that the petitioner admitted their sales turnover in audited accounts but failed to report it in monthly VAT returns, indicating wilful neglect to evade tax. The petitioner contended that the audit officer levied tax based on waybills without considering actual receipt of sale consideration. However, the 1st respondent noted that tax liability arises upon the transfer of title to goods, not upon receipt of consideration. The appellate authority affirmed that the petitioner intentionally did not record the turnover in monthly returns, constituting wilful neglect.

3. Applicability of Section 53(1) vs. Section 53(3):
The petitioner argued that under-declaration of tax due to bona fide errors should attract penalty under Section 53(1), not Section 53(3), which requires evidence of fraud or wilful neglect. The petitioner cited precedents like Sree Krishna Electricals v. State of Tamil Nadu and Uniworth Textiles Limited v. Commissioner of Central Excise to support their claim. However, the court found that the significant under-declaration of over ?4.97 crores was not a bona fide error but a deliberate act. The court emphasized that Section 53(3) applies to intentional under-declaration, whereas Section 53(1) applies to bona fide errors.

4. Jurisdiction of High Court under Article 226:
The court reiterated that findings of fact by statutory authorities, based on evidence, cannot be reopened in writ proceedings unless there is an error of law apparent on the face of the record. The court found no such error in the orders of the assessing and appellate authorities. The court held that the petitioner's failure to disclose the correct turnover in monthly returns, despite being recorded in the books, justified the imposition of penalty under Section 53(3). The court dismissed the writ petition, upholding the penalty and emphasizing that the statutory authorities' conclusions were consistent with the relevant legal provisions.

Conclusion:
The High Court dismissed the writ petition, affirming the penalty imposed under Section 53(3) of the A.P. Value Added Tax Act, 2005, for wilful neglect in under-declaring sales turnover. The court held that the substantial under-declaration was intentional and not a bona fide error, justifying the 100% penalty. The court also clarified the distinction between penalties under Sections 53(1) and 53(3), emphasizing that only wilful or intentional under-declaration falls under the latter. The court found no grounds to interfere with the findings of fact by the statutory authorities, thereby upholding the penalty and dismissing the petition.

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