2016 (10) TMI 601 - HC - VAT and Sales Tax

Levy of penalty u/s 27 3 of the TNVAT Act, 2006 - evasion of sales tax on purchase of earth - Held that - the decision in the case of Commissioner of Income-Tax, West Bengal And Another Versus Anwar Ali 1970 (4) TMI 1 - SUPREME Court relied upon where it was held that the true nature of penalty is understood to provide for a deterrent element against possible recurrence of default on the part of the assessees and hence, any order imposing penalty is the end result of a quasi-criminal proceedings. Section 27 3 enables a penalty to be levied wherever a revision of assessment has taken place, pursuant to detection of a portion of turnover that has escaped taxation - there is no dispute on the factual ground that the payment made is in fact reflected in the books of accounts maintained by the respondent dealer in the ordinary course of business, and thus, there is no wilful suppression of any such expenditure, indulged in by the dealer. At the first round of assessment, in fact it has escaped the attention of the AO. In other words, no serious exception has been taken thereto at the first instance. But, it is subsequent thereto, the scrutiny has been undertaken. There should have been a specific finding recorded by the AO that the turnover that has escaped in the first and initial round of assessment, is the result of wilful non-disclosure or suppression by the dealer. There is no such finding recorded in the Revised Assessment Order dated 30.11.2012. A proper and careful quasi-criminal exercise of imposition of penalty has not been carried out by the AO. The finding of wilful non-disclosure/suppression of turnover is the condition precedent, which alone fetches the imposition of penalty is conspicuous by its absence in the order of reassessment. In the absence of any such finding, imposition of penalty could not be lawfully carried out. Petition dismissed - deletion of penalty justified - decided in favor of respondent-assessee.

Issues Involved:
1. Liability of the respondent/dealer/assessee to pay penalty under Sub-section 3 of Section 27 of the Tamil Nadu Value Added Tax Act, 2006.
2. Applicability of Sub-section 4 of Section 27 in the context of the case.
3. Requirement of a specific finding of wilful non-disclosure or suppression of turnover for the imposition of penalty.

Issue-wise Detailed Analysis:

1. Liability of the respondent/dealer/assessee to pay penalty under Sub-section 3 of Section 27 of the Tamil Nadu Value Added Tax Act, 2006:

The primary issue was whether the respondent/dealer/assessee was liable to pay a penalty under Sub-section 3 of Section 27 of the Tamil Nadu Value Added Tax Act, 2006. The court observed that the penalty provision under Sub-section 3 requires a clear finding that the escape from assessment was due to wilful non-disclosure of assessable turnover by the dealer. In this case, the books of accounts maintained by the dealer contained the fact of payment towards the purchase of earth, its supply, spreading, consolidating, and compacting at the project site. The court noted that the Enforcement Wing officials detected the payment to an unregistered dealer, which was not subjected to tax. However, there was no specific finding by the Assessing Officer that the non-disclosure was wilful. Therefore, the court concluded that the imposition of penalty could not be lawfully carried out in the absence of such a finding.

2. Applicability of Sub-section 4 of Section 27 in the context of the case:

The court examined whether Sub-section 4 of Section 27 was applicable in this case. The Assessing Officer had initially proposed to levy a penalty under Sub-section 4 in the Pre-Revision Notice. However, Sub-section 4 applies when input tax credit has been wrongly availed or when false bills, vouchers, or declaration certificates are produced. Since the case did not involve input tax credit, the court found that Sub-section 4 was not applicable. The court acknowledged that quoting the wrong provision of law would not vitiate the exercise if the power is traceable to the correct provision. In this case, the correct provision was Sub-section 3 of Section 27, which was mentioned in the Pre-Revision Notice. Therefore, the error by the Assessing Officer was considered curable.

3. Requirement of a specific finding of wilful non-disclosure or suppression of turnover for the imposition of penalty:

The court emphasized the necessity of a specific finding of wilful non-disclosure or suppression of turnover for the imposition of a penalty under Sub-section 3 of Section 27. The court referred to precedents, including the Supreme Court's judgment in the case of The Commissioner of Income-Tax, West Bengal Vs Anwar Ali, which established that penalty proceedings are quasi-criminal in nature and require a clear finding of wilful conduct by the assessee. In this case, the court found no such finding in the Revised Assessment Order. The court concluded that the proper and careful quasi-criminal exercise of imposing a penalty had not been carried out by the Assessing Officer, and thus, the penalty could not be lawfully imposed.

Conclusion:

The court confirmed the order of the Sales Tax Appellate Tribunal, which had set aside the penalty imposed on the respondent/dealer/assessee, though for a different reason. The revision petition by the State was dismissed, and the court held that the imposition of penalty was not justified in the absence of a specific finding of wilful non-disclosure or suppression of turnover. The court reiterated that the imposition of penalty is a quasi-criminal exercise requiring a careful and proper determination of the dealer's conduct.

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