2017 (2) TMI 419 - HC - VAT and Sales Tax

Imposition of penalty - Deemed assessment u/s 22(2) of the TNVAT Act, 2006 - whether the impugned notice is premature and is liable to be set aside? - Held that - Sub-section (4) of Section 22 provides that, if, no return is submitted by the dealer for any period, or, if the return filed is incomplete or incorrect, or, if it is not accompanied by prescribed documents or proof of payment of tax, the Assessment Authority, after making an enquiry, as it may consider necessary, can assess a dealer, by adopting the best judgement principle. It is only after an assessment is complete under sub-section (4) of Section 22, that penalty can be imposed by the Assessing Officer - but, as per the provisions of Clause (iii) of the explanation to Section 22(5), the petitioner is entitled to seek deduction from the tax assessed under sub-section (4) of Section 22 of tax paid on any such turnover on which, tax is paid at a concessional rate, if requisite declarations are furnished, before levy of penalty. The impugned show cause notice being both premeditated and/or premature, is required to be set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to notice proposing tax and penalty under the Central Sales Act, 1956 and Tamil Nadu Value Added Tax Act, 2006; Jurisdiction to levy penalty; Premeditation and prematurity of the notice.

Analysis:

1. Challenge to Notice:
The petitioner filed a petition under Article 226 to challenge a notice proposing tax and penalty for failure to furnish prescribed declarations under various forms within the time limits set by the Central Sales Act, 1956 and related rules. The notice proposed a best judgment assessment against the petitioner under the Tamil Nadu Value Added Tax Act, 2006, and the Central Sales Act, 1956, subjecting the turnover to tax at a local rate. The proposed tax amount was ?67,04,959.36, with a penalty at the rate of 150% on the tax difference. The petitioner objected to the notice, citing delays in obtaining buyer declarations and arguing that the penalty proposal was premature and contrary to the statutory scheme.

2. Jurisdiction to Levy Penalty:
The petitioner contended that the proposal to levy penalty lacked jurisdiction and was premeditated. The petitioner relied on Section 22(5) of the 2006 Act, specifically Explanation Clause (iii), which allows for furnishing relevant declarations even at the adjudication stage. The petitioner argued that the penalty proposal in the notice was premature and contrary to the statutory scheme. The respondent, on the other hand, argued that the petition was not sustainable as the petitioner had the opportunity to challenge the notice, and the respondent would consider objections before passing an order.

3. Premeditation and Prematurity of the Notice:
The court examined the provisions of Section 22 of the 2006 Act, which govern deemed assessment and penalties. Section 22(4) allows for best judgment assessment if returns are incomplete or incorrect, with a requirement to provide a reasonable opportunity for the dealer to be heard. Section 22(5) empowers the Assessing Authority to direct the dealer to pay a penalty in addition to the tax assessed. The court noted that the penalty could only be imposed after the assessment was complete, either at the time of the assessment order or by a separate order. The court found that the proposal to levy a penalty before adjudication demonstrated premeditation and ordered the notice to be set aside.

In conclusion, the court held that the impugned notice proposing tax and penalty was both premeditated and premature, and therefore, set it aside. The respondent was granted the liberty to issue a fresh notice in accordance with the law. The writ petition was disposed of with no costs incurred.