2017 (6) TMI 839 - HC - VAT and Sales Tax

Works contractor - furnace oil and hytherm oil purchased by JTP against Form XVII - concessional rate of tax - The Tribunal found that JTP had processed yarn and cloth, which was supplied to its buyers/customers and therefore, in terms of Section 3(3) of the 1959 Act, it was not entitled to the concessional rate of tax. Based on this reasoning, the Tribunal came to the conclusion that there was a clear violation of Section 45(2)(e) of the 1959 Act and thus, penalty under Section 23 of the very same Act, was warranted. Whether penalty under Section 23 of the Tamil Nadu General Sales Tax Act is imposable when the ingredients of Section 45(2)(e) of the Tamil Nadu General Sales Tax Act, more particularly the words fails without reasonable excuse to make use of the goods for the declared purpose, has not been satisfied? - Whether in the given facts and circumstances of the case, under Section 23 of the 1959 Act, the Assessing Officer could have straight away impose penalty on the Assessee at the maximum rate of 150%? Held that - A perusal of Section 3(3) of the 1959 Act, would show that an Assessee can avail of the concessional rate of tax of 3%, only, if the consumable, in this case, furnace oil and hytherm oil, is used in the manufacture of goods, which are sold by him - while in the present case, the findings of fact recorded by the Adjudicating Authority, which have been affirmed by the Tribunal, to the effect, that JTP had processed cotton fabric, albeit, on a job work basis, we have no difficulty in accepting the submission of Ms.Hemalatha, that, job work would fall within the scope and ambit of the expression manufacture , Having said so, what we are not able to agree with, is that, manufacture, in this case, processing, can be done in respect of a third party s property - thus, the concessional rate of tax of 3% was not available to JTP. The JTP, was thus, as found by the Adjudicating Authority, required to pay tax at the usual and normal rate, which at the relevant time was 12%. Penalty - quantum of penalty - Held that - A mere perusal of Section 23 would show that, if it is found that a person is guilty of any offence under clause (e) of subsection (2) of Section 45 of the 1959 Act, the Assessing Officer may after giving a reasonable opportunity of being heard to the Assessee, impose by way of penalty, a sum, not exceeding one and a half times the tax payable on the turnover relating to the sale of such goods, at a rate, which is equal to the rate prescribed in the First Schedule to the said Act, less the concessional rate i.e., 3% - The incorporation of the word may in Section 23 gives discretion to the Assessing Officer to levy penalty up to a maximum rate of 150% - Similarly, Section 45 (2) (e) of the 1959 Act, mandates that penalty can be levied, if the Assessee fails to make use of the goods, without reasonable excuse for the declared purpose. The matter is remanded to the Adjudicating Authority for the limited purpose of de novo quantification of the penalty. Part matter decided in favor of Revenue and part matter on remand - revision application disposed off.

Summary

Issues:
Revision petitions against Sales Tax Appellate Tribunal's judgment; Interpretation of Section 23 and 45(2)(e) of Tamil Nadu General Sales Tax Act; Imposition of penalty on Assessee for misuse of concessional rate of tax; Discretion of Assessing Officer in levying penalty.

Analysis:
The revision petitions were filed against the Sales Tax Appellate Tribunal's judgment regarding penalty imposition under Section 23 of the Tamil Nadu General Sales Tax Act. The Assessee, a works contractor, claimed a concessional tax rate for purchasing furnace oil and hytherm oil against Form XVII, stating it was used in processing cotton fabrics. However, the Revenue alleged misuse and issued a show cause notice. The Adjudicating Authority found the Assessee misused the declaration and imposed a penalty of 150% of the tax due for both assessment years. The Commissioner set aside the penalty, but the Tribunal upheld it, stating the concessional rate was only for manufacturers selling their own goods.

The Assessee argued that job work falls under the Act's provisions, entitling them to the concessional rate of 3%. They also highlighted depositing the differential tax rate before the assessment order. On the other hand, the Revenue contended that the Assessee's activities did not qualify for the concessional rate due to processing fabric for third parties. The Court analyzed Section 3(3) of the Act, concluding that the concessional rate was not applicable to the Assessee's situation. Regarding penalty imposition, the Court examined Sections 23 and 45(2)(e) of the Act, emphasizing the Assessing Officer's discretion in levying penalties up to 150%.

The Court found that the Adjudicating Authority did not adequately justify the maximum penalty rate in this case. It noted that a violation does not mandate maximum penalty imposition and remanded the matter for reevaluation of the penalty amount. The Court modified the Tribunal's order, directing the Adjudicating Authority to quantify the penalty considering all relevant factors. The Court ruled against the Assessee on the misuse of Form XVII but in their favor on the penalty quantification issue. The revisions were disposed of accordingly, with no costs awarded.