2017 (7) TMI 973 - HC - VAT and Sales Tax

Penalty u/s 17 (3) (b) (ii) of the M.P. General Sales Tax Act, 1958 - It is the case of the petitioner that in conformity with the policy to tax raw materials at a lower rate under the Sales Tax Act and also under the Act, 1976, general rate of entry tax on raw material was 7% under Section 4 of the said Act. The State Government could specify local area or areas and the goods for levy of entry tax at a rate not exceeding 10% by notification under Section 4A of the Act, 1976 - - It is the further case of the petitioner that despite showing sufficient cause under Section 17 (3) (b) (ii) of the Act, 1958, penalty to the extent of 4,09,09,903/- ₹ was imposed holding that Section 17 (3) (b) is automatic and mandatory though the petitioner had sufficient cause for not paying balance of tax that was assessed, whereas the admitted tax as per the return had already been paid and the returns filed are late only by three days. Held that - A focused glance of Section 17 (3) (b) of the Act, 1958 would show that if a registered dealer fails without sufficient cause to pay the amount of tax in the manner prescribed under subsection (2) of Section 22 or fails to furnish his return under sub- section (1) or revised return under sub-section (2) for any period in the manner and by the date prescribed thereunder, the Commissioner may, after giving such dealer a reasonable opportunity of being heard, impose a penalty provided under Section 17 (3) (c) (ii), a sum equal to one percent of the tax for every month or part thereof. Therefore, the condition precedent for levy of penalty is that dealer must have failed without sufficient cause to comply with the provisions of Section 22 (2) or Section 17 (1) or Section 17 (2) of the Act, 1958 and further that a reasonable opportunity of hearing has to be granted to the dealer before imposing penalty. It is settled law that an order imposing a penalty for failure to carry out a statutory obligation is the result of quasi-criminal proceedings and penalty will not ordinarily be imposed unless the party obliged has either acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct, or acted in conscious disregard of its obligation. A penalty will not also be imposed merely because it is lawful to do so. In spite of a minimum penalty prescribed, the authority competent to impose the penalty may refuse to impose the penalty if the breach complained of was a technical or venial breach, flew from a bona fide though mistaken belief - taking note of the statutory provisions and principles governing imposition of penalty and the nature of penalty i.e. penal provision, the authority imposing penalty has to exercise that jurisdiction in consonance with the aforesaid provisions of law. Whether the assessing authority is justified in imposing penalty after giving a reasonable opportunity of being heard as contemplated under Section 17 (3) (b) of the Act, 1958? - Held that - the assessing authority has neither given reasonable opportunity of hearing before imposing penalty and even not recorded that failure to pay the tax within the stipulated time is without sufficient cause. The revisional authority has also perpetuated the illegality. The order of the assessing authority duly upheld by the revisional authority to the extent of imposing penalty, is hereby quashed - petition allowed - decided in favor of petitioner.

Issues Involved:
1. Legality of the penalty imposed under Section 17 (3) (b) (ii) of the M.P. General Sales Tax Act, 1958.
2. Whether the petitioner had sufficient cause for non-payment of entry tax.
3. Adequacy of the opportunity for the petitioner to be heard before the imposition of the penalty.

Detailed Analysis:

1. Legality of the Penalty Imposed under Section 17 (3) (b) (ii) of the M.P. General Sales Tax Act, 1958:
The core issue is the legality of the penalty imposed by the assessing authority and affirmed by the revisional authority. The petitioner argued that the penalty under Section 17 (3) (b) (ii) of the Act, 1958, is illegal and bad in law. The penalty was imposed for the late deposit of entry tax for the period from 1-4-1990 to 31-3-1991. The petitioner contended that the assessing authority misinterpreted the provisions of the Act, 1958, and imposed the penalty without considering the sufficient cause shown for the delay in payment. The court noted that Section 17 (3) (b) (ii) is a penal provision, and the imposition of penalty must be preceded by a finding that the tax was not deposited without sufficient cause. The court emphasized that penalty provisions are quasi-criminal in nature and should not be imposed unless there is a deliberate defiance of law or contumacious conduct.

2. Whether the Petitioner had Sufficient Cause for Non-Payment of Entry Tax:
The petitioner argued that the non-payment of entry tax from January 1991 onwards was due to the M.P. High Court's decision in Makers Development Service (Pvt.) Ltd. v. State Govt. of Madhya Pradesh, which declared the levy of entry tax on limestone as unconstitutional. The petitioner relied on this judgment and discontinued the payment of entry tax. Later, a settlement was reached through a memorandum of understanding (MOU) with the State Government, and all pending tax liabilities were cleared. The court found that the petitioner had shown sufficient cause for the delay in payment, as the non-payment was based on a judicial decision and subsequent settlement with the government.

3. Adequacy of the Opportunity for the Petitioner to be Heard Before the Imposition of the Penalty:
The court examined whether the petitioner was given a reasonable opportunity to be heard before the imposition of the penalty. The court referred to the principles laid down in Khem Chand v. Union of India and others and Fazal Bhai Dhala v. The Custodian-General, Evacuee Property, which define "reasonable opportunity" as including the chance to deny guilt, cross-examine witnesses, and make representations. The court found that the assessing authority did not afford the petitioner a reasonable opportunity of hearing before imposing the penalty. The revisional authority also failed to properly consider the petitioner's plea and did not address the lack of reasonable opportunity. Consequently, the court concluded that the penalty was imposed without following due process.

Conclusion:
The court quashed the order of the assessing authority, which was upheld by the revisional authority, to the extent of imposing the penalty. The court allowed the respondent authorities to proceed afresh for the imposition of the penalty after affording a reasonable opportunity of hearing to the petitioner. The writ petition was allowed to the extent indicated, with no order as to costs.

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