2018 (10) TMI 205 - HC - VAT and Sales Tax

Penalty - availing ITC - cancellation of seller s registration - It is claimed that the revisionist was not aware that the registration of the seller was cancelled - Held that - The penalty proceeding which is initiated in the instant case against the revisionist, is totally illegal, arbitrary for the reason that in case if a registered dealer is effecting the purchases from a registered dealer whose registration is subsequently cancelled then in that event unless and until the purchaser is aware or is informed by the department it cannot be presumed that he was aware about the proceedings for cancellation of registration of a dealer/seller - The purchase of sand by the revisionist in the instant case, appears to be affected bona fidely as the revisionist was not aware about the fact that the seller who was affecting the sales is not a registered dealer or his registration is cancelled. The revisionist cannot be held guilty nor he is liable to pay the penalty - revision allowed.

Summary

Issues: Challenge to penalty order under Section 54(1)(11) of VAT Act for Assessment Year 2010-11.

Analysis:
The revision petition challenges the penalty order passed by the Commercial Tax Tribunal under Section 54(1)(11) of the U.P. VAT Act, 2008 for the Assessment Year 2010-11. The revisionist, a registered company engaged in construction, claimed Input Tax Credit for purchases, including sand, from a seller whose registration was subsequently canceled. The assessing authority alleged the seller was a bogus firm, penalizing the revisionist under Section 54(1)(11) for engaging in fraudulent activities.

The VAT Act's Section 54 outlines penalties for specific violations. Sub-section (11) specifies penalties for various offenses, including issuing false certificates or invoices, with a penalty of 50% of the value of goods. The assessing authority can impose penalties after an inquiry, providing a reasonable opportunity for the parties to be heard.

The revisionist argued that the penalty proceedings were unjustly initiated, suggesting the department should pursue action against the canceled seller instead. The revisionist claimed innocence, stating they were unaware of the seller's registration status during the purchases. The court acknowledged the revisionist's lack of awareness about the seller's canceled registration, deeming the purchases bona fide. Consequently, the court deemed the penalty proceedings against the revisionist as illegal and arbitrary, setting aside the penalty order.

In conclusion, the court allowed the revision, overturning the penalty order imposed by the Tribunal. The judgment emphasized that while the revisionist was not liable for the penalty, the department could take lawful action against the seller with the canceled registration.