2019 (1) TMI 1298 - HC - VAT and Sales Tax

Imposition of penalty - Misutilization of Form-C - import of plastic crates and air conditioners - Whether the assessee who is a manufacturer of milk and milk products had made any false representation in utilising Form-C to import plastic crates and air conditioners? Held that - In the first place, the burden to establish existence of false representation was on the revenue. Merely because Form-C had been utilised to import a different item was not enough to conclude making of a false representation. Such fact may only give rise to an inquiry in that regard. As to the inquiry made, it is seen admittedly, the assessee is a manufacturer of milk and milk products and also there is no material or reasoning given in the order passed by the Tribunal that the assessee had not utilised the goods imported against Form-C for the purpose of its business. In fact, impliedly, the Tribunal admits that the plastic crates would have been used for the transportation of the goods. Similarly, with respect to the air conditioners that had been imported by the assessee, undisputedly, the assessee was entitled to purchase machinery, machinery parts, etc to run its plant for manufacture of milk and milk products. No finding was recorded by any of the authorities that the air conditioners so imported were not used at the factory premises or in the running of the plant and machinery - it appears that the authorities had accepted the contention of the assessee that the air conditioners had been utilised in the running of the plant operated by the assessee to manufacture milk and milk products. This being a case of penalty and not of assessment of tax, the outcome of the discussion made above has to be that an independent and reasoned finding of false declaration submitted or misrepresentation made by the assessee was necessary to be recorded to impose a valid penalty. Such finding is absent in the present case - the ingredients necessary to establish existence of reason to believe or a false representation were not established by the revenue. Mere narration of wrong representation or utilisation of Form-C without a clear cut finding about the false representation did not fulfil the requirement of law. Though the assessee may not have been strictly entitled to use the declaration Form- C, that fact alone could not result in an automatic levy of penalty. The question of law is answered in the negative i.e. in favour of the assessee and against the revenue.

Summary

Issues:
- Interpretation of Section 10A of the Central Sales Tax Act, 1956 regarding penalty proceedings.
- Whether the assessee, a manufacturer of milk and milk products, made a false representation in utilizing Form-C to import plastic crates and air conditioners.

Analysis:
1. The revision was filed against the Trade Tax Tribunal's order arising from penalty proceedings under Section 10A of the Act. The assessee, a manufacturer of milk and milk products, imported plastic crates and air conditioners against Form-C at a concessional rate of tax during the year in question.

2. The assessing authority imposed a penalty, stating that the assessee was not authorized under its registration certificate to make such purchases. The Tribunal disbelieved the explanation provided by the assessee, stating that the action was not bona fide. It was observed that the imported goods were not used in the manufacture of milk and milk products, leading to the rejection of the claim of bona fide conduct.

3. The counsel for the assessee argued that the penalty could only be imposed if there was a reason to believe that the assessee falsely issued a certificate or made a false representation while using Form-C. The assessee's purchase of plastic crates for storage and transportation of milk products did not constitute deliberate misuse of Form-C.

4. The Tribunal's reasoning was challenged, stating that it did not consider the correct facts and reached conclusions on a presumptive basis. The absence of material to support the necessary finding of false representation was highlighted, emphasizing that the penalty was unwarranted considering the nature of the assessee's business.

5. The revenue contended that the assessee knowingly made false declarations while purchasing the items not authorized under its registration certificate. However, the burden to establish the false representation was on the revenue, and the Tribunal failed to provide a reasoned finding of false declaration or misrepresentation by the assessee.

6. The judgment concluded that the revenue did not prove the existence of a false declaration by the assessee. The penalty order was based on presumption rather than a finding of false representation, as the imported goods were connected to the main business of the assessee. The question of law was answered in favor of the assessee, and the revision was allowed.