2019 (2) TMI 428 - HC - VAT and Sales Tax

Imposition of penalty u/s 34(8) of the U.P. Vat Act 2008 - delay in deposit of TDS - no deliberate act in defiance of law or contaminous conduct - government department - Held that - The imposition of penalty under Section 34(8) is in addition to and unaffected by the payment of interest under Section 34(8) - Though the existence of mens rea or dishonest intent is not a prerequisite for imposition of penalty under Section 34(8) as is evident from a bare reading of the said provision and it is a civil liability, if there are bonafide reasons and mitigating factors which explain the delayed deposit of TDS they should be taken into account while taking a decision to impose or not to impose penalty or to determine its extent. Failure to make deduction would however stand on a different footing. In the present case the delay in deposit of TDS for April, May, July, August and October, 2008 ranges from 24 days to 94 days. The Railways should have been conscious of its statutory obligations - Considering the fact that it is not a case of failure to make deduction but of failure to deposit TDS timely and also considering the fact that the matter relates to a Government department, in the facts of the case, the penalty is reduced from ₹ 3,08,296.40/- to ₹ 1541248 i.e. 05% of the TDS. This will act as a deterrent for the future. Tax revision is disposed off.

Summary

Issues:
1. Imposition of penalty under Section 34(8) of the U.P. VAT Act, 2008.
2. Interpretation of the provisions of Section 34(8) regarding the liability to pay interest and penalty.
3. Consideration of mitigating factors and bonafide reasons for delayed deposit of TDS.
4. Reduction of penalty by the Tribunal and justification for the same.

Analysis:
1. The case involved the imposition of a penalty under Section 34(8) of the U.P. VAT Act, 2008 on an Assistant Material Manager of Rail Electrification for delayed deposit of TDS, totaling to &8377; 30,82,964.00. The Assessing Authority imposed a penalty of 200% of the TDS amount, which was later reduced by the Tribunal to 10% after considering the facts and circumstances of the case and the payment of interest on delayed deposit.

2. The Court analyzed Section 34(8) of the Act, which provides for the imposition of a penalty not exceeding twice the amount deductible if the TDS is not deposited as required. It was clarified that the liability to pay interest under Sub-section 9 is separate from the penalty under Sub-section 8. The imposition of penalty is discretionary, subject to a prior opportunity of hearing, and the extent of the penalty is within the discretion of the Assessing Authority.

3. The Court considered the absence of deliberate defiance of law, dishonest conduct, or conscious disregard of obligations as factors for imposing penalties. While mens rea is not a prerequisite for penalty under Section 34(8), bonafide reasons and mitigating factors for delayed deposit should be taken into account. In this case, the delay ranged from 24 to 94 days, and the Railways' statutory obligations were emphasized.

4. The Tribunal's decision to reduce the penalty to 10% of the TDS amount was justified considering the procedural delays common in government departments. The penalty was further reduced to 5% as a deterrent for future compliance. The judgment referred to relevant Supreme Court decisions emphasizing fair consideration and discretion in penalty imposition.

In conclusion, the Court upheld the reduction of penalty by the Tribunal, emphasizing the importance of considering mitigating factors and statutory obligations in penalty imposition under Section 34(8) of the U.P. VAT Act, 2008.