2019 (2) TMI 1476 - HC - VAT and Sales Tax

Imposition of penalty - sales tax liability on sale of rubber trees - assessment year 1996-97 - KGST Act - Held that - The assessee having collected the tax the same has to be paid over to the State as per Section 22 of the KGST Act and Rule 18(3) of the KGST Rules. The same having not been done, penalty proceedings initiated against the assessee was perfectly in order. The assessee had also filed an incorrect return insofar as the tax collected having not been shown in the records. The proceedings hence was under Section 45A, where the penalty could extent to twice the amount of tax sought to be evaded. The assessee had not paid over the tax to the State despite collecting. The deposit in lieu of tax was a device employed to deprive the State of the tax; when already collected by the seller. If at all the assessee was absolved from such liability there could have been a refund sought either by the assessee or by the person who suffered tax; producing evidence of refund having been made to the purchaser and in the latter case producing evidence of payment of tax having been effected. There can be no further modification on the quantum of the penalty - appeal dismissed.

Summary

Issues:
1. Sales tax liability on sale of rubber trees.
2. Penalty imposed on the assessee for failure to pay over collected tax.

Analysis:
1. The judgment concerns a sales tax liability issue related to the sale of rubber trees in the assessment year 1996-97. Initially, a decision was made that the sale of rubber trees does not attract sales tax as felled trees do not fall under the definition of timber. However, subsequent proceedings led to a different interpretation where rubber trees were considered as timber due to their use in furniture manufacturing. This decision was upheld by the Court in various instances, with the matter now pending in appeal.

2. The penalty imposed on the assessee was due to the failure to pay over the tax collected from individuals as per an agreement related to the purchase of rubber trees. The Assessing Officer found the return to be incorrect as the collected amounts were not paid to the exchequer. The penalty proceedings were initiated, leading to the lower authorities ruling against the assessee. The penalty was modified to an equal amount of tax by the learned Single Judge.

3. The Senior Counsel for the appellant argued that the penalty should not exceed a certain limit and contended that the collected deposits were in anticipation of tax liability. On the other hand, the Government Pleader argued that the amounts collected were explicitly for taxes and should have been paid to the State. The Court agreed with the Government Pleader, emphasizing that the collected tax amounts should have been remitted to the State as per the law.

4. The Court found that the assessee's actions were aimed at evading tax by using the deposit as a means to withhold tax payments. The failure to pay over the collected tax and the incorrect filing of returns led to the penalty under Section 45A, which could be twice the amount of tax evaded. The Court affirmed the penalty imposed by the learned Single Judge, dismissing the appeal and emphasizing the obligation to remit collected tax amounts to the State.

5. In conclusion, the judgment upholds the penalty imposed on the assessee for failing to pay over the collected tax amounts and affirms that such actions were not in compliance with the tax laws. The Court emphasized the importance of remitting collected taxes to the State and rejected the appellant's arguments regarding the penalty amount and the nature of the deposits collected.