2019 (3) TMI 297 - HC - VAT and Sales Tax

Penalty u/s 27(4)(1) of TNVAT Act - AO levied penalty u/s.27(3) of the Act - no findings have been given by the officer on wilful suppression of turnover - Penalty u/s 16(2) of the TNGST Act - assessment was done at lower rate of tax @ 2% - Held that - The Assessing Officer by order dated 25.05.2009 rejected the claim under Section 19(11) of the TNVAT Act as the assessee had filed the claim beyond the time limit prescribed. The Assessing Officer went one step further and levied penalty under Section 27(3) of the TNVAT Act. On reading of the assessment order dated 25.05.2009, it is seen that there is no discussion as to how the penalty is leviable under Section 27(3) of the TNVAT Act. In the grounds of appeal, the revenue sought to sustain the penalty levied under Section 27(3) of the TNVAT Act. The Tribunal heard the appeal and came to the conclusion that the Assessing Officer wrongly invoked Section 27(3) of the TNVAT Act instead of Section 27(4) of the TNVAT Act and Section 27(4) of the TNVAT Act being a machinery provision, it would operate automatically and the assessee is liable to pay penalty at 50% on the wrong claim of input tax credit in terms of Section 27(4)(i) of the TNVAT Act. After coming to such a conclusion, the Tribunal remanded the matter to the Assessing Officer with a direction to discuss under which section he proposes penalty either under Section 27(3) or Section 27(4) of the TNVAT Act or both and to what percentage penalty is leviable - the Tribunal committed serious error in holding that Section 27(4) of the TNVAT Act would stand attracted. The Tribunal ought to have considered the vital fact that for Section 27(4) of the TNVAT Act to stand attracted the assessee's case revision brought under Section 27(2) of the TNVAT Act. In otherwords, the Tribunal should record a finding that there has been wrongful availment of ITC or the assessee has produced false bills, vouchers, declaration certificate or any other document with a view to support his claim of input tax credit. Furthermore, the claim made by the assessee was outrightly rejected by the Assessing Officer as time barred and therefore, there is no allegation that the assessee had wrongly availed input tax credit . Thus, both the contingencies contemplated under sub-section (2) of Section 27 of the TNVAT Act do not stand attracted in the assessee's case - In such circumstances, sub-section (4) of Section 27 of the TNVAT Act can never be applied since the said section would apply only if an order has been passed under Section 27(2) of the TNVAT Act holding that either the assessee has wrongly availed input tax credit or he has produced false documents to support his claim of input tax credit. Thus, the Tribunal erred in passing the impugned order and more particularly going beyond the grounds raised by the revenue before it. The tax case revision is allowed and the substantial questions of law are answered in favor of the assessee.

Summary

Issues:
1. Interpretation of penalty provisions under TNVAT Act
2. Applicability of penalty sections 27(3) and 27(4) of TNVAT Act
3. Assessment of input tax credit claim
4. Judicial review of Tribunal's decision

Analysis:

Issue 1: Interpretation of penalty provisions under TNVAT Act
The case involved a tax revision filed by the assessee challenging the order of the Tamil Nadu Sales Tax Appellate Tribunal regarding the levy of penalty under the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act). The substantial questions of law raised by the assessee questioned the correctness of the Tribunal's decision on the penalty provisions.

Issue 2: Applicability of penalty sections 27(3) and 27(4) of TNVAT Act
The Tribunal had remanded the case to the Assessing Officer to determine the penalty under either Section 27(3) or Section 27(4) of the TNVAT Act. However, the High Court found that the Tribunal erred in invoking Section 27(4) as there was no finding of wrongful availment of input tax credit or production of false documents by the assessee. The Court emphasized that for Section 27(4) to apply, there must be a specific finding under Section 27(2) regarding such wrongful acts, which was absent in this case.

Issue 3: Assessment of input tax credit claim
The case revolved around the assessee's claim for input tax credit, which was rejected by the Assessing Officer as time-barred under Section 19(11) of the TNVAT Act. The Appellate Deputy Commissioner upheld the rejection but deleted the penalty under Section 27(3) considering the voluntary nature of the revised return. The Tribunal, however, incorrectly applied Section 27(4) for penalty without proper grounds raised by the revenue, leading to the High Court's intervention.

Issue 4: Judicial review of Tribunal's decision
The High Court, after thorough analysis, allowed the tax case revision in favor of the assessee. It concluded that the Tribunal's decision to apply Section 27(4) was erroneous as the necessary conditions for its application were not met. The Court restored the order of the Appellate Deputy Commissioner, emphasizing the importance of sticking to the grounds raised by the parties during the appeal process.

In summary, the High Court's judgment clarified the interpretation of penalty provisions under the TNVAT Act, emphasized the importance of proper application of penalty sections, and highlighted the need for adherence to legal grounds raised during judicial proceedings.