2019 (4) TMI 3 - HC - VAT and Sales Tax

Levy of penalty u/s 54 of the U P VAT Act, 2008 - non-issuance of Tax Invoice, though admittedly, Sale Invoice were issued - Whether the assessee revisionist could have issued the Tax Invoice though the purchasing dealers had not supplied the full particulars as required by sub-section 7 of Section 22 of the Act, in view of prohibition contained in Sub-section 8 of Section 22 of the Act, so as to entail imposition of penalty? Held that - This being a case of penal provision, the ingredient of the breach/infringement of law contemplated by the legislature, must be clearly established to justify its impost. A plain reading of Section 54(1), Table entry 5 of the Act suggests, penalty may be imposed on the selling dealer or the purchasing dealer for non-issue of either the Tax Invoice or the Sale Invoice or the Purchase Invoice. The circumstances in which such penalty may be imposed on the selling dealer are contained in sub-clause (i) of Table entry 5 being, either upon his failure to issue a Tax Invoice or a Sale Invoice or upon his deliberate non-issuance of the those documents - as to the intention or mens rea, as an ingredient for imposition of penalty on a registered purchasing dealer, for not obtaining a Tax Invoice under sub-clause (ii) of Table entry 5, of section 54(1) of the Act , that act or omission must be deliberate. It is apparent from a plain reading of that provision inasmuch as the word deliberately used therein clearly burdens the revenue to establish ill intent on part of the purchasing dealer, in not obtaining a Tax Invoice. However, for imposition of penalty for infringements contemplated under sub-clause (i), such intention or mens rea may not be mandatory. Both, a simple failure and also deliberate non-issuance of Tax Invoice or Sale Invoice appear to invite penalty on a registered selling dealer. Thus, mens rea may or may not be an ingredient for imposition of penalty under sub-clause (i). It is in such statutory context, the statute invites a construction, to locate and define the circumstance/s when a registered selling dealer may stand exposed to penalty for nonissuance of a Tax/Sale Invoice - As noted above, the legislature does appear to have treated differently, similar or comparable infringements committed by different persons, depending on their status-whether registered or unregistered and also depending on whether the person committing the infringement was a seller or a purchaser. Thus, in the first place, as the revenue suggests, with respect to a sale transaction, the registered selling dealer may be penalized if he either deliberately does not issue or if he simply fails to issue a Tax Invoice or a Sale Invoice. Whether a registered selling dealer would issue a Tax Invoice or a Sale Invoice does not depend on the free choice of the contracting parties but, it is predetermined/prescribed by the Act/law. In case of taxable and vat-able goods sold by a dealer (not admitted to compounding), primarily, that obligation hinges on whether the selling and the purchasing dealers are registered dealers or unregistered dealers. For issuance of a Tax Invoice and/or Sale Invoice, in mutually exclusive circumstances, the obligation cast on the purchasing dealer under section 22(7) of the Act is crucial and in fact decisive and mandatory as to the conduct he must offer, to test the allegation of breach/infringement of law, levelled against a selling dealer in not issuing a Tax Invoice. The selling dealer may only react to the action taken or representation made by the purchasing dealer. Only after the purchasing dealer voluntarily discloses to the selling dealer all details required to be furnished under that provision, can the latter become aware of the facts that alone may give rise to his legal obligation to issue a Tax Invoice. The assessee/appellant had from the very beginning stated, he had performed 68 sale transaction to unregistered dealers. Upon inquiry 64 of such transactions were found to have been performed with unregistered dealers. For the remaining four, the assessee had further claimed, the purchasing dealers had not provided their TIN details and, therefore, they had to be treated as unregistered dealers - There is no material on record or denial of such fact assertion. The revenue had not led any evidence to establish either that the appellant was aware of the registration granted to any of those four purchasing dealers. Consequently, in the context of the penalty provision, it had to be inferred, at the relevant time the assessee was not aware of the fact of the four purchasing dealers being registered dealers. Therefore, it could never be said that the appellant had either failed to or had deliberately not issued a Tax Invoice to such dealers or that there was any collusion between the parties. The assessee rightly assumed those purchasing dealers to be unregistered dealers. The appellant did issue Sale Invoice against each of the four disputed transactions. Absence of any statement of the purchasing dealer to establish, they had informed the applicant of the facts specified under sections 22(1)(i) to (v) and 22(7) of the Act, clearly absolved the appellant - a selling dealer from any liability under subclause (i) of Table entry 5 of Section 54(1) of the Act. Thus, facts found by the Tribunal clearly make this case fall in category (b) considered in paragraph 38 of this order. Revision allowed - decided in favor of assessee.

Summary

Issues Involved:
1. Whether penalty under Section 54(1)(5) of the U.P. VAT Act, 2008 could be imposed upon the assessee for not issuing Tax Invoice, though Sale Invoice was issued.
2. Whether the assessee could have issued the Tax Invoice despite the purchasing dealers not supplying the full particulars as required by sub-section 7 of Section 22 of the Act, in view of the prohibition contained in Sub-section 8 of Section 22 of the Act.

Issue-wise Detailed Analysis:

1. Imposition of Penalty for Not Issuing Tax Invoice:

The Tribunal upheld the penalty against the assessee for issuing Sale Invoices instead of Tax Invoices for 68 transactions. The revenue argued that issuing Sale Invoices deprived it of the opportunity to tax subsequent sales on a value addition basis. The assessee contended that the transactions were with unregistered dealers, thus no Tax Invoice could be issued. The first appeal authority found 64 transactions were indeed with unregistered dealers and deleted the corresponding penalty. However, the penalty for the remaining four transactions was upheld as they were with registered dealers.

2. Requirement to Issue Tax Invoice Despite Lack of Full Particulars:

The assessee argued that under Section 22(7) of the Act, the obligation to provide details like name, address, and TIN was on the purchasing dealers. Without these details, the assessee could not issue a Tax Invoice, and issuing one without these details would be null and void. The Tribunal rejected this, stating the assessee acted in collusion with the purchasing dealers by not issuing Tax Invoices, thus depriving the revenue of tax on value addition.

Legal Analysis:

Section 54(1)(5) of the Act:

This section allows the assessing authority to impose penalties if a dealer fails to issue a Tax Invoice or Sale Invoice or deliberately does not issue these documents. The penalty can be the tax payable on the value of goods or 40% of the value of goods, whichever is higher.

Intent and Mens Rea:

The Supreme Court in Karnataka Rare Earth and Another Vs. Senior Geologist, Department of Mines & Geology and Another clarified that penalty arises from a breach of law, implying a need for clear establishment of such breach. For a registered purchasing dealer, not obtaining a Tax Invoice must be deliberate to attract penalty. However, for a registered selling dealer, both simple failure and deliberate non-issuance of a Tax Invoice or Sale Invoice can invite penalties.

Obligations Under Section 22 of the Act:

- Section 22(7): The purchasing dealer must provide their name, address, and TIN to the selling dealer.
- Section 22(8): The selling dealer cannot issue a Tax Invoice without these details.
- Section 22(1): A Tax Invoice must be issued for taxable and vat-able goods sold to certain specified persons, provided the purchasing dealer discloses the necessary details.

The selling dealer's obligation to issue a Tax Invoice arises only after the purchasing dealer discloses the required details. If these details are not provided, the selling dealer can assume the purchasing dealer is unregistered and issue a Sale Invoice instead.

Findings:

The Tribunal's findings that the assessee acted in collusion were not supported by evidence. The assessee's claim that the purchasing dealers did not provide their TIN details was not refuted by the revenue. Thus, the assessee could not be penalized for not issuing Tax Invoices for the four disputed transactions as they were presumed to be with unregistered dealers.

Conclusion:

The court concluded that the assessee was not liable for the penalty under Section 54(1)(5) of the Act for the four disputed transactions. The questions of law were answered in favor of the assessee, and the revision was allowed with no order as to costs.