2020 (9) TMI 3 - HC - VAT and Sales Tax

Levy of penalty - non-filing of returns - invocation of Section 10 of the Tamil Nadu Tax on Entry of Goods Into Local Areas Act, 2001 r/w Section 12(3) of Tamil Nadu General Sales Tax Act 1959 - Opportunity of personal hearing not provided - principles of natural justice - HELD THAT - It is not the case of the department that the petitioner is a regular importer of these goods or that the petitioner had been trading in them. Therefore, non-filing of returns may not really mutter much in a case of this nature. It is true that there was omission on the part of the petitioner in making a declaration at the relevant point of time. But then, the fact remains that immediately after it was pointed out, the petitioner had promptly remitted the entry tax in question. The petitioner had not even challenged the stand of the respondent. The core argument is that penalty can be levied only if non-payment of tax was willful - It is well settled that levy of penalty involves a penal element. Therefore, the element of mensrea should be recorded to be present. In this case, no such finding can be discerned in the orders impugned in the writ petitions - We are living in pandemic times. But the respondent has shown considerable speed in concluding the entire proceedings. The pre-assessment notice was issued on 12.06.2020. The reply was given on 24.06.2020. The impugned order came to be passed on 29.06.2020. Even personal hearing was not afforded to the petitioner. Petition allowed - decided in favor of petitioner.

Issues Involved:
1. Non-filing of returns under the Entry Tax Act.
2. Levy of entry tax at a higher rate.
3. Imposition of penalty for non-payment of entry tax.
4. Procedural fairness and opportunity for personal hearing.

Issue-wise Detailed Analysis:

1. Non-filing of Returns Under the Entry Tax Act:
The petitioner, engaged in retail sales of textiles and clothing, imported goods like aluminium sheets and air conditioners for renovation purposes between 2004 and 2006. The petitioner believed that since these imports were for one-time use and not for trading, they were not required to file returns under the Entry Tax Act. However, upon inspection, it was revealed that the petitioner had not filed the relevant returns, leading to the imposition of penalties under Section 10 of the Tamil Nadu Tax on Entry of Goods Into Local Areas Act, 2001, read with Section 12(3) of the Tamil Nadu General Sales Tax Act, 1959.

2. Levy of Entry Tax at a Higher Rate:
Initially, the petitioner paid entry tax at the rate of 3%, but enforcement officials later pointed out that the tax should have been 10%. The petitioner subsequently paid the additional 7% without contesting the department's stance. The petitioner argued that according to Notification No.II(2)/ct/568(f-4)/2002-G.O.No.81, dated 01.07.2002, the correct rate should have been 3%, and thus, the department erred in levying an extra 7%.

3. Imposition of Penalty for Non-payment of Entry Tax:
The penalties were levied because the petitioner did not file the relevant returns, as per the provisions of Section 12(3) of the Tamil Nadu General Sales Tax Act, 1959. The petitioner contended that the penalty could only be imposed if the non-payment of tax was willful. The court noted that the petitioner promptly paid the tax upon being informed and did not challenge the respondent's stand, indicating a lack of willful non-compliance. Additionally, the court referenced a previous case (U.D. Enterprises vs. The Commercial Tax Officer) where it was held that penalties require a specific observation of willful non-disclosure, which was absent in this case.

4. Procedural Fairness and Opportunity for Personal Hearing:
The court observed that the proceedings were initiated after a significant delay of over 14 years, with the pre-assessment notice issued on 12.06.2020, the reply given on 24.06.2020, and the impugned order passed on 29.06.2020. The court criticized the lack of personal hearing and the hasty conclusion of the proceedings, especially given the pandemic context. The court emphasized that penalty imposition involves a penal element, necessitating a finding of mens rea (guilty mind), which was not present in the impugned orders.

Conclusion:
The court found that the penalties were unjustified due to the absence of willful non-compliance, the prompt payment of the primary tax component, and the procedural unfairness in the assessment process. Consequently, the impugned orders were quashed, and the writ petitions were allowed without costs.

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