2021 (3) TMI 132 - HC - VAT and Sales Tax

Levy of penal interest under Section 24(3) of the Tamil Nadu Value Added Tax Act, 2006 - belated payment of sales tax by the appellant - Principles of natural justice - HELD THAT - Tax or penalty levied/leviable on taxable turnover suppression are not eligible for loan scheme. Turnover suppression has been defined to mean taxable turnover not shown or not declared as such in the monthly returns filed by the appellant. It is not in dispute that the appellant has filed their monthly returns which has reflected all the transactions. In respect of certain transactions the appellant has declared in the monthly returns as 'Sale against Form C', 'Sale against Form H' and in respect of certain transactions, incorrect rate of tax was adopted. The demand of penal interest flows from the demand dated 29.08.2013. The appellant had been diligently prosecuting the matter, in the sense promptly submitting their objections as and when notices were issued by the respondent. Though the appellant had been doing so by sending reply dated 24.06.2013, 03.09.2013, 14.02.2014 and 11.03.2014, they have not been favoured with a speaking order, nor provided an opportunity of personal hearing, though sought for. Whether clause 12 of the agreement could have been invoked by the respondent to make a demand and consequently, demand penal interest? - HELD THAT - If there is a turnover suppression, the appellant would not be eligible for the loan scheme. Turnover suppression has been defined to mean taxable turnover not shown or not declared as such in the monthly returns filed by the appellant. It is not in dispute that the appellant has filed the monthly returns and has shown the taxable turnover - Prima facie, in our view it cannot amount to suppression as such transactions are permissible under the Act. Eligibility or ineligibility would have to be decided by interpreting all the conditions in the agreement as well as in the eligibility certificate. Therefore, the respondent has proceeded on a wrong footing. If the respondent has to make out a case of turnover suppression for invoking clause 12, then the respondent should establish that the turnover has not been shown in the monthly returns filed by the dealer. The argument of the respondent is that the liability to pay interest is automatic in terms of section 24(3) of the TNGST Act. Therefore, no notice is necessary for levying penal interest. A distinction has to be drawn in the appellant's case owing to the fact that the appellant disputes the allegation of the Department that they are a defaulter, i.e. there has been a turnover suppression. Unless the said issue is decided, the aspect of delay in payment of taxes cannot be decided. Only after deciding the delay which is alleged to have occurred, interest can be levied. Therefore, in the factual circumstances of the case, issuance of notice on the appellant was absolutely necessary. This Court is convinced to hold that the respondent has failed to address the crucial issues in spite of the appellant raising objections and mechanically proceeded to issue the notice demanding penal interest. Hence, this Court is inclined to interfere with the notice issued by the respondent which was impugned in the writ petition dated 16.04.2014 and remand the matter back to the Assessing Officer to take a fresh decision in the matter after affording an opportunity to the appellant to submit detailed objections and after giving an opportunity of personal hearing to the authorized representative of the appellant - Appeal allowed by way of remand.

Issues Involved:
1. Legitimacy of the demand for penal interest under Section 24(3) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act).
2. Eligibility of the appellant for the Interest Free Sales Tax (IFST) deferral scheme.
3. Interpretation of the terms and conditions of the deferral agreement and eligibility certificate.
4. Alleged turnover suppression and its impact on eligibility for the deferral scheme.
5. Requirement of notice before levying penal interest.

Issue-wise Detailed Analysis:

1. Legitimacy of the demand for penal interest under Section 24(3) of the TNVAT Act:
The appellant contested the notice demanding penal interest of ?1,08,88,487 issued by the respondent on the grounds that it was issued without providing an opportunity for the appellant to present their case, thus violating the principles of natural justice. The appellant argued that the computation of interest was incorrect and that there was no delay in remittance of tax. The court found that the respondent had failed to address the appellant's objections and had not issued a speaking order, leading to the conclusion that the demand for penal interest was not justified.

2. Eligibility of the appellant for the IFST deferral scheme:
The appellant, a registered dealer under the TNVAT and CST Acts, had applied for and was granted eligibility for the IFST deferral scheme by SIPCOT. The deferral period was from 01.07.2000 to 30.06.2009, with a ceiling of ?1,725.46 lakhs. The appellant argued that they were eligible for deferral on the entire tax assessed on the taxable turnover declared in the returns, including turnover relating to differential tax arising from non-submission of Form C/Form H and incorrect tax rates. The court noted that the appellant had declared all transactions in their monthly returns and that the respondent's interpretation of the eligibility criteria was flawed.

3. Interpretation of the terms and conditions of the deferral agreement and eligibility certificate:
The court examined the deferral agreement and eligibility certificate, noting that the sales tax due on the appellant's products was deemed to have been paid to the assessing authority and treated as a government loan. The agreement specified that the loan was for the full tax subject to the ceiling of ?1,725.46 lakhs. The court found that the respondent had misinterpreted the agreement and eligibility certificate, leading to an incorrect demand for penal interest.

4. Alleged turnover suppression and its impact on eligibility for the deferral scheme:
The respondent claimed that the appellant was not eligible for the deferral scheme due to turnover suppression, defined as taxable turnover not shown or declared in the monthly returns. However, the court found that the appellant had declared all transactions, including sales against Form C and Form H, in their monthly returns. The court concluded that the respondent had failed to establish turnover suppression and that the appellant was eligible for the deferral scheme.

5. Requirement of notice before levying penal interest:
The appellant argued that they were not given an opportunity to make submissions before the notice demanding penal interest was issued, violating the principles of natural justice. The court agreed, noting that the respondent had not issued a notice before levying penal interest and had not provided a speaking order addressing the appellant's objections. The court held that a notice was necessary in this case to determine the delay in payment of taxes and the resultant interest.

Conclusion:
The court allowed the writ appeal, quashing the notice issued by the respondent demanding penal interest. The matter was remanded to the Assessing Officer for fresh consideration, with instructions to provide the appellant with an opportunity to submit detailed objections and to grant a personal hearing. The decision was to be made in accordance with the law, without being influenced by the observations in the judgment.

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