2021 (5) TMI 697 - HC - VAT and Sales Tax

Levy of penalty u/s 9-B (3) of the OST Act - levy of sales tax in respect of the installed capacity cement with effect from 1st December, 1993 - HELD THAT - For the period 1994-95, the STO imposed a penalty on the basis that while effecting sales of cement to the tune of ₹ 47,49,093.64, the Petitioner had collected tax to the tune of ₹ 5,08,831.46. For the period 1995-96, he held that while effecting sale of cement to Government Departments in the sum of ₹ 45,70,555.30, the Petitioner had unauthorizedly collected sales tax to the tune of ₹ 4,89,702.35. The STO held that the Petitioner was not authorized to collect the tax on the sale of its finished product while enjoying the exemption under Entry-30-FFF of the tax free schedule under the OST Act. In similar manner, the penalty was imposed for the years 1992-93, 1993-94 and 1995-96. The Court at the outset notes that the approach for the period up to 1st December, 1993 when the sales tax exemption was available in respect of the cement from the installed capacity of 13500MTs, had to be different from the approach in respect of the sales tax payable by the Petitioner on cement for the period subsequent thereto. Likewise for the additional capacity of 22500MTs, the approach in respect of the issue of the exemption with effect from 16th July 1992, had to be separately dealt with - It is interesting that the ACST while partly allowing the Petitioner s appeals came to the conclusion that even for 1992-93 and 1993-94, the penalty imposed by the STO was very high and excessive and that there was no direct proof of collection of sales tax by the Petitioner. With regard to the period 1994-95 and 1995-96, the ACST, in the appellate order waived the penalty imposed on the Petitioner on the ground that it had deposited the amount of sales tax realized. The fact of the matter is that as far as the installed capacity was concerned, with the exemption on payment of sales tax on the finished product having come to end on 1st December 1993, the Petitioner was bound to collect the sales tax on the finished product which in fact it did. It was this tax that the Petitioner deposited with the Department - the explanation offered by the Petitioner that it was bound to collect the sales tax for this period is both logical and correct. If that is the position, then there is no justification in imposing any penalty on the Petitioner for these two years on the ground that it had illegally collected sales tax. The imposition of penalty on the Petitioner under Section 9-B(3) of the OST Act for 1994-95 and 1995-96 cannot be said to be legally justified - the finding of the Tribunal that the Petitioner had illegally collected the sales tax in respect of the installed capacity cement with effect from 1st December, 1993 is incorrect and not sustainable in law - the Tribunal s order is vitiated as it considered together both the relevant and irrelevant materials in arriving at its conclusions. Revision petition disposed off.

Summary

Issues:
1. Imposition of penalty under Section 9-B(3) of the OST Act.
2. Legality of sales tax collection by the Petitioner.
3. Consideration of relevant and irrelevant materials by the Tribunal.

Issue 1: Imposition of Penalty under Section 9-B(3) of the OST Act:
The revision petitions arose from a common order of the Orissa Sales Tax Tribunal regarding the imposition of penalty under Section 9-B(3) of the OST Act. The questions framed by the Court revolved around the legality of imposing the penalty. The Petitioner, a small scale industrial unit, was accused of unauthorizedly collecting sales tax. The STO issued a show cause notice for imposing a penalty, which was contested by the Petitioner. The ACST and Tribunal had differing views on the penalty, leading to the matter being brought before the High Court.

Issue 2: Legality of Sales Tax Collection by the Petitioner:
The Petitioner was registered under the OST Act and CST Act, enjoying tax exemptions as per the Industrial Policy Resolution. Disputes arose regarding the collection of sales tax on cement sales, with allegations of unauthorized collection by the Petitioner. The STO imposed penalties for various assessment years, which were partially waived by the ACST. The Tribunal allowed the Petitioner's appeal for certain years but upheld the penalty for others. The High Court analyzed the facts, including the Petitioner's compliance with tax laws and exemptions, to determine the legality of the sales tax collection by the Petitioner.

Issue 3: Consideration of Relevant and Irrelevant Materials by the Tribunal:
The Tribunal's order was scrutinized for considering both relevant and irrelevant materials in reaching its conclusions. The Court highlighted discrepancies in the evidence presented by the Department regarding the alleged illegal collection of sales tax by the Petitioner. The Tribunal's observations and the lack of concrete evidence against the Petitioner for certain assessment years played a crucial role in the Court's decision. The High Court found the Tribunal's order unsustainable in law due to the improper consideration of materials, leading to the setting aside of the sustained penalty against the Petitioner for specific years.

This detailed analysis of the judgment by the Orissa High Court provides insights into the legal intricacies surrounding the imposition of penalties, sales tax collection, and the importance of considering relevant evidence in legal proceedings.