2021 (6) TMI 592 - HC - VAT and Sales Tax

Levy of Penalty u/s 53(3) of the VAT Act - Under declaration of tax - fraudulent or wilful neglect - validity of SCN - HELD THAT - The present show-cause notice also suffers from similar infirmity. There is no indication in the show-cause notice with regard to the factual foundation alleging fraud or wilful neglect on the part of the petitioner-assessee in relation to under declaration of tax. Sri Naidu, learned Government, sought to wriggle out of the situation by referring to the finding of the authority relating to absence of plausible explanation for non-disclosure of turn over by the assessee as the foundation for wilful neglect - The initial onus was on the department to aver the factual foundation of fraud or wilful neglect in the show-cause notice. Only then the petitioner-assessee would have been put on adequate notice to respond to such allegation, which may entail higher penalty. In the absence of allegation of fraud or wilful neglect in the show-cause notice, the question of offering any explanation on such score did not arise. The authority wholly misdirected itself in imposing higher penalty on the premise the assessee had failed to give plausible explanation for non-disclosure of turn over - We are constrained to hold as the petitioner-assessee was not put on adequate notice with regard to imposition of higher penalty and therefore, had no opportunity to respond thereto the impugned penalty order based on lack of plausible explanation on such score suffers from jurisdiction error and falls foul of principles of fair procedure and natural justice. Petition allowed - penalty set aside.

Summary

Issues:
Challenge to penalty order for alleged fraudulent or wilful neglect in under-declaration of tax.

Analysis:
The judgment pertains to a challenge against a penalty order imposed on the petitioner for under-declaration of tax. The petitioner, a registered dealer engaged in trade of motor vehicles, was penalized 100% of the under-declared tax amount. The petitioner contended that the show-cause notice lacked factual allegations of fraudulent or wilful neglect. The petitioner's counsel cited a previous court decision to support the argument. On the other hand, the Government Pleader argued that the penalty was justified as the petitioner failed to provide a plausible explanation for the non-disclosure of turnover. The court noted the absence of specific allegations in the show-cause notice regarding fraud or wilful neglect, which deprived the petitioner of a fair opportunity to respond adequately. The court highlighted the necessity for the department to establish the factual foundation of fraud or wilful neglect in the notice before imposing a higher penalty. Consequently, the court held that the penalty order was based on a lack of plausible explanation due to inadequate notice, leading to a jurisdictional error and violation of fair procedure and natural justice.

The court referenced a previous case where a similar issue was addressed, emphasizing the importance of providing a reasonable opportunity for the dealer to be heard. The court found the current show-cause notice suffered from the same deficiency as the previous case, lacking a clear indication of fraud or wilful neglect. The Government Pleader's argument regarding the absence of a plausible explanation for non-disclosure of turnover was dismissed by the court, emphasizing the department's initial responsibility to allege fraud or wilful neglect in the notice. The court concluded that the imposition of a higher penalty without proper notice was unjust and contrary to principles of natural justice. Consequently, the court set aside the penalty order and directed the department to issue a fresh show-cause notice in accordance with the law.

In light of the jurisdictional error and violation of fair procedure, the court allowed the writ petition, thereby annulling the penalty order. The department was granted the liberty to issue a new show-cause notice to the petitioner, ensuring adherence to legal requirements. The judgment closed any pending miscellaneous petitions related to the writ petition.