2022 (1) TMI 106 - HC - VAT and Sales Tax

Time limitation for imposing penalty u/s 10-A of the Central Sales Tax Act, 1956 - maximum period for reopening of an assessment under the CST Act - principal grounds of challenge is that the period of seventeen years could have been clubbed together for imposing penalty on the Petitioner - HELD THAT - While on a plain reading, Section 10A does not stipulate a period of limitation for exercise of the power to impose penalty thereunder, it is obvious that the said power has to be exercised within a reasonable time. In the present case the period for which the penalty is sought to be imposed is as long as seventeen years i.e. from 22nd October, 1975 to 30th June, 1992. Clearly the legislative intent was not to empower the Department to levy penalty in one go for a period of seventeen continuous years. Such an interpretation would render the power unreasonable and arbitrary. Even though no limitation period as such has been indicated in Section 10-A of the CST Act it does not mean that the Department can decide arbitrarily to invoke to the power thereunder to levy penalty at any time of its choosing. In the light of the law that such power must be exercised within a reasonable time, the impugned order seeking to levy penalty in one go for a period of 17 years is unsustainable in law - Considering that the maximum period for reopening an assessment under the CST Act is seven years, and that too in the case of proven fraud, and considering that in this case there is nothing on record to show that the Petitioner indulged in a fraud, the period for which the penalty can be permitted to be imposed cannot exceed three years prior the date of the order imposing penalty. A direction is issued to the Opposite Parties to rework the penalty amount on pro rata basis by restricting the period to three years prior to the date of the impugned order of penalty i.e. from 1st July 1989 to 30th June, 1992 - Petition disposed off.

Summary

Issues:
Challenge to Sales Tax Officer's penalty order under Section 10-A of CST Act for a 17-year period and subsequent reduction by the Revisional authority.

Analysis:
The petitioner challenged the Sales Tax Officer's penalty order of ?39,28,526 imposed under Section 10-A of the CST Act for the period 22nd October, 1975 to 30th June, 1992, spanning 17 years. Additionally, the challenge extended to a subsequent order by the Revisional authority dated 20th February, 1995, reducing the penalty amount to ?14,38,093. The primary contention was that the period of 17 years for imposing the penalty was excessive and against the law.

The petitioner argued that while there is no specific limitation period under Section 10-A of the CST Act for penalty imposition, it should be interpreted reasonably. Citing Supreme Court decisions, the petitioner emphasized that penalties should not be levied for periods longer than the maximum reopening period of assessments under the CST Act, which is typically five years. In contrast, the Department justified the penalty order, highlighting statutory violations and recent amendments allowing assessments up to seven years post the original assessment period in cases of proven fraud.

The High Court noted that while Section 10-A does not specify a limitation period for penalty imposition, exercising such power should be within a reasonable timeframe. The Court found a 17-year penalty period unreasonable and arbitrary, aligning with the legislative intent. Referring to Supreme Court precedents, the Court emphasized the need for reasonable exercise of power without arbitrary delays, even in the absence of explicit limitation periods in statutes.

Based on the legal principles outlined in previous judgments, the Court directed the Opposite Parties to recalculate the penalty amount proportionately, limiting the period to three years before the penalty order date. Consequently, the penalty period was restricted from 1st July 1989 to 30th June 1992, modifying the orders of both the Sales Tax Officer and the Revisional authority accordingly. Ultimately, the writ petition was disposed of in line with the revised penalty calculation.