2022 (11) TMI 739 - HC - VAT and Sales Tax

Validity of assessment order/best judgemnet assessment - alleged difference in sales turnover as per invoices - alleged difference in consideration on sales of old vehicles - penalty under Section 27(3) of the Tamilnadu Value Added Tax Act - HELD THAT - The mere fact that the assessment was made to the best of judgment of the authority would not be sufficient for the imposition of penalty, as the degree of proof required for imposition of penalty is quite different from, and much higher, than that required for the purpose of framing a best judgment assessment. It is an admitted position that none of the assessment orders or, for the matter, the show cause notices, reveal any application of mind to the aspect of wilful suppression. The officer merely proceeds on the fact that there was a difference in turnover between the books of accounts and the monthly returns and this, according to him, justifies the invocation of Section 27(3). An additional factor in this matter is that the petitioner has admittedly remitted the difference in tax along with interest even at the time of inspection. This aspect of the matter is not disputed by the learned Government Advocate. Bearing in mind the conspectus of facts and available precedents, the conclusion arrived at by the appellate authority, that the imposition of penalty under Section 27(3) is automatic, is erroneous in law. Petition allowed.

Summary

Issues:
Assessment based on inspection findings, non-disclosure of profit on old vehicle sales, validity of penalty under Section 27(3) of TNVAT Act, automatic imposition of penalty, judicial interpretations on penalty imposition.

Assessment based on Inspection Findings:
The petitioner, an authorized Chevrolet cars dealer, faced assessments for the years 2013-14, 2014-15, and 2015-16 following an inspection by Enforcement Wing officials highlighting discrepancies in monthly returns. The issues included differences in sales turnover as per invoices and consideration on sales of old vehicles where profit was not remitted.

Non-Disclosure of Profit on Old Vehicle Sales:
The Enforcement officials forwarded the defects to the assessing authority, who issued show cause notices prior to assessment, alleging escapement of tax due to wilful nondisclosure of assessable turnover by the dealer. However, the notices were found deficient as they did not establish wilful non-disclosure.

Validity of Penalty under Section 27(3) of TNVAT Act:
The assessing authority proceeded with assessments and proposed penalties under Section 27(3) based on enforcement officials' recommendations. The appellate authority upheld the penalty, claiming it was automatic. However, the court found that imposition of penalty cannot be automatic and must be justified based on careful scrutiny of all relevant circumstances.

Automatic Imposition of Penalty:
The court referred to past judgments, including a Full Bench decision, emphasizing that the mere fact of assessment to the best judgment of the authority is not sufficient for penalty imposition. The degree of proof required for penalty is higher than that for framing a best judgment assessment, and penalties cannot be imposed automatically.

Judicial Interpretations on Penalty Imposition:
The court considered various precedents, including decisions in Kathiresan Yarn Stores and Golden Homes cases, highlighting that penalties cannot be imposed without establishing wilful non-disclosure or suppression. Lack of specific findings on wilful suppression in assessment orders or show cause notices, coupled with the petitioner's remittance of the tax difference, led the court to set aside the appellate authority's decision on automatic penalty imposition.

In conclusion, the court allowed the writ petitions, setting aside the imposition of penalty under Section 27(3) of the TNVAT Act, emphasizing that penalties cannot be automatic and must be based on a careful consideration of all relevant circumstances.