2022 (11) TMI 789 - HC - VAT and Sales Tax

Levy of penalty u/s 23 of the Tamil Nadu General Sales Tax Act, 1959 - Process amounting to manufacture or not - activity undertaken by the petitioner on job work basis for dyeing fabrics - eligibility to procure furnace oil against Form XVII under Section 3(3) of the Tamil Nadu General Sales Tax Act, 1959 - HELD THAT - The penalty under Section 23 of the Act is attracted where if any person purchasing goods is guilty of an offence under Section 45(2)(e) of the Act. As per said Section 23, the authority can impose penalty for a maximum amount not exceeding one and a half times (150%) the tax payable on the turnover relating to the sale of such goods at a rate which is equal to the rate prescribed in the First Schedule less three percent - As per Section 45(2)(e) of the Act, if any person who after purchasing any goods in respect of which he has made a declaration under the second proviso to Sub-Section (3) or Sub-Section (5) of Section 3 fails without reasonable excuse to make use of the goods for the declared purpose, such person is a guilty of such offence and penalty may be imposed on him. On going through the Circulars of the Principal Commissioner and Commissioner of Commercial Taxes and the instructions therein are no doubt binding on the officers of the Department. However, they are not binding either on the Higher Jurisdiction Forum such as Tribunal, High Court or the Supreme Court in terms of the decision of the Hon'ble Supreme Court in COMMISSIONER OF CENTRAL EXCISE, BOLPUR VERSUS M/S RATAN MELTING WIRE INDUSTRIES 2008 (10) TMI 5 - SUPREME COURT . Section 23 of the Act is elastic in nature. Discretion of power is vested with the Authority to impose penalty which is a maximum penalty. Discretion vested with a quasi jurisdictional authority cannot be taken away by a Circular. Therefore, Circular / Clarification of the Principal Commissioner and Commissioner of Commercial Taxes which is contrary to the provisions of the Act is not binding on the Court - The activity undertaken by the petitioner would have amounted to manufacture within the meaning of Central Excise Act, 1944 with introduction of Section 3A of the Central Excise Act, 1944 with effect from 14.05.1997 which was later omitted by Finance Act, 2001. The dispute pertains to the Assessment Year 2000-2001. Though the order of the second respondent Appellate Assistant Commissioner has placed reliance on the Circular / Instruction of the Principal Commissioner and Commissioner of Commercial Taxes dated 27.02.2002 which was reversed by the Appellate Tribunal, considering the fact that the petitioner has also paid back the tax and concessional availed, the reduced penalty imposed by the second respondent Appellate Assistant Commissioner in the peculiar facts of the case is to be upheld and the impugned order of the Appellate Tribunal dated 05.10.2004 is quashed - Petition allowed.

Summary

Issues Involved:
1. Legitimacy of the penalty imposed under Section 23 of the Tamil Nadu General Sales Tax Act, 1959.
2. Misuse of Form XVII for procuring furnace oil and machinery at concessional tax rates.
3. Applicability and binding nature of the Circular dated 05.01.2001 issued by the Principal Commissioner and Commissioner of Commercial Taxes.

Detailed Analysis:

1. Legitimacy of the penalty imposed under Section 23 of the Tamil Nadu General Sales Tax Act, 1959:

The petitioner challenged the penalty imposed by the third respondent Deputy Commercial Tax Officer, which was later upheld by the Appellate Tribunal. The Tribunal restored the maximum penalty of Rs. 3,03,605/- initially imposed by the Assessing Authority, reversing the second respondent Appellate Assistant Commissioner's order that had reduced the penalty to 5% of the tax due based on a Circular dated 05.01.2001. The Tribunal concluded that the petitioner misused Form XVII declarations by availing concessional tax rates for purchases not used for manufacturing but for job work, thus justifying the maximum penalty under Section 23 of the Act.

2. Misuse of Form XVII for procuring furnace oil and machinery at concessional tax rates:

The third respondent determined that the petitioner, engaged in job work for dyeing fabrics, was not eligible to procure furnace oil and machinery at concessional rates using Form XVII. The petitioner had availed the concessional rate under Section 3(3) and Section 3(5) of the Tamil Nadu General Sales Tax Act, 1959, which are intended for manufacturers. The Assessing Authority concluded that the petitioner's activities did not amount to manufacturing for sale, thus constituting a misuse of Form XVII.

3. Applicability and binding nature of the Circular dated 05.01.2001 issued by the Principal Commissioner and Commissioner of Commercial Taxes:

The second respondent Appellate Assistant Commissioner reduced the penalty based on the Circular dated 05.01.2001, which directed assessing officers to levy a penalty of 1% if the misuse of Form XVII was voluntarily disclosed by the dealer, and 5% if detected by the department. The Tribunal, however, held that such Circulars are not binding on higher judicial forums like the Tribunal, High Court, or Supreme Court, referencing the Supreme Court decision in Commissioner of Central Excise, Bolpur Vs. Ratan Melting & Wire Industries, which stated that Circulars represent the understanding of the statutory provisions by the authorities and are not binding on the courts.

Judgment:

The High Court acknowledged that the petitioner admitted to wrongly availing the benefit of Form XVII and that the penalty under Section 23 was elastic, allowing discretion to the assessing authority. The Court noted that the petitioner might have had a bona fide belief that their activity amounted to manufacturing, given the historical context of the Central Excise Act, 1944, which had included dyeing as a taxable manufacturing process. Despite the Tribunal's stance, the High Court found merit in the second respondent's reliance on the Circular and the petitioner's voluntary disclosure and payment of the tax. Consequently, the High Court quashed the Tribunal's order and upheld the reduced penalty imposed by the second respondent Appellate Assistant Commissioner, allowing the Writ Petition.