2023 (2) TMI 890 - HC - VAT and Sales Tax

Levy of penalty on applicant (Government Institution) under Section 8(D)(6) of the U.P. Trade Tax Act, 1948 - as per assessee, the authorities without recording any finding had imposed maximum amount of penalty on the revisionist who is not a dealer and is an educational institution - HELD THAT - It is admitted to both the parties that the revisionist is an educational institution imparting education to the students. The university needs building not only for the students, but also for the teachers and other educational activities to be carried out within its campus. The budgets for carrying out such construction are provided by the State Government. The Act of 2008 is a fiscal act, intended to raise revenue for the State Government. The very purpose is met out, once the dealer to whom the payment has been made by the educational institution is subjected to assessment proceedings and tax liability is created and realized. Initiation of penalty proceedings under Section 8(D)(6) against a Government Institution has not helped the revenue, but such exercise has led to financial loss to the Government by unnecessary expenditure on litigation which, at any cost, should be avoided. Once, U.P. Rajkiya Nirman Nigam was assessed to tax and an assessment order was passed on 31.03.2010 and a tax liability was created towards the payment received by it from the university, the penalty proceedings initiated by the Taxing Authorities looses its sheen - Further, the revisionist had sufficiently explained in the reply furnished before the assessing authority that they were not well aware of the provisions of law which required for deduction under Section 8(D)(6). The reasons so furnished appear to be plausible, and in the absence of any malafide intention, penalty is not leviable. Revision allowed.

Summary

Issues:
1. Levy of penalty under Section 8(D)(6) of the U.P. Trade Tax Act, 1948.
2. Justification of penalty on the educational institution.
3. Interpretation of Section 8(D)(6) in relation to tax deduction from payments to contractors.
4. Consideration of educational institution's status as a non-dealer in penalty imposition.

Analysis:
The judgment by the Hon'ble Rohit Ranjan Agarwal, J. of the Allahabad High Court pertains to a revision filed under Section 58 of the U.P. Value Added Tax Act, 2008 challenging an order by the Commercial Tax Tribunal. The revisionist, an educational institution, was subjected to a penalty of Rs.34,86,000 under Section 8(D)(6) of the U.P. Trade Tax Act, 1948. The primary issue revolved around the justification of this penalty, considering the educational institution's non-dealer status and its function of imparting education rather than engaging in business activities.

The revisionist contended that the penalty imposition was discretionary and should not be mechanistically applied. It was argued that the penalty was imposed without proper findings and that the university officials were unaware of the tax deduction requirements under Section 8(D)(6). The revisionist highlighted precedents to support their case, emphasizing the need for a proportionate and justified penalty imposition.

On the other hand, the Standing Counsel defended the penalty, stating that the deduction and deposit of 4% to the Taxing Authorities were mandatory. The Counsel argued that the penalty was rightly imposed due to the revisionist's failure to comply with the tax deduction provisions, leading to the penalty proceedings.

The Court analyzed the interconnected questions of law and emphasized the educational institution's role in providing essential infrastructure for educational purposes. It noted that the Act of 2008 aimed at revenue generation for the government and that the penalty proceedings against a government institution did not serve the revenue's purpose but resulted in unnecessary financial losses due to litigation expenses.

Ultimately, the Court ruled in favor of the revisionist, allowing the revision and setting aside the penalty imposition under Section 8(D)(6). The judgment underscored that once the contractor was assessed for tax liability, the penalty proceedings lost significance, especially considering the lack of awareness on the institution's part regarding tax deduction requirements. The Court's decision aimed to prevent financial losses to the government and avoid unnecessary litigation, thus favoring the educational institution in this case.