2023 (12) TMI 607 - HC - VAT and Sales Tax

Levy of penalty u/s 86 of the Delhi Value Added Tax Act, 2004 - case of appellant is that the Tribunal has not only misconstrued the earlier orders of remit as framed by this Court, it has also proceeded in complete ignorance of the ambit of the penalty provision - principles of natural justice - HELD THAT - A reading of the order dated 26 September 2016 clearly establishes that the Court had not only accepted the contention of the appellant that the levy of penalty was unjustified since the question of taxability itself was contentious, but also that imposition of penalty at 200% was unjustified and disproportionate. It was in the aforesaid backdrop that it was pertinently observed that since the point had remained arguable, the levy of penalty at 200% would not sustain. It was on an overall conspectus of the aforesaid conclusions that the Court ultimately proceeded to remit the mater for the consideration of the Tribunal - It is opined that the order of 26 September 2016 cannot possibly be interpreted or understood as confining the challenge of the appellant to the issue of proportionality alone. There are other sub-sections of Section 86 which embody the principles of a statutory penalty. For instance, sub-section (5) deals with the contingency of an assessee failing to comply with Section 21(1). The aforesaid provision obliges a registered dealer to apprise the Commissioner of circumstances which may warrant amendments in its registration. A similar example of a statutory penalty stands embodied in sub-section (6) and which authorises the levy of a penalty in case a dealer violates Section 22(2). An assessee becomes liable to be penalized under Section 86(9) consequent to a failure to furnish a return or failing to append requisite documents with a return or its refusal to comply with a direction to revise a return. As would be manifest from a close scrutiny of sub-sections (5), (6) and (9) of Section 86, those provisions envisage the levy of penalties consequent to a failure on the part of a registered dealer to discharge certain obligations or a failure on the part of an assessee to comply with statutory duties as imposed. In such situations, the Act envisages penalty to be imposed as a necessary corollary. The aforenoted provisions do not vest the Assessing Officer with any discretion in the matter of imposition of a penalty. Sections 86(10), (14) (15) of the Act cannot by any stretch of imagination be construed or viewed as provisions pari materia to Sections 45(6) and 47(4A) of the 1969 Act, which formed the bedrock for the ultimate decision rendered by the Supreme Court in STATE OF GUJARAT AND ANR. VERSUS M/S SAW PIPES LTD. (KNOWN AS JINDAL SAW LTD.) 2023 (4) TMI 761 - SUPREME COURT - the conclusion of the Tribunal cannot be sustained to the contrary and when it proceeded to observe and interpret Sections 86(10), (14) (15) of the Act as provisions embodying the principles of statutory penalty. Turning then to the merits of the imposition of penalty itself, it is found that the same is not based on any false, misleading or deceptive statement or disclosure made by the appellants. The appellants had while furnishing their returns proceeded on the bona fide belief that revenues generated from the sale of reprocessed vehicles would not be exigible to tax under the Act. In fact, the invocation of the Proviso placed in Section 34(1) lends further credence to our conclusion that the order of the Court dated 26 September 2016 cannot possibly be interpreted as restricting the scope of inquiry to the question of proportionality alone. Accepting such a contention as advanced by the respondents would compel to construe the aforesaid decision as intending to empower the respondents to levy a penalty even though the same may not find sanction under the provisions of the Act. This too leads to the irresistible conclusion that the order of 26 September 2016 did not detract from the right of the appellant to question the very basis for invocation of the penalty provisions. The question of law as framed is answered in favour of the appellant/assessee and against the Department - appeal allowed.

Summary

Issues Involved:
1. Misinterpretation of Section 86 of the Delhi Value Added Tax Act, 2004.
2. Justification for the imposition of penalty.
3. Proportionality of the penalty imposed.
4. Applicability of mens rea in the imposition of penalties.
5. Extended period of limitation under Section 34(1) of the Act.

Summary:

1. Misinterpretation of Section 86 of the Delhi Value Added Tax Act, 2004:
The appellant contended that the Tribunal misinterpreted Section 86 of the Act, mandating the imposition of a penalty without considering whether sub-sections (10), (14), and (15) were applicable in this case. The Tribunal failed to recognize that penalties under these provisions require a "false, misleading, or deceptive" return, which was not the case here.

2. Justification for the Imposition of Penalty:
The dispute arose from assessment orders for FY 2005-06 and FY 2008-09 regarding the sale of repossessed vehicles. The Assessing Authority issued notices of demand, which were upheld by the Objection Hearing Authority (OHA) and the Tribunal. The Division Bench of the High Court, in a previous order, acknowledged that the issue of taxability was debatable and held that the imposition of a 200% penalty was disproportionate.

3. Proportionality of the Penalty Imposed:
The Tribunal, following the High Court's remand, reduced the penalty but upheld its imposition. However, the High Court found that the Tribunal misunderstood its earlier orders, which did not limit the scope to proportionality alone but questioned the justification of the penalty itself, given the contentious nature of the taxability issue.

4. Applicability of Mens Rea in the Imposition of Penalties:
The High Court emphasized that penalties under Section 86(10), (14), and (15) require mens rea, i.e., a "false, misleading, or deceptive" conduct, which was not evident in this case. The appellant's belief that revenues from the sale of repossessed vehicles were not taxable was bona fide and not "false, misleading, or deceptive."

5. Extended Period of Limitation under Section 34(1) of the Act:
The respondents invoked the extended period of limitation under the Proviso to Section 34(1), which applies in cases of "concealment, omission, or failure to disclose material particulars." The High Court found that the appellant's actions did not meet these criteria, further rendering the penalty unsustainable.

Conclusion:
The High Court allowed the appeal, set aside the impugned orders levying penalties for FY 2005-06 and 2008-09, and ruled in favor of the appellant/assessee. The Court held that the penalties were unjustified, given the debatable nature of the taxability issue and the absence of "false, misleading, or deceptive" conduct by the appellant.