2024 (1) TMI 511 - HC - VAT and Sales Tax

Levy of penalty - reversal of ITC as per return was not taken into consideration more particularly, relating to purchase return and there is no binding of any wrong availment of ITC are producing false bill - violation of principles of natural justice - Requirement of SCN that the petitioner is liable under the Sections 27(1) and 27(2) of the Act - HELD THAT - When the show cause notice is not issued by invoking Section 27 and 27(4) of the Act then levying penalty under those sections is violating the principles of natural justice. As rightly pointed out by the Learned Senior counsel appearing for the petitioner, even if the respondent is intended to impose the penalty under Section 27(4), then a show cause notice ought to be issued to impose under Section 27(4) simply, because show cause notice was issued under Section 22(2) the respondent cannot impose 300% penalty, retrospectively, by invoking Section 27(2) of the Act. Moreover, there must be a finding that wrong availment of ITC are produced false bills etc. The absence of such finding, the respondent lapsed jurisdiction for which the Judgment relied earlier i.e.(earlier Judgment) is applicable. In the present case also the respondent have not rendered the such finding. In such circumstances, invoking section 27(4) read with 27(2) penalty cannot be imposed. Moreover, penalty cannot be imposed automatically. Some criminalities ought to be in existence to impose penalty and the framing of proof required for imposition of penalty is different from and much higher than i.e., required for the purpose of framing the best Judgment demand assessment. Therefore, the impugned orders cannot be sustained. Hence the impugned orders are quashed. Petition allowed.

Summary

Issues Involved:
1. Jurisdiction and validity of imposing penalty under Section 27(4) of the Tamil Nadu Value Added Tax Act, 2006.
2. Consideration of reversal of Input Tax Credit (ITC) and related errors.
3. Requirement of show cause notice and adherence to principles of natural justice.

Summary:

1. Jurisdiction and Validity of Penalty under Section 27(4):
The petitioner contended that the imposition of a 300% penalty under Section 27(4) of the Tamil Nadu Value Added Tax Act, 2006 for the assessment year 2012-2013 was without jurisdiction. The amendment to Section 27(4) came into effect on 27.01.2016, and thus, could not be applied retrospectively. The court agreed, stating, "The respondent cannot impose the same for the assessment year 2012-2013, since the amendment is subsequent to the assessment order." The court emphasized that penalties cannot be imposed automatically and require a higher degree of proof, including findings of willful non-disclosure or wrong availment of ITC.

2. Consideration of Reversal of ITC and Related Errors:
The petitioner argued that the reversal of ITC relating to purchase returns was not properly considered, and there were errors apparent on the face of the record, including arithmetical errors. The respondent confirmed the earlier order without appreciating the written submission or providing reasons. The court found that the respondent failed to verify the quantum of ITC reversal and stated, "No other verification was done with regard to quantum of reversal of ITC." The court quashed the impugned orders due to the lack of proper consideration and verification.

3. Requirement of Show Cause Notice and Adherence to Principles of Natural Justice:
The petitioner argued that there was no show cause notice issued under Section 27(4) of the Act, violating principles of natural justice. The court highlighted that a show cause notice is essential before imposing penalties, referencing a previous judgment, "The relevant portions are extracted hereunder... the imposition of penalty under Section 27(3) is automatic, is erroneous in law." The court concluded that the absence of a show cause notice and findings of willful suppression invalidated the penalty imposition.

Conclusion:
The court allowed the writ petitions, quashing the impugned orders dated 31.05.2023, 07.07.2022, and 04.01.2023, emphasizing the need for proper jurisdiction, verification, and adherence to natural justice principles. The court stated, "These Writ Petitions are allowed. The impugned order, dated 31.05.2023 as modified on 07.07.2022 and 04.01.2023 are hereby quashed. No costs. Consequently, connected miscellaneous petitions are closed."