2024 (5) TMI 1144 - HC - VAT and Sales Tax

Determination of penalty under section 69(1)(k) of the J K Value Added Tax Act, 2005 - issuance of 35 improper invoices on the same day constitutes a single default or not - justification of levy of penalty of 10 times of the tax payable on the invoices or Rs. 10,000/-, whichever is higher - HELD THAT - Tax invoice means a particular sale transaction made by the VAT dealer or a casual trader to a consumer. It is a tax invoice which generates default and if that default is proved then it invites penalty, against a defaulting person, equal to ten times of the tax payable on such default or Rs. 10,000/- whichever is higher. A questionable tax invoice, be it sham, false, forged or fake, has no relation with the day on which it is or was generated. If on any given day, a VAT dealer or a casual trader has generated any number of objectionable tax invoices each representing a respective sale transaction, then each invoice will constitute default as envisaged by clause (k) of sub-section 1 of section 69. When section 69 itself does not hint to any angle of time duration, SSTAT was in error in pressing the time duration into play and reckon that the default envisaged under clause (k) of sub-section 1 of section 69 was referable to the time duration and not to the tax invoice - The penalty envisaged under section 69 (1) (xi), relatable to the default identified in clause (k) of sub-section 1 of section 69 was meant to be a deterrent so that any VAT dealer or a casual trader would not venture and resort to acts of omission or commission which would have the effect of under assessment or evasion of the tax liability resting upon the said VAT dealer or a casual trader. Clause (xi) of sub-section 1 of section 69 itself decodes that a particular tax invoice may have a tax liability which multiplied by ten times may still fall short of a deterrent effect to a VAT duty evading trader and, therefore, even a penalty of ten times the tax payable may be on a lesser side and, therefore, the other option of penalizing a given defaulting VAT trader on a higher side has been provided for. Therefore, there was no reason to read that the default as envisaged under clause (k) of sub-section 1 of section 69 relatable to time duration of a given day and not to the tax invoice in itself. Thus, each tax invoice, if afflicted with the default as envisaged under clause (k) of sub-section 1 of section 69, is to bear the penalty in reference to it and not in reference to the accumulation of tax invoices and that it has nothing to do with the collection of tax invoices for a particular day. Each default vis- -vis each particular tax invoice is to earn the liability as envisaged under section 69 of sub-section 1 of clause (xi) of the VAT Act, 2005. The reference is returned.

Summary

Issues Involved:
1. Whether issuance of 35 improper invoices on the same day constitutes a single default.
2. Determination of penalty under section 69(1)(k) of the J&K Value Added Tax Act, 2005.

Summary:

Issue 1: Whether issuance of 35 improper invoices on the same day constitutes a single default.

The Jammu & Kashmir State Sales Tax (Appellate Tribunal) (SSTAT) referred the case to the High Court u/s 75(1) of the J&K Value Added Tax Act, 2005, questioning if 35 improper invoices issued on the same day constitute a single default. The SSTAT had initially set aside the penalty imposed by the Commercial Tax Officer and remanded the matter for determining the tax payable for each improper invoice before deciding the penalty. The SSTAT held that the 35 invoices should be treated as a single default since they were discovered on the same day.

The High Court disagreed with the SSTAT's interpretation, stating that each tax invoice represents an individual sale transaction and any default in issuing a proper invoice should be treated as an individual default. The Court emphasized that the VAT Act, 2005, and the relevant rules do not support the notion of clubbing multiple invoices into a single default based on the day of issuance. Therefore, each improper invoice constitutes a separate default.

Issue 2: Determination of penalty under section 69(1)(k) of the J&K Value Added Tax Act, 2005.

Section 69(1)(k) of the VAT Act mandates that failure to issue a proper tax invoice or issuing a false invoice attracts a penalty of ten times the tax payable on each default or Rs. 10,000, whichever is higher. The SSTAT had found the original penalty of Rs. 3,50,000/- imposed by the Commercial Tax Officer to be defective, as it was calculated based on Rs. 10,000 per improper invoice without determining the tax payable for each invoice.

The High Court clarified that the penalty should be assessed individually for each defaulting invoice, either ten times the tax payable or Rs. 10,000, whichever is higher. The Court highlighted that the penalty is intended to be a deterrent against tax evasion and should be applied to each individual invoice rather than aggregating them for a single day.

Conclusion:

The High Court concluded that each improper invoice constitutes a separate default and must bear the penalty individually as per section 69(1)(k) of the VAT Act, 2005. The reference was returned to the SSTAT with this clarification for further action.