2024 (9) TMI 1 - HC - VAT and Sales Tax

Justification of upholding the penalty imposed u/s 51 (7)(b) for the goods being imported to Chandigarh from Himachal Pradesh on the ground of undervaluation merely on the basis of provisions for levy of excise duty on MRP basis under Central Excise Act - justification in upholding the penalty levied on road side checking under Section 51 (7)(b) even though the determination of actual valuation of goods is within the domain of the assessing authority. Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in upholding the penalty imposed under Section 51 (7)(b) for the goods being imported to Chandigarh from Himachal Pradesh on the ground of undervaluation merely on the basis of provisions for levy of excise duty on MRP basis under Central Excise Act? - HELD THAT - It is found that the invoices have been issued by the manufacturer, who is placed in Himachal Pradesh where the excise duty is exempted. In the circumstances, the valuation of goods i.e. purchase price for any person would be comparatively much lower than that of other places where excise duty is payable. It is also not a case of the State authorities that the invoices were different for the appellant in comparison to other distributors. Once there is no finding in this regard, a presumption cannot be drawn that the invoices were under valued merely because MRP rate mentioned on the product was on a much higher side. So far as the dealer is concerned, namely the appellants, they would further sell the goods to various distributors. If the sale price is comparatively low, the case of tax evasion would arise - to presume that there is an evasion of tax at the level of the person who is a dealer going to further sell the goods to a distributor, is a farfetched presumption. The action of the respondents imposing penalty on such a presumption would be an exercise of arbitrary power - the question is answered in favour of the appellants. Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in upholding the penalty levied on road side checking under Section 51 (7)(b) even though the determination of actual valuation of goods is within the domain of the assessing authority? - HELD THAT - The Division Bench of this Court in Xcell Automation 2006 (11) TMI 582 - PUNJAB AND HARYANA HIGH COURT , has also answered the aforesaid question in favour of the assessee. The invocation of jurisdiction on allegations of attempt of tax evasion is without sufficient reasons and the order is totally laconic - the relates to the penalty imposed by invoking Section 51 (7) (a) and (b) of the Act of 2005. However, such power of imposing penalty was not required to be invoked at the stage of road side checking and the power can only be exercised by the assessing authority who shall reach to the conclusion that there has been an attempt to evade tax after actual valuation of the goods. The questions answered in favour of the assessee.

Summary

Issues Involved:
1. Justification of penalty under Section 51 (7)(b) for undervaluation based on the Central Excise Act.
2. Justification of penalty imposition during roadside checking under Section 51 (7)(b) despite valuation being within the assessing authority's domain.

Issue-Wise Detailed Analysis:

1. Justification of Penalty under Section 51 (7)(b) for Undervaluation Based on Central Excise Act:

The court examined whether the Tribunal was justified in upholding the penalty imposed under Section 51 (7)(b) for goods imported to Chandigarh from Himachal Pradesh on the grounds of undervaluation, based on provisions for excise duty levy on MRP under the Central Excise Act. The relevant statutory provision, Section 51 (7)(a)(b) of the Punjab VAT Act 2005, was quoted to understand the legislative framework. Similar provisions under Section 14-B (6) and (7) of the Punjab General Sales Tax Act, 1948 were also considered, referencing the case of Mool Chand Chuni Lal vs Manmohan Singh and another. The court noted that the current provision for penalty is based on an attempt to evade tax, which must be substantiated by the designated officer's findings.

The court reviewed past judgments, including Xcell Automation vs Government of Punjab, which outlined the valid exercise of power at check-posts and the necessity of a reasonable nexus with tax evasion attempts. The appellant, engaged in purchasing and distributing medicines, was penalized based on the discrepancy between the MRP and invoice prices. The court found that the penalty was imposed without sufficient grounds, as the price mentioned in the invoices was the purchase price fixed by the manufacturer, and there was no concealment or mens rea to evade tax. The court cited the Supreme Court's judgment in Rajasthan Chemists Association, which emphasized that tax should be based on actual sales, not anticipated future sales.

The court concluded that the presumption of undervaluation based on MRP was unfounded, as the appellant's purchase price was lower due to excise duty exemptions in Himachal Pradesh. The imposition of penalty based on such presumptions was deemed an arbitrary exercise of power. Thus, the question was answered in favor of the appellants, quashing the penalty.

2. Justification of Penalty Imposition During Roadside Checking Under Section 51 (7)(b):

The court considered whether the Tribunal was justified in upholding the penalty imposed during roadside checking under Section 51 (7)(b), even though the actual valuation of goods is within the assessing authority's domain. The court referenced the judgment in Sant Lal, which held that the imposition of penalty should be based on the actual valuation of goods by the assessing authority, not during roadside checks. The Division Bench in Xcell Automation also supported this view, stating that the power to impose penalties should not be invoked at the roadside checking stage but by the assessing authority after determining the actual valuation.

The court found that the Assistant Commissioner of Excise & Taxation's action of calculating the value of goods based on MRP discounts was not justified. The penalty imposition was premature and lacked sufficient reasons, as the valuation should be done by the assessing authority. Thus, the question was answered in favor of the appellants, invalidating the penalty imposed during roadside checking.

Conclusion:

The court concluded that both questions were resolved in favor of the appellants. The impugned orders dated 16.12.2013 in both appeals were quashed and set aside, allowing the appeals. All pending applications were disposed of, with no costs awarded.