2014 (11) TMI 120 - HC - VAT and Sales Tax

Undervaluation under Orissa VAT - sale of good quality goods as scrap - Release of confiscated goods - levy of heavy penalty - Violation of Art 14 Of Constitution - STO after investigation noticed that the goods covered by way-bill were found to be incorrect - Goods are found to be auto parts (spring) leaf in sets ; but the way-bill in support of the consignment discloses the goods to be scrap spring pati - Held that - From the noting made in the show-cause notice and observations/findings of the STO, in his order dated August 27, 2011 (annexure 5) quoted above, it can be safely said that the driver of the vehicle submitted false/forged documents/way-bills covering the entire goods carried in the vehicle. It is certainly a case of fraud. STO has indicated valid reasons for holding that the goods in question loaded in the vehicle were new spring leaf sets and the value mentioned in the documents like way-bill and tax invoice has been understated and the actual value is much higher for the reasons stated in the impugned order. - STO has levied VAT at 13.5 per cent to the tune of ₹ 1,89,000 in the order passed under sub-section (5) of section 74 of the OVAT Act and opposite-party No. 2-revisional authority also confirmed such levy of VAT. Section 74(5) does not contemplate levy of VAT. It contemplates imposition of penalty only. However, sub-section (7) of section 74 provides that subject to the Rules as may be prescribed, the officer-in-charge of the check-post or barrier or the officer authorized under sub-section (3) may release the goods to the owner of the goods or to any person duly authorized by such owner on payment of penalty imposed under sub-section (5) in addition to tax payable thereon. A conjoint reading of sub-sections (5) and (7) of section 74 of the OVAT Act makes it dear that only on payment of the penalty imposed under subsection (5) in addition to the tax payable the prescribed authority may release the goods. It needs no emphasis that quantification of penalty depends on determination of tax. Unless, tax is determined first, no penalty can be quantified as contemplated in section 74(5). Any other interpretation shall render sub-section (5) of section 74 redundant - Decided against Assessee.

Summary

Issues Involved:
1. Justification of STO's action under section 74(5) of the OVAT Act.
2. Binding nature of the technical committee's opinion.
3. Legality of the revisional authority's order dated September 15, 2011.

Detailed Analysis:

1. Justification of STO's Action under Section 74(5) of the OVAT Act:

The STO inspected the goods and documents and issued a show-cause notice on August 24, 2011, indicating discrepancies between the declared goods (scrap spring pati) and the actual goods (spring leaf sets in good condition). The STO concluded that the driver submitted false documents, constituting fraud. The court emphasized that fraud vitiates everything, citing Supreme Court judgments, and upheld the STO's action under section 74(5) of the OVAT Act, which allows for penalties in cases of false or forged documents. The court rejected the petitioner's argument that the STO lacked jurisdiction and did not follow proper procedures, affirming that the STO did not make an assessment but imposed a penalty as per the OVAT Act.

2. Binding Nature of the Technical Committee's Opinion:

The technical committee, constituted pursuant to a court order, inspected the goods and found them to be new spring leaf sets, contrary to the petitioner's claim of scrap materials. The revisional authority, considering the technical committee's report, confirmed the STO's findings and penalties. The court held that the technical committee's findings are binding, as they were made by experts in the field. The court dismissed the petitioner's argument that mechanical testing was necessary, stating that experts can distinguish between new and scrap materials through visual inspection.

3. Legality of the Revisional Authority's Order Dated September 15, 2011:

The revisional authority confirmed the STO's imposition of penalties under the OVAT Act and quashed the penalties under the OET Act, directing fresh proceedings under the OET Act. The court upheld the revisional authority's decision, noting that section 74(5) of the OVAT Act allows for penalties but not for the direct levy of VAT. However, section 74(7) requires payment of both tax and penalty for the release of goods. The court concluded that the revisional authority correctly determined the tax and penalties, and the vehicle could only be released upon payment of the demanded dues.

Conclusion:

The writ petition was dismissed, affirming the STO's actions and the revisional authority's order. The court upheld the penalties imposed under the OVAT Act and directed compliance with the procedural requirements for tax and penalty payments before the release of the goods. No order as to costs was made.