2016 (9) TMI 562 - HC - VAT and Sales Tax

Classification - Split Air Conditioner - taxable at 4% or 20%? - works contract - eligibility for composition scheme - Reduction of penalty - Held that - the revision petitioner is entitled to invoke Section 7-C of the Act, which starts with a notwithstanding clause and gives option to the assessee that instead of paying tax, in accordance with Section 3-B, he may pay, either on the total value of each works contract or on the total value of all works contract, executed by him, in a year, tax calculated at the rates specified. Payment of 4% tax on the turnover of composite works contract, under Section 7C of the Tamil Nadu General Sales Tax Act, has been admitted - Levy of penalty would not be justifiable, if at the time of assessment, turnover has been recorded as per the books of accounts, verified by the department and in such circumstances, suppression cannot be attributed. Transaction giving rise to taxable turnover, has been categorically declared by the assessee as composite works contract and at the concessional rate of 4%, tax has been paid. In such circumstances, it cannot be contended that it is a deliberate and wilful non-disclosure of turnover, in the return and thus, rightly proceeded, under Section 12(3)(b) f the Act, which deals with Submission of incorrect or incomplete return - penalty not imposed - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of the transaction as a works contract or sale.
2. Applicability of Section 12(3)(b) of the Tamil Nadu General Sales Tax Act for penalty.
3. Interpretation of the Explanation clauses to Section 12(3)(b) of the Act.
4. Legality of the penalty imposed under Section 12(3)(b).

Detailed Analysis:

1. Classification of the Transaction:
The core issue was whether the transaction involving Tvl.Shyam Air Fridge should be classified as a works contract or a sale. The Deputy Commissioner initially treated the contract receipt of ?3,74,000/- as the sale of Split Air Conditioner and subjected it to a 20% tax instead of 4%. The petitioner contended that this transaction was a works contract and should be taxed under Section 7-C of the TNGST Act at a concessional rate of 4%. The Appellate Assistant Commissioner accepted the petitioner's contention and assessed the transaction as a works contract, refixing the taxable turnover and penalty.

2. Applicability of Section 12(3)(b) for Penalty:
The petitioner disputed the penalty imposed under Section 12(3)(b) of the TNGST Act, arguing that the penalty was unwarranted as per the Explanation added to Section 12(3)(b). The Appellate Tribunal dismissed the appeal, stating that the Explanation to Section 12(3)(b) did not apply since the transaction was not linked to the filing of any declarations. The Tribunal upheld the penalty, asserting that the assessment year involved was subsequent to the amendment made in Section 12(3)(b) by Act 22/2002.

3. Interpretation of Explanation Clauses to Section 12(3)(b):
The petitioner argued that explanations (i) and (ii) to Section 12(3)(b) should apply as there was no suppression of turnover, and the turnover was reported as contract receipts in the monthly A-1 return. The Tribunal, however, considered only Clause (iii) of the Explanation, which pertains to turnovers where tax is paid at a concessional rate subject to furnishing declarations. The Tribunal's reliance on Clause (iii) was contested by the petitioner, who maintained that Clauses (i) and (ii) were applicable since there was no concealment of turnover.

4. Legality of the Penalty Imposed:
The High Court examined whether the penalty under Section 12(3)(b) was justifiable when there was no suppression of turnover. It was noted that the appellate authority had accepted the transaction as a works contract and that the turnover was derived from the books of accounts. The Court highlighted that penalty under Section 12(3)(b) should not be automatic and must consider the bona fides of the assessee. The Court referred to the decision in Indira Industries v. State of Tamil Nadu, which emphasized that penalty should not be levied when the turnover is drawn from the books of accounts and there is no specific concealment.

Conclusion:
The High Court concluded that the Tribunal erred in applying only Clause (iii) of the Explanation to Section 12(3)(b) and failed to consider Clauses (i) and (ii), which were applicable to the case. The Court held that the Tribunal's decision to sustain the penalty was incorrect, given the absence of suppression and the bona fide reporting of turnover as a works contract. Consequently, the substantial question of law was answered in favor of the assessee, and the Tax Case Revision Petition was allowed, setting aside the penalty imposed.

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