2017 (6) TMI 563 - HC - VAT and Sales Tax

Penalty u/s 34(7) of the VAT Act as well as u/s 34(12) of the VAT Act - The dispute pertains to the period between 10.08.2006 to 31.03.2007 during which the assessee did not pay the Value Added Tax at the relevant time - Held that - Sub-section 7 of Section 34 of the Act provides for a penalty in a case where the dealer in order to evade or avoid payment of tax commits certain defaults such as fails to furnish returns or furnishes incomplete or incorrect returns or avails of tax credit which he is not eligible to. Thus, the element of mens rea is of importance - Sub-section 12 of Section 34 though provides for penalty where the tax liability ultimately assessed exceeds a certain percentage of the tax paid by the assessee, it still gives discretion to the authority to impose penalty not exceeding one and one-half times the difference between the tax paid and the tax assessed. The legislature having set out an upper limit for imposition of tax without providing for any minimum mandatory tax, has left a wide discretion on the competent authority which discretion must be exercised taking into account relevant factors. The authority committed an error in imposing penalty on the assessee under sub-sections 7 and 12 of Section 34 and the Tribunal committed an error in confirming part of such penalty - appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to the judgment of the Value Added Tax Tribunal regarding the imposition of penalties under sections 34(7) and 34(12) of the VAT Act, questioning the correctness of penalty imposition without mala fide intent and the validity of the penalty amount.

Analysis:

Issue 1: Simultaneous penalties under sections 34(7) and 34(12) of the VAT Act
The appeal challenged the Tribunal's decision to impose penalties under both sections 34(7) and 34(12) of the VAT Act. The appellant argued against the imposition of penalties without mala fide intent. The Tribunal reduced the penalty amount to 20% of the tax involved, acknowledging mitigating circumstances. The advocate for the appellant did not press question no. 1, which was disposed of without an answer. The Tribunal's judgment was challenged in the present tax appeal.

Issue 2: Lack of mala fide intent and penalty imposition
The appellant contended that there was no mala fide intention to avoid tax, citing various circumstances, including seeking clarification on tax liability from the Commissioner of Sales Tax. The Tribunal, while not accepting the absence of intent to avoid tax, reduced the penalty considering mitigating factors. The appellant's argument highlighted the confusion due to recent amendments and the lack of clarity on tax liability, emphasizing a bona fide error in not paying the tax.

Issue 3: Interpretation of statutory provisions and discretion in penalty imposition
The High Court analyzed the statutory provisions introduced under the VAT Act, noting the amendments and their implications on tax liability for dealers. The Court emphasized the importance of mens rea in penalty imposition under sub-section 7 of Section 34, requiring evidence of intent to evade tax. The discretion granted under sub-section 12 of Section 34 was discussed, emphasizing the need for relevant factors to be considered in penalty imposition. The Court concluded that the Tribunal erred in maintaining any part of the penalty, overturning the decision and setting aside the Tribunal's order.

In conclusion, the High Court reversed the Tribunal's decision, finding errors in the imposition of penalties under sections 34(7) and 34(12) of the VAT Act. The Court emphasized the significance of mens rea in penalty imposition and the need for discretion to be exercised based on relevant factors. The appeal was allowed, and the Tribunal's order was set aside.