2018 (2) TMI 449 - HC - VAT and Sales Tax

Penalty u/s 74(4) of KVAT Act - it was alleged that petitioner has not filed audited statement of accounts in Form 240 within 9 months after the end of the relevant year as required u/s 31(4) of the Act - Held that - the order or endorsement dated 08.11.2016 disclose notice has been issued for the production of the said document with in 7days but it is not mentioned whether an earlier show cause notice was been issued to the petitioner to produce the documents, failing which, to show cause as to as to why penalty should not be imposed upon the petitioner - this endorsement could be treated as a notice to the petitioner to explain why he should not be imposed with penalty and after hearing the parties, the competent authority can pass appropriate orders in this regard, only with regard to penalty. It is incumbent upon the authority, before levying any penalty, the petitioner should be heard in the matter. Petition allowed in part.

Summary

Issues:
1. Imposition of penalty without hearing the petitioner for not filing audited statement of accounts.
2. Interpretation of Sections 31, 33, and 34 of the Karnataka Value Added Tax Act, 2003 regarding the production of audited accounts.
3. Applicability of penalty under Section 74(4) of the Act.

Analysis:
1. The petitioner, a partnership firm engaged in wholesale trading of textiles exempted from VAT, challenged a notice issued by the second respondent for not filing audited accounts within the specified time. The petitioner argued that the penalty imposed without a hearing was unlawful, seeking the quashing of the order based on this ground.

2. The petitioner contended that the taxing authority can only demand audited documents concerning taxable turnover, not exempted goods. The counsel argued that Sections 31, 33, and 34 should be read together to support this claim, emphasizing that audited accounts are not mandatory for turnovers related to exempted goods.

3. The respondent argued that a prior notice had been issued, and the petitioner failed to respond, leading to the subsequent penalty notice. The respondent maintained that the penalty imposition was lawful under Section 74(4) of the Act, and the order was appealable under Section 62 of the Karnataka Value Added Tax Act, 2003.

4. Upon examining the Act's provisions, the court noted that exemptions existed for textiles and fabrics under Section 5 and the First Schedule. The court emphasized that penalties were imposed for non-production of documents as mandated by Sections 33 and 34, requiring turnover exceeding 100 lakhs to submit audited accounts.

5. The court addressed the substitution of "taxable turnover" with "total turnover" in Section 31(4) by Act No. 5 of 2009, emphasizing the obligation for dealers with turnovers exceeding 100 lakhs to submit audited accounts. The court rejected the petitioner's argument to interpret "taxable turnover" instead of "total turnover" in this context.

6. While acknowledging the absence of a hearing before imposing the penalty, the court deemed the endorsement as a notice for the petitioner to explain why the penalty should not be imposed. The court ruled that the endorsement was not a speaking order, making the writ petition maintainable.

7. Consequently, the court partly allowed the writ petition, treating the endorsement as a notice to the petitioner. The petitioner was given seven days to provide an explanation or objection, after which the Assistant Commissioner, Commercial Tax, would pass appropriate orders regarding the penalty, ensuring a fair hearing for both parties.