2018 (12) TMI 100 - HC - VAT and Sales Tax

Penalty u/s 34(8) of the U.P. Vat Act, 2008 - assessee had, of its own and prior to issuance of any notice, cleared the default in payment of T.D.S. amount together with interest - Held that - Though the language of section 34(8) of the Act does not admit any element of concealment as an ingredient for the penalty imposable under that provision of law, at the same time it clearly does not appear to suggest that in every case of default, in either making a deduction or in timely depositing the T.D.S. amount, the defaulting assessee must, as a matter of principle, be penalised - The word 'shall' used to provide for the effect or consequence of the penalty order cannot be read out of context to imply that the assessing officer must necessarily, in all cases of default, irrespective of all other attending facts and circumstances obliged to impose penalty. To accept such an interpretation, besides doing violence to the plain language of the sub-section would otherwise discourage a bona fide assessee from rectifying his own default, especially in cases where the revenue may not be even aware of the default or its cure on self-act of the assessee as in the instant case. On the question of interpretation, the imposition of penalty under section 34(8) of the Act as also quantification of the penalty amount (where that penalty may be found imposable), is found to be directory and not mandatory. Only the enforcement of the penalty order is found to be mandatory. In the present case, undisputedly the assessee rectified the default committed by it (during A.Y. 2010-11) together with interest before the end of the calendar year 2011 i.e. during A.Y. 2011-12. The revenue on the other hand did not realize the existence of that default or its rectification made by the assessee, till as late as 09.09.2014. This undisputed fact mitigates against the levy of penalty as the assessee was not caught having committed the default and it had made good the loss to the revenue before issuance of any notice of demand with respect to the defaulted amount etc. - There survived no further legal justification to penalize such an assessee. Revision allowed - decided in favor of the assessee and against the revenue.

Summary

Issues Involved:
1. Whether penalty under Section 34(8) of the U.P. VAT Act, 2008 is mandatory.
2. Whether justification to impose penalty survives when the assessee had cleared the default in payment of T.D.S. amount together with interest, prior to issuance of any notice.

Issue-wise Detailed Analysis:

1. Whether penalty under Section 34(8) of the U.P. VAT Act, 2008 is mandatory:

Upon examining Section 34(8) of the Act, the court noted that the language used in the section does not suggest that the penalty is mandatory. The section states that the assessing authority "may" impose a penalty, indicating discretion rather than obligation. The court emphasized the difference between the words "may" and "shall" used in the statute, explaining that "may" confers discretion while "shall" imposes an obligation. The court referenced the Supreme Court's interpretation in Pradip Kumar Maity v. Chinmoy Kumar Bhunia, which supports the view that "may" is discretionary. The court concluded that if the legislature intended to make the penalty mandatory, it would have used "shall" in the relevant part of the section.

2. Whether justification to impose penalty survives when the assessee had cleared the default in payment of T.D.S. amount together with interest, prior to issuance of any notice:

The court examined the facts of the case where the assessee had deposited the defaulted T.D.S. amount along with interest before any notice was issued by the revenue. The court noted that the revenue did not realize the default or its rectification until much later. The court held that penalizing the assessee in such circumstances would be unjustified, as the default had been rectified voluntarily, minimizing any loss to the revenue. The court referenced previous judgments where penalties were deleted in similar circumstances, reinforcing the view that penalties should not be imposed when the default is rectified before detection by the revenue.

The court also discussed the case of C.C.T. Vs. Bareilly Highways Projects Limited, which held that the payment of interest along with the belated tax amount does not negate the imposition of penalty. However, the court distinguished this case by explaining that it did not consider the situation where the default was rectified before detection by the revenue and did not address the earlier consistent view of deleting penalties in such cases.

Conclusion:

The court concluded that the imposition of penalty under Section 34(8) of the Act is discretionary and not mandatory. The court found that penalizing the assessee, who had rectified the default voluntarily before any notice was issued, was not justified. The revision was allowed in favor of the assessee, and no costs were imposed.