2019 (3) TMI 708 - HC - VAT and Sales Tax

Imposition of penalty - whether there could be a penalty imposed under Section 45A of the Kerala General Sales Tax Act, 1963, for reason of not responding to the summons issued by the Department? - Held that - The proposal for penalty was not for reason of non-registration of the hospital as is the defect under clause (a) of Section 45A. The failure to comply with the terms of notices or summons issued to a dealer could be a cause for imposition of penalty only in the context of a person who is covered under the enactment; which the respondent claimed it was not liable. The Assessing Officer did not pass any order holding the respondent to be so liable. Hence, there could also be no violation found of Section 45A(e). The said reasoning applies to clause (g) also. For finding of contravention of the provisions of the Act or the Rules made thereunder, first it has to be decided as to whether hospitals are to be registered under the sales tax enactment or not. Issuance of summons to a dealer, who has not registered, for production of books of accounts and a failure to respond to the same, cannot lead to a penalty proceedings under Section 45A. If notice or summons has not been responded to, then, the Assessing Officer could decide the issue of registration as also failure to comply with the provisions of the Act in a proceeding in which best judgment assessment could also be made for estimation of the tax liability of a dealer, who is not so registered under the Act but is liable for registration. The question of law answered in favor of the assessee and against the Revenue.

Summary

Issues:
Sustainability of penalty under Section 45A of the Kerala General Sales Tax Act, 1963 for non-response to departmental summons.

Analysis:

1. Penalty Imposed on Assessee-Respondent:
The judgment addresses the sustainability of the penalty imposed on the assessee-respondent for not responding to the summons issued by the Department. The case delves into whether hospitals, while administering medicines and using consumables in patient treatment, are involved in the sale of goods subject to sales tax. It also explores if hospitals are exempt from sales tax due to the integral nature of medical services provided. The Full Bench ruled in favor of hospitals, stating that the supply of drugs and consumables as part of medical treatment is not separable from medical services and thus not subject to sales tax liability.

2. Requirement of Hospital Registration:
The judgment also discusses the necessity of hospitals to be registered under sales tax laws following the Full Bench's declaration. The issue of hospital registration was previously in a state of uncertainty, leading to instances of improper registrations. The Division Bench recently affirmed the requirement for hospitals to be registered under sales tax laws, emphasizing the evolving nature of this issue.

3. Non-Compliance with Summons and Penalty Imposition:
The Department issued a summons to the assessee for the production of books of accounts, which the assessee did not comply with, arguing non-liability for sales tax and registration under the Act. The penalty was imposed solely for failure to respond to the summons, not for non-registration or tax evasion. The imposition of the penalty under Section 45A was challenged, with the Senior Government Pleader citing statutory responsibilities of the assessee under the Act.

4. Mens Rea Requirement for Penalty:
The respondent's counsel argued for a deliberate intention to defy the law for penalty imposition, referring to previous court decisions emphasizing the need for a reasonable exercise of discretion by the assessing officer. The court analyzed the clauses of Section 45A and concluded that mens rea is not a prerequisite for penalty imposition in cases involving civil obligations like failure to file returns.

5. Unsustainability of Penalty Imposition:
The court found the penalty imposition unsustainable as the issue of hospital registration and tax liability for drugs was debatable and pending in various courts. The penalty under Section 45A was deemed inappropriate due to the lack of a violation related to non-registration or contravention of the Act. The court emphasized that penalty proceedings should not be initiated solely based on non-response to a summons in cases where registration status is disputed.

In conclusion, the judgment favored the assessee, ruling against the imposition of penalty under Section 45A for non-response to the departmental summons, highlighting the importance of clarity in statutory obligations and the need for a reasonable exercise of discretion in penalty imposition.