2019 (10) TMI 37 - HC - VAT and Sales Tax

Levy of penalty - Local Body Tax imposed - goods imported into a local area for consumption, use and sale therein - petitioner is primarily engaged in providing information technology services to clients located in India and abroad - It is the case of the petitioner that it has fully satisfied this levy HELD THAT - Rule 36 of the Maharashtra Municipal Corporations (Local Body Tax), Rules, 2010, according to the petitioner, provides for an appeal under sub-section (6) of Section 406 of the then Bombay Provincial Municipal Corporation Act, 1949 and now the Maharashtra Municipal Corporations Act, 1949. The argument before us is that insofar as the tax is concerned, that is already paid. The appeal is a composite one. As far as the argument of Mr.Saraf that an appeal could have been filed only against the penalty although the demand of tax is admitted and undisputed, we do not find any such stipulation in sub-section (6) of Section 406. Therefore, the preliminary objection to the maintainability of this writ petition cannot be sustained. The petitioner replied on 4th July, 2014 that by demand drafts of ₹ 5,95,094/- and ₹ 4,89,972/- of 10th March, 2014, part payment of local body tax for the period of April 2013 to January 2014 is made. The local body tax is thus cleared and if there is any liability in relation thereto, remaining to be cleared, the petitioner pointed out by its letter of 4th July, 2014 that they are not liable to pay any penalty. Thus, the tax is paid in full and there was no justification for levy of penalty. It is stated that the petitioner has paid the amount of tax. Petition allowed.

Issues Involved:
1. Imposition of Local Body Tax (LBT) and penalty on the petitioner.
2. Satisfaction of tax liability by the petitioner.
3. Legality of pre-deposit requirement for filing an appeal.
4. Maintainability of the writ petition.
5. Opportunity for personal hearing and contesting the penalty demand.

Issue-wise Detailed Analysis:

1. Imposition of Local Body Tax (LBT) and Penalty on the Petitioner:
The petitioner, engaged in providing information technology services, was issued a demand notice by the Pune Municipal Corporation, levying a penalty of ?48,75,767/- for non-payment of LBT on goods imported within the municipal limits. The LBT replaced octroi and cess from 1st April 2013, as per the rules framed by the State Government.

2. Satisfaction of Tax Liability by the Petitioner:
The petitioner claimed that the tax liability for the financial year 2013-14 was satisfied through part-payments made via demand drafts on 10th March 2014. The petitioner argued that the tax was paid in full, and thus, the imposition of the penalty was unwarranted.

3. Legality of Pre-deposit Requirement for Filing an Appeal:
The petitioner contended that there was no legal basis for insisting on a pre-deposit of the penalty amount for the appeal to be entertained. Rule 36 of the Maharashtra Municipal Corporations (Local Body Tax) Rules, 2010, and Section 406 of the Maharashtra Municipal Corporations Act, 1949, were cited to argue that the appeal should be heard without the pre-deposit of the penalty.

4. Maintainability of the Writ Petition:
The court examined whether the writ petition was maintainable. It was argued that an appeal could be filed against the penalty even if the tax demand was undisputed. The court found no stipulation in Section 406(6) that barred such an appeal, thus rejecting the preliminary objection to the writ petition's maintainability.

5. Opportunity for Personal Hearing and Contesting the Penalty Demand:
The court noted that the petitioner had not been afforded an opportunity to contest the penalty demand. The demand notice and subsequent communications did not reference any outstanding tax liability, only the penalty. The petitioner had replied to the demand, stating that the tax was fully paid and contesting the penalty's justification.

Judgment:
The court allowed the writ petition, directing the third respondent (Joint Commissioner) to grant the petitioner a personal hearing to contest the penalty demand. The demand raised on the petitioner's bank was to be treated as a show cause notice, and recovery by coercive means was to be held in abeyance until a reasoned order was passed and communicated to the petitioner. The petitioner was instructed to appear before the Joint Commissioner on 8th August 2019 for the hearing. The court's interim order dated 1st September 2014 was to remain operative until the reasoned order was issued.

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