2023 (2) TMI 936 - HC - VAT and Sales Tax

Refund claim - respondent recovered excess amount of advance tax by asking the petitioner to do so and did not frame assessment and refunded the said amount - demand of interest - intent to evade, present or not - HELD THAT - In the instant case, it is not in dispute that in the previous years on the asking of the department, the petitioner had paid tax in advance. The department also adjusted it while framing assessment for the year 1998-99. It is not a case where the petitioner made payment of excess amount of tax under some mistake. When the excess amount of tax so deposited by him, was refunded by issuing adjustment orders, the petitioner had not received the same and had made prayer for adjustment of the same for the amount of tax for the year 1998-99 which was so adjusted by the respondent. The respondent on one hand recovered excess amount of advance tax by asking the petitioner to do so and did not frame assessment and refunded the said amount only at the time of complying with directions given by this Court in Writ Petition No.2162 of 2000 to frame assessment for the previous years. On the other hand, it started demanding interest qua liability of subsequent years. There was no allegation against the petitioner that it had acted deliberately in defiance of any law or was guilty of any dishonest conduct or had made any attempt to evade payment of rightful tax levied under the provisions of the Act, 1973 - The well settled proposition of law is that penalty either by way of claiming interest or otherwise should not ordinarily be imposed unless the assessee either acted deliberately in defiance or disregard of its obligation. Unquestionably, an authority is competent to impose penalty in case, of a technical or intentional breach of provisions of an Act but where such breach flows from a bona fide belief, then the offender is not liable to act in the manner prescribed by the Statute. The impugned notice as served upon the petitioner thereby raising demand of interest on the amount of Rs.72,89,684/- is not sustainable and is liable to be quashed - Petition allowed.

Summary

Issues:
1. Assessment and adjustment of advance tax payments.
2. Validity of interest demand under Section 25(5) of the Act, 1973.

Analysis:

Issue 1: Assessment and adjustment of advance tax payments
The petitioner, a registered company under the Haryana General Sales Tax Act, 1973, filed a writ petition challenging the assessment and demands made by the tax authorities. The petitioner had a history of depositing excess advance tax amounts as requested by the department, with assurances of adjustments in subsequent quarters. Despite this practice, the respondent alleged short payment and excess claims for specific periods. The petitioner requested assessment for previous years before the current assessment, leading to a court order directing the same. After adjustments and refunds, the petitioner sought further adjustments for subsequent years, which the department resisted, leading to interest demands and notices. The court noted that the petitioner had not acted in defiance of the law and had made genuine requests for adjustments based on past practices. The court held that the interest demand was not sustainable, quashing the notice and directing the department not to claim interest on the tax already deposited.

Issue 2: Validity of interest demand under Section 25(5) of the Act, 1973
The court examined Section 25(5) of the Act, 1973, which imposes interest on unpaid taxes. It cited precedents emphasizing that penalties should not be imposed unless there is deliberate defiance or dishonest conduct by the taxpayer. In this case, the petitioner had cooperated with the department's requests for advance tax payments and adjustments. The court found that the department's actions in demanding interest on amounts already adjusted were against natural justice principles. It concluded that the interest demand on the petitioner was unjustified and ordered the quashing of the notice. The court highlighted that penalties should not be imposed on taxpayers acting in good faith or based on a genuine belief, as long as there is no intentional breach of statutory provisions.

In conclusion, the court allowed the writ petition, set aside the impugned notice demanding interest, and directed the respondents to refrain from claiming interest on the tax amount already deposited by the petitioner.