2023 (4) TMI 148 - HC - VAT and Sales Tax

Levy of penalty under Section 7(5) of the OET Act - rejection of revised return and enhancement of turnover on valid materials and evidence and the books of accounts maintained by the petitioner - absence of any adverse material on record - HELD THAT - In view of the meaning attached to the word penalty under different provisions of different taxing statute, in an unequivocal term it can be held that the penalty ordinarily becomes payable when it is found that an assessee has wilfully violated any of the provisions of the taxing statute. Above being the meaning attached to the word penalty , if that would be taken into consideration in the present context, without accompanying the revised return, no best judgment assessment could be done by the Assessing Authority. As such, no reason for rejection of revised returns has been pointed out by the Assessing Authority. More so, no reasons have been assigned as to why the penalty will be imposed under Section 7(5) of the O.E.T. Act. Even against the order of assessment when appeal was preferred, the Appellate Authority though quashed the same, but in the Second Appeal the Tribunal set aside the order passed by the Appellate Authority and confirmed the order passed by the Assessing Authority which clearly indicates that the same has been passed by the Tribunal without any application of mind. Once the Assessing Authority has come to a conclusion that there is no mistake in the books of account, imposition of penalty under Section 7(5) of the O.E.T. Act cannot be sustained in the eye of law. There is no dispute that the Assessing Authority initiated proceeding under the O.S.T. Act but not under the O.E.T. Act. By asking information without proper manner cannot be treated as initiation of proceedings against the petitioner. As such, the Assessing Authority has committed error without initiating the proceeding under O.E.T. Act and without issuing notice to the petitioner under the O.E.T. Act - This Court in similar circumstances in the case of RAM KISHAN RAJKUMAR VERSUS ASSESSING AUTHORITY, CUTTAK-I WEST CIRCLE, CUTTACK AND ANOTHER 2004 (6) TMI 600 - ORISSA HIGH COURT has interfered with the assessment under Section 7 of the O.E.T. Act read with Rule 15 of the O.E.T. Rules (as it stood at the relevant point of time) and quashed the order of assessment. Therefore, the assessment which has been made for imposition of penalty cannot be sustained in the eye of law. No doubt, the petitioner has filed all the monthly statements and returns, as shown in the monthly statements and also paid due admitted tax before filing the said return. As such, the petitioner is in no way a defaulter in payment of admitted tax under the O.E.T. Act. Therefore, the provisions contained under Section 7(5) of the O.E.T. Act is not applicable. The question is answered in favour of the assessee-petitioner and against the Department - revision allowed.

Summary

Issues Involved:
1. Imposition of penalty under Section 7(5) of the Orissa Entry Tax Act (O.E.T. Act).
2. Rejection of revised returns by the Assessing Authority.
3. Validity of best judgment assessment under Section 7(4) of the O.E.T. Act.
4. Requirement of proper initiation of proceedings and issuance of notice under the O.E.T. Act.

Summary:

1. Imposition of Penalty under Section 7(5) of the O.E.T. Act:
The petitioner challenged the order of the Odisha Sales Tax Tribunal, which confirmed the imposition of a penalty of Rs.4,40,000/- under Section 7(5) of the O.E.T. Act for late payment of entry tax. The court noted that the Assessing Authority found no discrepancies in the petitioner's books of account for vehicles, pumps, and generator sets. However, the penalty was imposed based on non-maintenance of stock accounts for spare parts, which was not a valid ground for rejection of the books of account.

2. Rejection of Revised Returns by the Assessing Authority:
The court observed that the Assessing Authority did not provide any valid reasons for rejecting the revised returns filed by the petitioner. It was noted that the books of account were accepted as true and correct, and no adverse material was found to justify the rejection of the revised returns.

3. Validity of Best Judgment Assessment under Section 7(4) of the O.E.T. Act:
The court referred to previous judgments, including Khali Mohapatra v. State of Orissa and State of Orissa v. Gaurav Enterprises, which held that failure to maintain an annual stock account alone is not a sufficient ground for rejecting books of account. The court emphasized that best judgment assessment must be based on relevant material and not on arbitrary grounds.

4. Requirement of Proper Initiation of Proceedings and Issuance of Notice under the O.E.T. Act:
The court highlighted that the Assessing Authority initiated proceedings under the O.S.T. Act but not under the O.E.T. Act. Proper initiation of proceedings and issuance of notice under the O.E.T. Act is mandatory. The court cited Ram Kishan Raj Kumar v. Assessing Authority, which quashed the order of assessment due to the absence of proper notice.

Conclusion:
The court concluded that the imposition of penalty under Section 7(5) of the O.E.T. Act cannot be sustained as the Assessing Authority found no mistakes in the books of account. The assessment made under best judgment was also invalid due to the lack of proper initiation of proceedings and issuance of notice under the O.E.T. Act. The court quashed the Tribunal's order and upheld the order of the First Appellate Authority, which had set aside the penalty. The revision was allowed in favor of the petitioner, with no order as to costs.