2025 (1) TMI 665 - HC - VAT / Sales Tax

Levy of penalty under Section 12(3)(a) of the Tamil Nadu General Sales Tax Act, 1959 - Taxability of the consideration received on sale of unredeemed articles by the auctioneers in terms of the Tamil Nadu General Sales Tax Act, 1959 - assessee's contention at the stage of assessment was that it is the auctioneer that would be so liable - HELD THAT - The levy of penalty under Section 12 (3) (a), in the case of non-filing of returns, is, in our view, automatic. Admittedly, in the present case, the petitioner has not filed the returns and hence, the basis of assessment would be irrelevant - in any event, the assessing authority has rightly proceeded to assess the actuals of the sale consideration as obtained from the auctioneers and hence there is no question of best judgment assessment. This argument of the petitioner is hence rejected and levy of penalty under Section 12 (3) (a) is confirmed. Since the petitioner has raised a dispute in respect of the period for which the amounts have remained unpaid (relating to the levy of penal interest alone), let objections be submitted in writing before the assessing authority within a period of two (2) weeks from date of receipt of a copy of this order. Upon receipt of the objections, if any, petitioner will be heard and orders will be passed in respect of the quantification of the penal interest to be demanded, if any. It is made clear that there is no flaw in the demand of penal interest per se and it is only in respect of the period to which the interest relates, that the assessee is extended an opportunity. The reduction in rate of tax dealt with under paragraph 3 will be taken note of at this juncture and a revised demand prepared. Conclusion - i) The petitioner is liable for sales tax on auction turnover. ii) The penalty under Section 12(3)(a) is confirmed due to non-filing of returns. Petition dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment are:

Whether the turnover received from the auction of unredeemed pledged goods is taxable in the hands of the petitioner, a permanent fund, under the Tamil Nadu General Sales Tax Act, 1959.
The applicability and computation of penalty under Section 12(3)(a) of the Tamil Nadu General Sales Tax Act, 1959, particularly in the context of non-filing of returns and the basis of assessment.
The appropriate rate of tax applicable for the relevant assessment years and the rectification of any errors in the assessment.
The procedural fairness in the demand for tax and penalty payments, specifically regarding the opportunity to dispute the quantification of demands and periods related to penal interest.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Auction Turnover

Relevant Legal Framework and Precedents: The court considered the Tamil Nadu General Sales Tax Act, 1959, and referenced a Supreme Court judgment in Karnataka Pawn Brokers' Association v. State of Karnataka, which addressed similar issues regarding the taxability of sales by pawnbrokers.
Court's Interpretation and Reasoning: The court affirmed that the turnover from the auction of unredeemed goods is taxable in the hands of the petitioner. The reasoning was based on the principle that activities incidental or ancillary to the main business fall within the definition of "business" under the Sales Tax Act.
Key Evidence and Findings: The court found no merit in the contention that the auctioneer, being a dealer, would be liable for the tax. Instead, it was determined that the auction consideration forms part of the petitioner's turnover.
Application of Law to Facts: The court applied the principles established in the referenced Supreme Court and Madras High Court cases to conclude that the petitioner is liable for sales tax on the auction turnover.
Treatment of Competing Arguments: The petitioner's argument that the auctioneer should be liable was rejected based on established legal precedents.
Conclusions: The court concluded that the petitioner is liable for sales tax on the auction turnover.

Issue 2: Penalty under Section 12(3)(a)

Relevant Legal Framework and Precedents: The court examined Section 12(3)(a) of the Tamil Nadu General Sales Tax Act, 1959, and considered precedents such as Sakthi Sugars Limited v. Assistant Commissioner of Commercial Taxes and Appollo Saline Pharmaceuticals (P) Ltd. v. Commercial Tax Officer.
Court's Interpretation and Reasoning: The court held that the levy of penalty is automatic in cases of non-filing of returns, regardless of the basis of assessment.
Key Evidence and Findings: The petitioner had not filed returns, and the assessing authority had correctly assessed the sale consideration based on actuals from the auctioneers.
Application of Law to Facts: The court applied the legal principle that non-filing of returns justifies automatic penalty imposition.
Treatment of Competing Arguments: The petitioner's reliance on best judgment assessment was rejected as irrelevant to the penalty imposition.
Conclusions: The court confirmed the levy of penalty under Section 12(3)(a).

Issue 3: Appropriate Rate of Tax

Relevant Legal Framework and Precedents: The applicable rates of tax for the relevant periods were considered, with references to directives issued for rectification of errors.
Court's Interpretation and Reasoning: The court identified an error in the assessment where a uniform 4% tax rate was applied, contrary to the correct rates of 3% and 4% for different periods.
Key Evidence and Findings: Written statements from the assessing authority confirmed the correct rates, necessitating rectification.
Application of Law to Facts: Directions were issued for rectification of the erroneous tax rate applied in assessments.
Treatment of Competing Arguments: The court did not entertain any competing arguments on this issue, focusing on rectification.
Conclusions: Directions for rectification of the tax rate were issued.

Issue 4: Procedural Fairness in Tax and Penalty Demands

Relevant Legal Framework and Precedents: The procedural aspects of tax and penalty demands were scrutinized, with a focus on the opportunity to dispute quantification.
Court's Interpretation and Reasoning: The court acknowledged the petitioner's right to dispute the quantification of demands and periods related to penal interest.
Key Evidence and Findings: The petitioner had not been afforded an opportunity to dispute the quantification, leading to directions for objections to be submitted.
Application of Law to Facts: The court allowed the petitioner to submit objections and provided for a hearing before final orders on penal interest quantification.
Treatment of Competing Arguments: The court balanced the need for procedural fairness with the lawful demand for penal interest.
Conclusions: The court directed that objections be submitted and considered, allowing for a revised demand based on correct tax rates.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "It is now well-settled that any activity incidental or ancillary to the main business will also come within the definition of 'business' under the Sales Tax Act."
Core Principles Established: The court reaffirmed the principle that turnover from auction sales of unredeemed goods is taxable in the hands of the entity conducting the business, even if an auctioneer is involved.
Final Determinations on Each Issue:
- The petitioner is liable for sales tax on auction turnover.
- The penalty under Section 12(3)(a) is confirmed due to non-filing of returns.
- Directions for rectification of the tax rate error were issued.
- Procedural fairness requires allowing objections to penal interest quantification.