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TMI Blog2015 (2) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... ravention or failure to comply with any provision of the VAT Act or any order or direction made thereunder, penalty may be imposed which may extend to an amount not exceeding twice the amount involved or tax evaded or sought to be evaded. However, before imposition of penalty, the affected person is required to be given a reasonable opportunity of being heard. The fact that the section itself mandates providing of reasonable opportunity of hearing before imposition of penalty is a clear pointer to the legislative intent that imposition of penalty in the event of any contravention or failure to comply in terms of section 90 would not be automatic. Discretion is vested in the authority whether to impose penalty at all or not or in the event of the need to impose penalty, the quantum of penalty that should be imposed. This would require application of mind to all the relevant factors including the response of the affected person. Imposition of penalty is a coercive measure and, therefore, the order of penalty should be a speaking order. Therefore, from the order imposing penalty, the reasons for imposition of penalty as well as the quantum of penalty must be discernible. This wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the petitioner and books of accounts were seized. As per seizure list, grounds of seizure were mentioned as failure to maintain proper accounts, records of purchase and sales, and also failure to produce such accounts or records before the taxing authority. This was followed by respondent No. 4 stating that on scrutiny of the seized documents, wilful evasion of tax by the petitioner to the tune of ₹ 10,09,712.00 for the period from October, 2005 to March, 2006 was detected. Petitioner was asked to show cause and to submit explanation, including prayer for composition against initiation of prosecution. According to the petitioner, there was no wilful evasion of tax. The default in payment of ₹ 10,09,712.00 was on account of mistake in application of rates of tax, which was a bonafide error, the said figure being the differential amount. Subsequently, petitioner deposited the said amount of ₹ 10,09,712.00 to the State respondents. 5. Petitioner submitted reply on 17.08.2006 denying the charge of wilful evasion of tax. It was stated that non-deposit of the aforesaid amount was on account of erroneous application of lower rate of tax on goods sold by the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g respondent No. 3 as the certificate holder and the petitioner as certificate debtor, quantifying the public demand at ₹ 10,00,000.00 recoverable from the certificate debtor. Based on the same, Bakijai Case No.9/07-08/AGST was registered and notice under section 7 of the Bengal Public Demands Recovery Act, 1913 was issued to the petitioner. Petition denying liability filed by the petitioner was rejected and the petitioner was asked to deposit the certificate amount. 10. At that stage, petitioner filed the present writ petition for quashing of demand notices dated 16.11.2006 and 02.03.2007 as well as for quashing of the bakijai proceeding. 11. Respondent No. 2 i.e., Commissioner of Taxes, Assam has filed affidavit. It is stated that penalty of ₹ 10,00,000.00 was imposed by the respondent No. 4 for evasion of principal tax amounting to ₹ 10,09,712.00 attributable to the petitioner. Imposition of penalty is valid and justified. Since penalty has not been paid, recourse to the provisions of Bengal Public Demands Recovery Act, 1913 has been taken, which resulted in institution of the bakijai case. Appraisal of the seized documents from the petitioner reveal evas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of this Act or the rules made thereunder or any order or direction made or given under this Act or the rules thereunder, shall, if no other penalty is provided under this Act for such contravention or failure, be liable to imposition of a penalty of an amount not exceeding twice the amount of tax involved or tax evaded or sought to be evaded where it is practicable to quantify such amount or an amount not exceeding fifty thousand rupees in any other case, subject to a minimum of two thousand rupees and where such contravention or failure is a continuing one, to a further penalty of one hundred rupees for every day during the period or continuance of the contravention or failure: Provided that no penalty under this section shall be imposed unless the person concerned is given a reasonable opportunity of being heard. 14. A careful reading of the aforesaid provision would indicate that in case of contravention or failure to comply with any provision of the VAT Act or the Rules framed thereunder, if no other penalty is provided under the VAT Act for such contravention or failure, penalty of an amount not exceeding twice the amount of tax evaded or sought to be evaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty should be imposed or not is a matter of discretion to be exercised judicially and on a consideration of all relevant circumstances. It was further held that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the statute or where the breach flows from a bona fide belief that the dealer is not liable to act in the manner prescribed by the statute. 17. Relying on the aforesaid judgment of the Apex Court, a Division Bench of this Court in the case of BRAJALAL BANIK VS. STATE OF TRIPURA ANR., reported in 79 STC 217, also held that imposition of penalty cannot be an automatic consequence of a failure to pay due tax. That was a case dealing with imposition of penalty under the Tripura Sales Tax Act, 1976 for failure to pay sales tax by the due date. It was held that non-payment of tax in difference is not sufficient to attract penalty. That can only make the dealer a defaulter. Once a dealer is deemed to be defaulter, discretion is vested with the authority to levy penalty or not. Proceeding for imposition of penalty is not a proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nible. This will reflect application of mind by the authority imposing the penalty and also allow the higher authorities to examine the reasons assigned for imposition of penalty in the event of appeal or revision. The order of penalty must indicate that all relevant factors were taken into consideration before imposing penalty. The discretionary power to impose penalty must be exercised in a reasonable and rational manner, otherwise it would be arbitrary and capricious. 19. A Constitution Bench of the Hon'ble Supreme Court in SN MUKHERJEE VS. UNION OF INDIA, reported in AIR 1990 SC 1984, underlined the need for recording reasons. It was held that recording of reasons serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision making. It was further held that the requirement of recording reasons should govern the decisions of an administrative authority exercising quasi-judicial functions. The need for recording of reasons would be greater in a case where the order is passed at the original stage. 20. In EAST COAST RAILWAY ANR. VS. MAHADEV APPA RAO ORS., reported in (2010) 7 SCC 678, the Apex Cour ..... 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