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M/S.Hindustan Aeronautics Ltd Vs. the State of Tamil Nadu - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTC.(Revision) No.1264 of 2006
Judge
ActsTamil Nadu General Sales Tax Act (TNGST) Act, 1959 - Section 12(5)(iii); Tamil Nadu Additional Sales Tax Act - Sections 22(2), 3-A
AppellantM/S.Hindustan Aeronautics Ltd
RespondentThe State of Tamil Nadu
Appellant AdvocateMr.Chandran, Adv.
Respondent AdvocateMr.R.Sivaraman, Adv.
Excerpt:
.....by the assessing authority and levied a penalty of rs.34,13,471/- under section 3a of the tamil nadu additional sales tax act, 1970 and rs.19,03,682/- under section 12(5)(iii) of the tamil nadu general sales tax act, 1959. “section 3-a penalty for collection of additional tax by dealer. once, the assessee received additional sales tax, it certainly amounts to violation of provisions of section 2(2) of the tamil nadu additional sales tax act, 1970. as per the agreement, additional sales tax was reimbursed and the same amounts to clear violation of provisions of section 2 of the tamil nadu additional sales tax act and hence, liable to pay levy penalty under section 3a of the tamil nadu additional sales tax act. in respect of second question of law, the assessing officer levied..........on their sales turnover. therefore, proposed to levy penalty under section 22(2) of the tamil nadu additional sales tax act at 100% of the excess collection made amounting to rs.34,13,471/-. after receiving the objections from the assessee, the assessing officer dropped the levy of the penalty. subsequently, a revised order dated 24.01.1995 was passed by the assessing authority and levied a penalty of rs.34,13,471/- under section 3a of the tamil nadu additional sales tax act, 1970 and rs.19,03,682/- under section 12(5)(iii) of the tamil nadu general sales tax act, 1959. aggrieved by the same, the assessee filed appeal before the appellate assistant commissioner. the appellate assistant commissioner dismissed the appeal and upheld the levy of penalty. aggrieved by the same, the.....
Judgment:

The present revision is filed by the petitioner/assessee against the order of the Sales Tax Appellate Tribunal (Additional Bench), Chennai dated 13.12.1999 passed in T.A.No.67 of 1999 raising the following substantial questions of law:-

“1. Whether in the facts and circumstances of the case, the Tribunal is correct in holding that the petitioner has collected Additional Sales Tax from the Electricity Board overlooking the fact that it is not the tax collected but reimbursement made by the Electricity Board ?

2. Whether the Tribunal was correct in upholding the levy of penalty imposed under Section 12(5)(iii) of the TNGST Act, 1959?”

2. The brief facts of the case are as under:-

The assessee is a Government of India undertaking engaged in the execution of a turnkey works contract for the Tamil Nadu Electricity Board for erecting and commissioning a captive power plant, during the relevant assessment year viz., 1991-92. The petitioner/assessee reported a total turnover of Rs.16.85,15,016.13 and a taxable turnover of Rs.Nil. The Assessing Officer originally assessed on a total and taxable turnover of Rs.17,31,59,589/- and Rs.15,17,09,238/- respectively. In the assessment order dated 30.09.1993, the Assessing Officer observed that the dealer have collected Additional Sales Tax from TNEB at 2.25% amounting to Rs.34,13,471/- on their sales turnover. Therefore, proposed to levy penalty under Section 22(2) of the Tamil Nadu Additional Sales Tax Act at 100% of the excess collection made amounting to Rs.34,13,471/-. After receiving the objections from the assessee, the Assessing Officer dropped the levy of the penalty. Subsequently, a revised order dated 24.01.1995 was passed by the Assessing Authority and levied a penalty of Rs.34,13,471/- under Section 3A of the Tamil Nadu Additional Sales Tax Act, 1970 and Rs.19,03,682/- under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959. Aggrieved by the same, the assessee filed appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner dismissed the appeal and upheld the levy of penalty. Aggrieved by the same, the assessee filed further appeal before the Sales Tax Appellate Tribunal, who, also dismissed the appeal and confirmed the order of the lower authorities. Aggrieved by the same, the assessee filed the present revision raising the above questions of law.

3. The learned counsel appearing for the petitioner/assessee contended that the order passed by the Tribunal is illegal, wrong and without justification. It is further contended that the Tribunal is wrong in holding that the petitioner collected Additional Sales Tax from the Tamil Nadu Electricity Board overlooking the fact that it is not collection made by the petitioner, but, it was only reimbursement made by the Board of the expenditure incurred by the petitioner. It is further contended that it is wrong to state that there is a collection of additional sales tax in contravention of Section 3-A of the Tamil Nadu Additional Sales Tax Act, 1970. It is further contended that the petitioner is a Government of India undertaking and was under the bonafide belief that it is not subject to tax since it was only voluntarily reimbursed by the Electricity Board. It is also further contended that it is not a fit case for levying 100% penalty and alternatively submitted that the amount of levy of penalty is excessive, exorbitant and arbitrary. In respect of penalty levied under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959, there is no finding by the authorities below that there is wilful suppression of taxable turnover. It is further contended that the Assessing Officer ought to have levied penalty under Section 16(2) read with Section 12(5)(iii) of the TNGST Act, 1959. It is further contended that the levy of penalty is unwarranted. Therefore, the Tribunal order is not in accordance with law. Therefore, the same may be set aside.

4. Per contra, the learned Special Government Pleader appearing for the Revenue contended that the Tribunal considered all the facts and circumstances of the case and rightly held that the assessee collected Additional Sales Tax, which is violation of the provisions of Additional Sales Tax Act. Therefore, levy of penalty is justified. Further it is contended that there is wilful suppression of turnover, therefore, the order passed by the Tribunal is in accordance with law in respect of penalty under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act. Therefore, the same may be confirmed.

5. Heard the learned counsel on either side and perused the materials available on record. In respect of levy of penalty for collecting Additional Sales Tax, Sections 2(2), 2(3) and 3(A) are the relevant provisions and Sections 2(2) and 2(3) of the Tamil Nadu Additional Sales Tax Act reads as follows:- “Section 2(2) Notwithstanding anything contained in the said Act, no dealer referred to in sub-section (1) shall be entitled to collect the additional tax payable under the said sub-section.

Section 2(3) Any dealer who collects the additional tax payable under sub section (1) in contravention of the provisions of sub-section (2) shall be punishable with fine which may extend to one thousand rupees, and no court below the rank of a Presidency Magistrate or a Magistrate of the first class shall try any such offence. “ From a reading of the above provision, it is clear that no dealer is entitled to collect additional sales tax payable under the provision and whoever collects the additional tax in violation of the provisions of the section shall be punishable with fine which may extend to one thousand rupees, and no court below the rank of a Presidency Magistrate or a Magistrate of the first class shall try any such offence. Section 3-A of the Tamil Nadu Additional Sales Tax Act contemplate levy of penalty and the said section reads as follows:- “Section 3-A Penalty for collection of additional tax by dealer. If any dealer collects any amount of by way of additional tax or purporting to be by way of additional tax, in contravention of the provisions of sub section (2) of section 2 the assessing authority concerned, may, after giving such dealer a reasonable opportunity of being heard, by order in writing impose upon him by way of penalty, a sum not exceeding one and a half times such amount. “ From a reading of the above provision, it is clear that the Assessing Authority after giving a reasonable opportunity to such a dealer of being heard, impose upon him by way of penalty, a sum not exceeding one and a half times of such amount. In the present case, records reveal that the petitioner has collected 2.25% as additional sales tax on their sales turnover from TNEB. So there is no dispute that there is collection of additional sales tax by the petitioner/assessee which is contrary to the provisions of the Tamil Nadu Additional Sales Tax Act as extracted above. The only argument advanced by the assessee was that the assessee did not collect any additional sales tax, but it was voluntarily reimbursed by the Electricity Board. Therefore, it is only the reimbursement of the amount by the TNEB as per the agreement entered between the assessee and the TNEB and the same cannot be construed as an offence which warrants levy of penalty. There is no dispute that there is reimbursement of Additional Sales Tax. It may not be a direct collection but the fact remains that there is collection of tax though the payment is made by the Electricity Board voluntarily. Once, the assessee received additional sales tax, it certainly amounts to violation of provisions of Section 2(2) of the Tamil Nadu Additional Sales Tax Act, 1970. So all the authorities below had given a finding that there is collection of additional sales tax and hence there is a violation of the provisions of the Act. No other material is produced by the assessee counsel to take a contrary view of the finding given by the lower authority. It is a question of fact. Findings are based on valid materials and evidences. Therefore, the same finding is confirmed. Further, the learned counsel appearing for the assessee submitted that in the present case, the Assessing Authority levied 100% of penalty. Section 3-A contemplate quantum of amount should not exceed 1 = times such amount. In the present case, the petitioner/assessee is a Government of India undertaking and there was agreement between the Electricity Board and the petitioner/assessee. As per the agreement, Additional sales tax was reimbursed and the same amounts to clear violation of provisions of Section 2 of the Tamil Nadu Additional Sales Tax Act and hence, liable to pay levy penalty under Section 3A of the Tamil Nadu Additional Sales Tax Act. Section 3-A of the TNAST Act prescribe only maximum amount of penalty and there is no minimum amount of penalty prescribed. After taking into consideration the facts and circumstances of the case and also considering the bonafide belief of the petitioner/assessee, we are of the view that the authorities are wrong in levying 100% penalty. We feel that the same is excessive and under such circumstances, we are of the view that it is reasonable to levy 20% of penalty as against 100% penalty levied by the authorities. We reduce only quantum of penalty and fix the same as 20% as against 100%. Under these circumstances, we are of the view that levy of penalty under Section 3A of the Tamil Nadu Additional Sales Tax Act is justified but the quantum alone is reduced as stated above. Accordingly, we answer the first question of law.

6. In respect of second question of law, the Assessing Officer levied penalty under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959. The order of the Assessing Officer in this regard is as follows:-

“ 5. In view of the above, in addition to the turnover assessed for tax under the TNGST Act 1959 for the year 91-92 the dealers are assessed to a penalty of Rs.34,13,471.00 under Section 3A of the TNGST Act 1970 and Rs.19,03,182.00 under Section 12(5)(iii) of the TNGST Act, 1959. “ From a reading of the above, it is clear that the Assessing Officer levied penalty of Rs.19,03,182.00 under Section 12(5)(iii) of the TNGST Act. The said provision is not applicable to the facts of the case. However, penalty can be levied only under Section 16(2) of the Act since the assessment was reopened under Section 16(1) of the TNGST Act. Sections 16, 16(1)(b) and 16(2) of the Act reads as follows:-

“Section 16. Assessment of escaped turnover (1) (a) Where, for any reason, the whole or any part of the turnover of business of a dealer has escaped assessment of tax, the assessing authority may, subject to the provisions of sub-section (2) at any time within a period of five years from the expiry of the year to which the tax relates, determine to the best of its judgment the turnover which has escaped assessment and assess the tax payable on such turnover after making such enquiry as it may consider necessary and after giving the dealer a reasonable opportunity to show cause against such assessment. Section 16(1)(b) Where, for any reason, the whole or any part of the turnover of business of a dealer has been assessed at a rate lower than the rate at which it is assessable, the assessing authority may, at any time within a period of five years from the expiry of the year to which the tax relates, reassess the tax due after making such enquiry as it may consider necessary and after giving the dealer a reasonable opportunity to show cause against such re-assessment. Section 16(2) In making an assessment under clause (a) of sub-section (1), the assessing authority may, if it is satisfied that the escape from the assessment is due to wilful non-disclosure of assessable turnover by the dealer, direct the dealer, to pay, in addition to the tax assessed under clause (a) of sub-section (1), by way of penalty a sum which shall be - (a) fifty per cent of the tax due on the turnover that was filfully not disclosed if the tax due on such turnover is not more than ten percent of the tax paid as per the return ;

(b) one hundred per cent of the tax due on the turnover that was wilfully not disclosed if the tax due on such turnover is more than ten per cent but not more than fifty per cent of the tax paid as per the return ;

(c) one hundred and fifty per cent of the tax due on the assessable turnover that was wilfully not disclosed, if the tax due on such turnover is more than fifty per cent of the tax paid as per the return ;

(d) one hundred and fifty per cent of the tax due on the assessable turnover that was wilfully not disclosed, in the case of self-assessment referred to in sub-section (1) of Section 12 :

Provided that no penalty under this sub-section shall be imposed unless the dealer affected has had a reasonable opportunity of showing cause against such imposition.”

From a reading of the above provisions, it is clear that penalty could be levied under Section 16(2) of the TNGST Act, only when the Assessing Officer satisfy that the escape from the assessment is due to wilful non-disclosure of assessable turnover by the dealer. In this case, the Assessing Officer has not given any finding that there is wilful non-disclosure of assessable turnover by the dealer. Instead of levying penalty under Section 16(2) of the TNGST Act, the Assessing Officer, levied penalty under Section 12(5)(iii) of the TNGST Act. The Appellate Assistant Commissioner taken a view that it is only a wrong noting of the Section and further, it was found that there was non disclosure of the taxable turnover in the monthly returns and thereby failed to pay the tax due thereon along with monthly returns tantamounts to filing of incorrect and incomplete return and thereby levy of penalty under Section 16(2) read with Section 12(5)(iii) of the TNGST Act is warranted and accordingly, confirmed the order of the Assessing Officer. The assessee has given detailed objections before reopening of the assessment dated 16.08.1994, in which, the assessee had stated in paragraph 3 that they are not liable to pay sales tax and additional sales tax. They are under the bonafide belief that reimbursement made by the TNEB is not taxable and therefore, they have not disclosed in the turnover. According to the assessee, the Assessing Authority before imposing penalty could have considered the explanation and levied penalty under Section 16(2) of the TNGST Act. Further, according to the assessee, the authorities below have not at all considered the explanation and there is no finding that there is wilful non-disclosure of turnover.

7. Unless and otherwise satisfied with the conditions precedent for invoking the provision under Section 16(2), the authority cannot levy penalty. The word used is “wilful non-disclosure” which means intentional and deliberate. In this case, no such finding is given by the Assessing Authority or by the Sales Tax Appellate Tribunal. In the case of State of Tamil Nadu Vs. Rabia Leathers Industries reported in 30 VST 430, this Court considered the scope of levy of penalty under Section 16(2) of the Act. After extracting the provisions contained in Section 16(2) of the TNGST Act in paragraph 6 of the order, it is stated that there should be wilful non-disclosure of the turnover in the return and the turnover was shown, but under the bona fide belief, the assessee claimed exemption. In such circumstances, Section 16(2) cannot be invoked. In paragraph 7 and 8 of the above cited decision, it is held as follows:- “7. From a reading of the above, it is clear that for the purpose of levying penalty under Section 16(2), there should be wilful non-disclosure of the turnover in the return. In the present case, the turnover was shown, but under the bona fide belief, the assessee claimed exemption. Therefore, the condition precedent for invoking the provision under Section 16(2) has not been satisfied. In the case of State of Tamil Nadu Vs. Sri Shanmughananda and Co., reported in (1997) 104 STC 61 this Court considered the scope of levying penalty under Section 16(2) of the Act. The relevant portion of the order reads as under :- “5. In so far as the merits of case, in levying penalty under Section 16(2) of the Act, is concerned, it was represented that the turnover of Rs.1,12,664 was assessed on the basis of book turnover. The assessed turnover was stated to be found in the books of accounts and the accounts were accepted by the Department. In such a case, the Appellate Assistant Commissioner pointed out that in view of the decision of the Supreme Court in State of Madras Vs. S.G.Jayaraj Nadar & Sons (1971) 28 STC 700 penalty is not exigible under Section 16(2) of the Act. This situation was not disputed seriously. Therefore, on merits, penalty under Section 16(2) of the Act is not exigible in the case of the assessee. Under such circumstances, we have no other alternative, but to dismiss the revision filed by the Department. Accordingly, the tax case (revision) is dismissed. No costs.”

Applying the above principle, levying of penalty by the assessing officer under Section 16(2) of the Act is not justified. The Tribunal has correctly held that the levy of penalty is not justified and therefore deleted penalty. We do not find any error of law or illegality in the order passed by the Tribunal warranting interference. The finding given by the Tribunal is based on valid materials and evidence and it is a question of fact. It is not a perverse order. Therefore, we confirm the order of the Tribunal and answer the question of law in favour of the assessee and as against the Revenue. The appeal filed by the Revenue is devoid of merits and the same is dismissed. No costs.”

8. In the case of State of Tamil Nadu Vs. Lingam and Company reported in (2010) 29 VST 622 (Mad), this Court held as follows:-

“ In the present case, no finding had been recorded by the authorities below that there was mens rea in the conduct of the dealer which caused escapement of assessment. The discretion vested with the authorities has been rightly exercised by them. ................ The penalty can be imposed only if the assessing officer is satisfied on the basis of material records that because of the wilful non-disclosure of taxable turnover there is escapement of tax leviable and recorded such finding.”

9. It is well settled principle that the degree of finding for the imposition of penalty has to be on higher order than that required for the purpose of making an assessment. The Apex Court in the case of Anantharam Veerasinghaiah and Co., Vs. Commissioner of Income Tax A.P., reported in (1980) 123 ITR 457, held as follows:- “ It is for the revenue to prove those ingredients before a penalty can be imposed. Since the burden of proof in a penalty proceeding varies from that involved in an assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted as a finding to that effect in the penalty proceeding. In the penalty proceeding the taxing authority is bound to consider the matter afresh on the material before it and, in the light of the burden to prove resting on the revenue, to ascertain whether a particular amount is a revenue receipt. No doubt, the fact that the assessment order contains a finding that the disputed amount represents income constitutes good evidence in the penalty proceeding but the finding in the assessing proceeding cannot be regarded as conclusive for the purposes of the penalty proceeding. “

10. Also in the case of Oveekee Textiles Vs. The Deputy Commercial Tax Officer, Tiruchengode reported in (1971) 27 STC 439, this Court considered the scope of the provision of Section 16(2) of the Madras General Sales Tax Act and held that the levy of penalty under Section 16(2) is conditional upon the satisfaction of the authority that the escapement of turnover was the result of an over culpable act on the part of the assessee. The Authority must give a finding to the effect that there should be wilful non-disclosure and without the above said finding, the levy of penalty is unsustainable.

11. The word “wilful” means the mental element necessary to constitute the offence. This Court in the case of T.N.K.Govindarajulu Chetty reported in (1951) Volume II STC 26 considered the word “wilful” and in page 34, it is held as follows:- “ In the instant case, the legislature designedly used the word “wilful” to express the mental element necessary to constitute the offence. The word “wilful” excludes bona fides in respect of the return. An honest and reasonable but a mistaken belief in the existence of circumstances which, if true, would have made the act lawful is a good defence. Wilful is a word of description. It describes the act constituting an offence viz., submission of a false return. A submission of a false return cannot be a wilful submission unless the dealer has deliberately made the return with the knowledge that he was excluding a taxable item. Otherwise, every submission of a return omitting a particular taxable item, though the assessee bona fide believed as one exempt from taxation, would become an offence. Son construed, the word “wilful” becomes nugatory for, except in the case of arithmetical mistakes or omissions, a submission of a return omitting to include an item held subsequently by the taxing authorities to be taxable, differing from the view of the assessee, will be an offence.”

From a reading of the above judgments, it is clear that the authorities should give a finding that there is wilful non-disclosure of the turnover. In the present case, there is no such finding. On the other hand, the assessee gave objections to the Assessing Authority and was under the bona fide belief that the turnover was not subjected to tax. In these circumstances, we answer the second question in favour of the assessee and against the Revenue. Accordingly, the order of the Sales Tax Appellate Tribunal is set aside.

12. The Tax Case Revision is partly allowed. No costs.


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