1968 (7) TMI 64 - HC - VAT and Sales Tax

Court rules penalty under sec 16(4) Bombay Sales Tax Act applies during stay orders, assessee liable.

The court held that the penalty under section 16(4) of the Bombay Sales Tax Act should be imposed on the assessee for the period covered by the stay ... Penalty under section 16(4) - continuance of default - effect of stay of recovery - discretion of appellate and revisional authority to fix penalty rate - power of Collector to remit penaltyPenalty under section 16(4) - continuance of default - effect of stay of recovery - discretion of appellate and revisional authority to fix penalty rate - power of Collector to remit penalty - Imposability of penalty under section 16(4) for the period during which stay orders issued by appellate and revisional authorities were in force - HELD THAT: - The Court examined section 16 read with its provisos and the powers under section 30 and rule 37 to entertain appeals or revisions without prior payment. The operative condition for liability under section 16(4) is that the tax is not paid within the prescribed time and that the dealer 'continues to make default'; in context 'default' denotes non-payment simpliciter and the use of 'continues' makes the penalty run so long as non-payment persists. Stay orders granted by appellate or revisional authorities stay the coercive machinery of recovery under section 16(6) but do not suspend the underlying liability to pay the assessed tax. The first proviso empowers the appellate or revisional authority, where an appeal or revision is entertained without prior payment, to direct the rate of penalty (not less than 1% and not more than 21/2% per month) for any period; the Collector retains the separate statutory power to remit whole or part of the penalty. Thus a stay of recovery does not by itself prevent the running of penalty under the main part of section 16(4), although the appellate/revisional authority may moderate the rate during the pendency of proceedings and the Collector may remit in appropriate cases.Penalty under section 16(4) may be imposed for the period covered by the stay orders; appellate or revisional authority may fix a reduced rate within the proviso and the Collector may remit; question answered accordingly.Final Conclusion: Reference answered in the affirmative: stay of recovery by appellate or revisional authorities does not suspend the liability to penalty under section 16(4) for the period of non payment, though the appellate/revisional authority may direct a lower rate within the proviso and the Collector may remit; costs awarded to the State. Issues Involved:1. Imposition of penalty under section 16(4) of the Bombay Sales Tax Act, 1953.2. Effect of stay orders granted by appellate and revisional authorities on the imposition of penalty.3. Interpretation of the term 'default' under section 16(4).Issue-wise Detailed Analysis:1. Imposition of Penalty under Section 16(4) of the Bombay Sales Tax Act, 1953:The primary issue addressed was whether a penalty under section 16(4) could be imposed on the assessee for the period during which the appellate and revisional authorities had granted stay orders against the recovery of tax dues. The relevant section states that if the tax is not paid within the prescribed time, the dealer shall pay, by way of penalty, a sum equal to a certain percentage of the amount of tax for each month during which the default continues. The provision also includes a proviso allowing the authority hearing the appeal or revision to direct that the penalty be paid at a rate between 1% and 2.5% of the tax amount for each month.2. Effect of Stay Orders Granted by Appellate and Revisional Authorities on the Imposition of Penalty:The Tribunal had set aside the penalty imposed after the date of the assessment order until the communication of the Tribunal's judgment, reasoning that during the period the stay orders were in effect, the assessee committed no default for which it could be penalized. The State argued that the stay orders did not prevent the imposition of penalties. The Tribunal's decision was based on the interpretation that the stay orders effectively paused the period of default, thereby precluding the imposition of penalties during that period.3. Interpretation of the Term 'Default' under Section 16(4):The core of the dispute revolved around the interpretation of 'default' in section 16(4). The argument was whether 'default' simply meant non-payment or implied a deliberate or intentional failure to pay. The majority opinion held that 'default' meant non-payment, and the penalty continued to accrue as long as the tax remained unpaid, regardless of the stay orders. The dissenting opinion argued that the stay orders meant there was no default during the period they were in effect, as the assessee was excused from making payment during that time.Separate Judgments Delivered:Mehta, J.'s Judgment:Mehta, J., concluded that the penalty under section 16(4) could not be imposed for the period during which the appellate and revisional authorities had granted stay orders. He emphasized that the condition precedent for imposing a penalty was the dealer's continuance to make a default, which did not occur during the stay period. He noted that the Legislature intended to penalize continuous default, and it would be unjust to penalize a dealer without a hearing. Mehta, J., also referred to previous cases supporting the view that the period of penalty does not run during the stay period.Divan, J.'s Judgment:Divan, J., disagreed with Mehta, J., and held that the penalty under section 16(4) should be imposed even for the period covered by the stay orders. He argued that the stay orders only stayed the recovery process and did not excuse the assessee from the liability to pay the tax. He emphasized that the word 'default' in section 16(4) meant non-payment, and the penalty continued to accrue as long as the tax remained unpaid. Divan, J., noted that the stay orders did not extend the prescribed time for payment, and the liability to pay the penalty persisted during the stay period.Bhagwati, C.J.'s Judgment:Upon the difference of opinion, the case was referred to Bhagwati, C.J., who sided with Divan, J. He clarified that the stay orders did not suspend the liability to pay the tax but merely stayed the recovery proceedings. He emphasized that the term 'default' meant non-payment, and the penalty continued to accrue during the period of non-payment, regardless of the stay orders. He also pointed out that the assessee could have paid the tax to avoid the penalty and sought a refund if successful in the appeal or revision.Conclusion:The reference was ultimately answered in the affirmative, holding that the penalty under section 16(4) of the Bombay Sales Tax Act, 1953, should be imposed on the assessee for the period covered by the stay orders issued by the appellate and revisional authorities. The assessee was ordered to pay the costs of the reference to the State.