2001 (10) TMI 1100 - HC - VAT / Sales Tax

Purchase tax on bottles used for packing I.V. fluids-whether s.12(3) penalty applies; penalties set aside, earlier years remitted.

Penalty under the relevant sales tax law was examined in relation to purchase tax on bottles used to pack and sell I.V. fluids. For AYs 1993-94 and ... Imposition of penalty - liability to purchase tax on the bottles in which I.V. fluids manufactured by the assessee are packed and sold - HELD THAT:- Assessee's assessments for the years 1993-94 and 1994-95 are concerned, they are assessments made under Section 12(1) as they are made on the basis of the return filed by the assessee and the accounts maintained by the assessee. The assessing authority has accepted the value of the bottles purchased and without making any further enquiry has merely included the turnover relating to the bottles in the taxable turnover for the I.V. fluids and has levied tax on the purchase of bottles under Section 7-A. The assessments for the assessment years 1993-94 and 1994-95 which were assessments made on the basis of the accounts, and not based on any other material and were not estimates, have therefore, to be regarded as assessments made under Section 12(1) to which the penal provisions of Section 12(3) are not attracted. The levy of penalty for those two assessment years is set aside. In respect of assessments which were properly made by way of best judgment assessment, and in which penalty has been levied, it was submitted that the authority has failed to consider the bona fides of the petitioner. It was submitted that the turnover had been disclosed in full, but a part of it had not been regarded as part of the taxable turnover by reason of bona fide belief that the assessee had entertained having regard to the earlier judgments of this Court, and therefore, penalty levied was wholly unwarranted. The levy of penalty without considering the bona fides of the petitioner cannot be sustained. We, therefore, set aside the order of the Tribunal to the extent it upholds levy of penalty for these years namely, 1987-88, 1988-89, 1989-90, 1990-91, 1991-92 and 1992-93. The assessing authorities shall now hear the assessee with regard to the question of penalty in relation to assessment for these years and thereafter proceed to make appropriate orders in the light of what has been stated in this order, and in the light of the law otherwise applicable. Writ petitions are partly allowed. Issues:1. Challenge to penalty imposition upheld by Tribunal.2. Liability to purchase tax on bottles containing I.V. fluids.Issue 1:The High Court upheld the imposition of penalty on the assessee based on the sale of I.V. fluid in bottles being considered a composite sale, thus attracting the levy of purchase tax on the bottles purchased from unregistered dealers. The Court followed the law laid down by the Supreme Court in the case of Premier Breweries v. State of Kerala.Issue 2:Between December 3, 1979, and May 27, 1993, the penalty under Section 12(3) could be levied only in cases of best judgment assessment. The Court emphasized that the assessing authority must consider the bona fides of the person alleged to have withheld tax, even in cases where tax is found to have been withheld. Assessments for the years 1993-94 and 1994-95 were made under Section 12(1) based on the return filed by the assessee, and the Court set aside the penalty levied for these years as they were not best judgment assessments.The Supreme Court clarified that penalty can be levied under Section 12(3) only when the assessing authority makes an assessment to the best of its judgment, not solely based on account books. The best judgment assessment is based on an estimate and not solely on account books, as reiterated in various judgments.The Court noted that assessments made on the basis of accounts for the years 1993-94 and 1994-95 were not estimates and were not made under Section 12(2), hence the penal provisions of Section 12(3) were not applicable. The levy of penalty for these years was set aside.The assessing authorities were directed to consider the bona fides of the assessee for assessments where penalty was levied, especially in cases of best judgment assessments. The Court set aside the order upholding penalty for certain years and instructed the authorities to reevaluate the penalty in light of the law and circumstances.The writ petitions were partly allowed, and the assessing authorities were directed to reconsider the penalty imposition for specific assessment years in accordance with the Court's directions and applicable law.