2008 (12) TMI 679 - HC - VAT and Sales Tax

Penalties under Tamil Nadu Sales Tax Act require substantive charging provision

Eastern Electrics Versus The State of Tamil Nadu represented by the Commercial Tax Officer

The court held that penalties under the Tamil Nadu Additional Sales Tax Act could not be imposed without a substantive charging provision. It aligned with ... Levy of penalty under the Tamil Nadu Additional Sales Tax Act - Held that:- In the absence of the substantive provision, in the AST Act itself, relating to levy of interest, the provisions of the TNGST Act cannot be the source of power of such levy. Similarly, unless there is a charging section for levy of penalty, there can be no automatic reading of the power to levy penalty. The levy of penalty cannot be sustained. Appeal allowed. Issues Involved:1. Levy of penalty under the Tamil Nadu Additional Sales Tax Act (AST Act).2. Applicability of previous court decisions.3. Validity and interpretation of the AST Act and its amendments.4. Specific case merits regarding penalty and assessment.Issue-Wise Detailed Analysis:1. Levy of Penalty under the AST Act:The primary issue is whether the department can levy a penalty under the AST Act. The petitioners argue against the penalty, citing the case of S.P.G. Ramasamy Nadar & Sons vs. Commercial Tax Officer-III, Virudhunagar, which held that penalty on surcharge is not sustainable. The court examined the AST Act, which came into force in 1970, and its amendments, particularly focusing on Section 2(1)(b) and Section 3-B. The court determined that the AST Act must be read with the Tamil Nadu General Sales Tax Act (TNGST Act), but noted that a charging section for penalties was not present in the original AST Act. The court concluded that the levy of penalty cannot be sustained without a substantive charging provision, aligning with the principles established in India Carbon Ltd. vs. State of Assam and J.K. Synthetics Ltd. vs. Commercial Tax Officer.2. Applicability of Previous Court Decisions:The court reviewed several prior decisions to determine their relevance and applicability:- S. Rajamani vs. State of Tamil Nadu (46 STC 451) and Hindustan Import Export Corporation vs. State of Tamil Nadu (69 STC 195): These cases supported the department's position on applying TNGST Act provisions to the AST Act.- Ashok Service Centre vs. State of Orissa (53 STC 1): This case was pivotal, as it established that the AST Act must be read together with the TNGST Act.- Karthik Roller Flour Mills Pvt. Ltd. vs. State of Tamil Nadu: This case held that without a substantive provision in the AST Act, the TNGST Act cannot be the source of power for levying interest or penalties.The court found that the decision in Karthik Roller Flour Mills correctly interpreted the law, and there was no need for reconsideration.3. Validity and Interpretation of the AST Act and Its Amendments:The court examined the amendments to the AST Act, particularly the introduction of Section 3-B by the Amendment Act of 1996, which applied TNGST Act provisions on penalties to the AST Act. The court considered whether this amendment was clarificatory or introduced a new provision. It concluded that Section 3-B was not merely clarificatory but introduced the power to levy penalties for the first time. Therefore, penalties could not be retrospectively applied before the amendment.4. Specific Case Merits Regarding Penalty and Assessment:- T.C. No. 1499 of 2006 (Assessment Year 94-95): The court found that the assessee had paid the additional sales tax and, therefore, allowed the appeal, answering in favor of the assessee regarding the penalty.- T.C. No. 839 of 2006 (Assessment Year 92-93): The court addressed three questions of law raised by the assessee. It upheld the findings of fact by the appellate authority regarding undervaluation and did not interfere with these findings. However, it answered in favor of the assessee concerning the levy of penalty, consistent with its earlier conclusions on the absence of a charging section for penalties.In summary, the court ruled that penalties under the AST Act could not be sustained without a substantive charging provision, aligning with the legal principles established in prior Supreme Court decisions and the specific amendments to the AST Act.