Supreme Court Upholds Penalty for Tax Avoidance by Flour Mill

The Supreme Court upheld penalty orders under section 45A(d) of the Kerala General Sales Tax Act, 1963 for assessment years 1991-92 and 1992-93 against a roller flour mill. The petitioner's failure to revise returns following a Supreme Court judgment deeming wheat products taxable led to deliberate avoidance of interest liability, justifying the penalty. Despite an offer to cancel the penalty if interest was paid, the petitioner's strategy to evade both was rejected. The Court affirmed the penalty, highlighting it was lower than the interest due, dismissing the challenge to the penalty order.

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Issues:
Challenge to penalty order under section 45A of Kerala General Sales Tax Act, 1963 for assessment years 1991-92 and 1992-93 based on incorrect returns filed by the petitioner.

Analysis:
The petitioner, a roller flour mill, challenged the penalty order confirming the reduced penalty levied by the Deputy Commissioner of Commercial Taxes for the assessment years 1991-92 and 1992-93. The petitioner's contention was based on the belief that products made from wheat, such as atta and suji, did not attract tax as they were not considered manufactured products. This belief was supported by earlier decisions of various High Courts. However, the Supreme Court's judgment in 1993 reversed this position, stating that these products are indeed manufactured and taxable. Despite being aware of this judgment, the petitioner did not revise the returns, opting to pay tax in instalments from 1993 to 1996 without revising the returns to avoid interest liability under section 23(3) of the Act.

The Supreme Court's decision clarified that the petitioner was liable to pay tax on the products, contrary to the exemption claimed in the original returns filed for the relevant years. The lower authorities found the petitioner's actions to be deliberate in avoiding interest by not revising the returns promptly after the Supreme Court's judgment. The petitioner's argument that the returns were correct based on the law prevailing at the time of filing was countered by the fact that the law had changed post the Supreme Court's ruling. The petitioner's conscious avoidance of revising the returns to evade interest liability was deemed unjustifiable, leading to the penalty under section 45A(d) of the Act.

During the hearing, the Court offered to cancel the penalty if the petitioner agreed to pay the interest for the belated tax payment. However, the petitioner's intention to avoid interest by not filing revised returns was seen as a strategy to escape both interest and penalty. The Court concluded that the petitioner could not benefit from this dual advantage and upheld the penalty orders, emphasizing that the reduced penalty was less than the interest payable for delayed tax payment. Consequently, the original petition challenging the penalty order was dismissed, affirming the decisions of the revisional authorities.

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