2004 (2) TMI 656 - HC - VAT and Sales Tax

Court overturns penalty for late tax payment, emphasizes discretionary power

The Court allowed the revisions, setting aside penalty orders under section 15-A(1)(a) of the U.P. Sales Tax Act for failure to file returns and deposit ... - Issues:- Penalty imposition under section 15-A(1)(a) of the U.P. Sales Tax Act for failure to file returns and deposit tax within the prescribed period.Detailed Analysis:1. The applicant, a public limited company, was granted an eligibility certificate under section 4-A of the U.P. Sales Tax Act, 1948, for a period of 6 years. After the exemption period ended, the applicant became liable for tax payment for the first time in February 1992. The returns for February 1992 were due by March 20, 1992, but were filed on March 24, 1992, leading to penalty proceedings under section 15A(1)(a) initiated by the department.2. The questions framed in the memos of revisions revolved around the timing of the tax deposit, the legality of penalty imposition, and the interpretation of Rule 48 of the U.P. Sales Tax Rules regarding the manner of payment, specifically focusing on the date of payment concerning the cheque submission and encashment.3. Section 15-A(1)(a) of the U.P. Sales Tax Act states that a dealer failing to furnish returns or deposit tax within the prescribed period without reasonable cause shall be liable for penalties.4. The Tribunal's decision was based on the belief that the tax payment was not made within the stipulated time, despite the applicant's explanation that the cheque was submitted along with the challan on March 24, 1992, after endorsement by the Sales Tax Officer on March 23, 1992.5. The judgment referred to various legal precedents, such as Commissioner of Income-tax v. Ogale Glass Works Ltd., Damadilal v. Parashram, and K. Saraswathy Alias K. Kalpana v. P.S.S. Somasundaram Chettiar, emphasizing that payment by cheque relates back to the date of delivery of the cheque, not the encashment date.6. The Court concluded that the payment through cheque on March 24, 1992, should be considered timely, rejecting the Tribunal's view that the payment date was April 2, 1992, when the cheque was encashed. This interpretation aligned with Rule 48 of the U.P. Sales Tax Rules.7. Despite a 4-day delay in payment, the Court considered the circumstances, including the intervening Sunday and the trivial nature of the default, to be insufficient for penalty imposition under section 15-A(1)(a).8. The Court emphasized that the power to levy penalties is discretionary and should be exercised reasonably, citing previous judgments like Western India Match Co. Ltd. v. Commissioner of Sales Tax, U.P., Lucknow, and Triveni Sheets Glass Works v. Commissioner of Trade Tax, highlighting that penalties should not be imposed mechanically for minor defaults.9. Ultimately, the Court allowed the revisions, setting aside the penalty orders under section 15-A(1)(a) for both U.P. and Central sales for February 1992, with costs assessed at Rs. 1,000 in each case.