2009 (4) TMI 875 - HC - VAT and Sales Tax

Court overturns penalty under U.P. Trade Tax Act due to valid financial difficulties

The court set aside the penalty imposed under section 15A(1)(a) of the U.P. Trade Tax Act, 1948, due to the assessee's financial difficulties being ... Penalty proceedings initiated against the assessee under section 15A(1)(a) of the U.P. Trade Tax Act, 1948 Held that:- In the instant case, the explanation of the assessee-company is a plausible one. The assessee has been suffering financial losses continuously for the period of more than five years and hence the company could not pay tax on time. But when the assessee-company paid the tax, it had not paid the interest, which is badly exorbitant. In such circumstances, it cannot be said that the assessee-company has failed to show reasonable cause for the delay in deposit of due tax. In the facts and circumstances of the case, the imposition of penalty under the provisions of section 15A(1)(a) of the Act was not justified. The penalty is, therefore, set aside. Appeal allowed. Issues Involved:1. Imposition of penalty under section 15A(1)(a) of the U.P. Trade Tax Act, 1948 without a provisional assessment order.2. Justification of penalty imposition when tax has been deposited along with interest.3. Financial crisis faced by the applicant and its impact on penalty imposition.4. Sufficiency of cause shown for late deposit of tax.5. Validity of the Trade Tax Tribunal's order upholding the penalty imposition.Analysis:1. The revision challenged an order of the Trade Tax Tribunal imposing a penalty under section 15A(1)(a) of the U.P. Trade Tax Act, 1948. The first issue raised whether the absence of a provisional assessment order, as seen in a previous judgment, justifies the penalty imposition. The court referred to a case law emphasizing that penalty can only be imposed if the dealer fails to deposit tax without reasonable cause. In this case, the assessee's financial difficulties were considered valid reasons for the delay in tax payment, leading to the penalty being set aside.2. The second issue questioned the justification of imposing a penalty when the tax, along with interest, was deposited. The court noted that the assessee, facing financial distress as a sick company, paid the due tax within four days but did not pay the interest. Despite this, the court found the penalty imposition unjustified, highlighting the need for reasonable cause for delay in tax deposit under section 15A(1)(a) of the Act.3. The third issue addressed the financial crisis faced by the applicant and its impact on penalty imposition. The court acknowledged that the assessee had become a sick industrial company due to continuous losses, leading to financial difficulties. Considering the circumstances, the court found the penalty unjustified, emphasizing the need for a reasonable cause for late tax payment.4. The fourth issue examined whether the applicant had shown sufficient cause for the late deposit of tax. The court found the explanation provided by the assessee regarding financial losses and inability to pay tax on time plausible. As the assessee paid the tax within a short period but did not pay the interest, the court deemed the penalty imposition unwarranted.5. The final issue questioned the Trade Tax Tribunal's order upholding the penalty imposition. The court, after considering the facts and circumstances of the case, concluded that the penalty under section 15A(1)(a) of the Act was not justified. Consequently, the penalty was set aside, and the revision was allowed without costs.