2010 (1) TMI 1116 - HC - VAT and Sales Tax

Penalty for Tax Evasion Must Be Supported by Concrete Findings to Be Imposed

Anand Refrigeration Co. (P) Limited Versus State of Punjab

The High Court held that in the absence of sufficient evidence proving an attempt to evade tax, the penalty under section 14B(7) of the Punjab General ... Whether, on the facts and circumstances of the case, penalty under section 14B(7) of the Punjab General Sales Tax Act, 1948, was exigible? Held that:- In the absence of any cogent material and specific finding that there has been an attempt to avoid or evade the tax due or likely to be due, no penalty can be imposed on the assessee as contemplated under section 14B(7) of the Act. In favour of assessee. Issues Involved:1. Whether penalty under section 14B(7) of the Punjab General Sales Tax Act, 1948, was exigible.Issue-wise Detailed Analysis:1. Facts and Circumstances Leading to Penalty:The vehicle carrying a consignment of twenty deep freezers was intercepted on August 17, 1996. The driver produced documents that were deemed incomplete, improper, and not genuine. Consequently, a show-cause notice was issued, and a penalty of Rs. 1,26,000 was imposed under section 14B(7) of the Punjab General Sales Tax Act, 1948. The assessee's appeal was dismissed by the appellate authority, but the Sales Tax Tribunal later reduced the penalty to 15%.2. Legal Question Referred:The High Court was asked to opine on whether, given the facts and circumstances, the penalty under section 14B(7) was justified.3. Assessee's Argument:The assessee contended that they had already filed the return and informed the authorities about the sale on August 10, 1996, prior to the interception. They argued there was no attempt to evade tax and cited precedents that a penalty requires cogent material and a specific finding of tax evasion.4. State's Argument:The State argued that the documents submitted by the driver were incomplete and not genuine, justifying the penalty under the law.5. Legal Provisions and Interpretation:Section 14B of the Act was amended to prevent tax evasion, requiring proper documentation during transport. The penalty under section 14B(7) can only be imposed if there is sufficient material and a specific finding of an attempt to evade tax. The Full Bench in Mool Chand Chuni Lal's case emphasized that the basis for penalty is the attempt to evade tax, not merely the transportation of goods.6. Tribunal's Findings:The Sales Tax Tribunal found that the assessee had submitted the sales tax return a week before the interception, paid the tax, and the transaction was pre-authenticated by the West Bengal Sales Tax Department. The Tribunal reduced the penalty, indicating that the documents were genuine and the transaction was legitimate.7. High Court's Analysis:The High Court noted that the authorities ignored the documents on the ground that the bill was not from the regular bill book. However, there was no finding that the documents were forged. The Supreme Court's observation in M. M. Mathew's case was cited, emphasizing that suspicion cannot replace legal proof. The High Court concluded that without a specific finding of an attempt to evade tax, the penalty under section 14B(7) could not be imposed.8. Discretion in Imposing Penalty:The Court highlighted that penalty should not be imposed merely because the statute allows it. It should be imposed only if the party acted in deliberate defiance of the law or was guilty of contumacious or dishonest conduct. The Supreme Court's ruling in Hindustan Steel Ltd. v. State of Orissa was cited, stating that even if a minimum penalty is prescribed, it should not be imposed for technical or venial breaches or bona fide mistakes.Conclusion:The High Court held that in the absence of any cogent material and specific finding of an attempt to evade tax, no penalty could be imposed under section 14B(7). The substantial question of law was decided in favor of the assessee, and the reference was accepted accordingly.