2013 (3) TMI 679 - HC - VAT and Sales Tax

Court affirms Tax Board's penalty deletion citing prompt tax payment & justified lack of awareness.

The court upheld the Tax Board's decision to delete the penalty imposed by the petitioner-Department under section 25(1) read with section 61 of the Sales ... - ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 25(1) read with section 61 of the Sales Tax Act can be sustained where an assessee, for a short intervening period caused by statutory amendment, failed to collect and remit Central Sales Tax but subsequently deposited the differential tax before imposition of penalty. 2. Whether failure to be aware of a recent legislative amendment and immediate voluntary payment of due tax negates the requisite mens rea or concealment necessary for levy of penalty under section 25(1) read with section 61. 3. Whether entries in books of account showing the transactions, coupled with prompt deposit of tax, preclude imposition of penalty for concealment under section 25(1) read with section 61. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainment of penalty where non-collection/non-remittance arose from a short intervening statutory amendment Legal framework: Penalty provisions under section 25(1) read with section 61 of the Sales Tax Act permit imposition of penalty for concealment or evasion of tax. Liability to collect and remit Central Sales Tax (CST) arose by virtue of an amendment (effective April 1, 2007) removing tobacco from declared goods and a subsequent State notification (April 4, 2007) levying VAT. Precedent treatment: The Court assessed the statutory scheme and applied established principles that imposition of penalty for concealment requires proof of more than mere non-payment where there exist reasonable causes and prompt rectification. Interpretation and reasoning: The Court examined the temporal sequence: (a) amendment effective April 1 creating a narrow three-day window when CST at 4% was leviable; (b) State notification on April 4 altering the levy; (c) survey on May 15 revealing inter-State sales for April 1-3; and (d) deposit of differential tax on June 11, prior to penalty order. The Court observed that the non-collection/ non-remittance was confined to a very short intervening period caused by legislative change and that the assessee deposited the due tax before the penal order. The Court emphasized the complexity and frequent amendment of tax laws and recognized that even practitioners may learn of amendments belatedly. Ratio vs. Obiter: Ratio - Where non-collection/non-remittance arises solely from a transient legislative change and the assessee deposits due tax before imposition of penalty, the element required for penalty for concealment is not established. Obiter - Observations on the general difficulty of keeping abreast of frequent tax amendments and practitioners' occasional delay in learning them. Conclusion: The penalty could not be sustained on these facts; the Tax Board acted correctly in deleting the penalty imposed under section 25(1) read with section 61. Issue 2 - Mens rea/concealment: effect of lack of knowledge of amendment and prompt voluntary payment Legal framework: Penal liability for concealment under section 25(1) requires culpability (concealment/intent to evade) rather than mere omission. Good, sufficient and reasonable cause may excuse failure to collect or remit. Precedent treatment: The Court applied the established distinction between inadvertent omissions corrected promptly and deliberate concealment warranting penalty. Interpretation and reasoning: The Court accepted the assessee's explanation that the amendment and the subsequent State notification were not known to it in the narrow intervening period, and that upon becoming aware the assessee deposited the differential tax. The Court found absence of ulterior motive or fraudulent intent and that mere lack of notice of amendment, especially where transactions were recorded, did not amount to concealment. The Court required that the Department prove something more than non-payment to justify penalizing for concealment. Ratio vs. Obiter: Ratio - Lack of knowledge of a recent amendment and subsequent voluntary deposit of due tax negate the requisite concealment or mens rea for penalty under section 25(1) read with section 61. Obiter - Comments on the general obligation of taxpayers to collect tax notwithstanding dissemination/notice mechanisms. Conclusion: The absence of concealment or fraudulent intent, demonstrated by prompt payment and recorded transactions, bars imposition of penalty for concealment under the cited provisions. Issue 3 - Role of books of account and proof of transactions in assessing penalty for concealment Legal framework: Proof of concealment requires demonstration that transactions were deliberately omitted or falsified; properly maintained books of account supporting the existence of transactions are relevant to negativing concealment. Precedent treatment: The Court treated properly recorded transactions as a material factor undermining an allegation of concealment. Interpretation and reasoning: The Court noted that all transactions were duly recorded in the assessee's books and there was no contention that accounts were falsified. In combination with the prompt deposit of tax and the narrow time window caused by legislative change, the recorded entries supported the conclusion that there was no intention to conceal. The Court held that these facts weigh against imposition of penalty and that mere non-collection, absent concealment or fraudulent omission from records, is insufficient ground for penalty. Ratio vs. Obiter: Ratio - Duly recorded transactions, when coupled with immediate rectification by payment, preclude a finding of concealment warranting penalty under section 25(1) read with section 61. Obiter - None additional beyond emphasis on evidentiary weight of books of account. Conclusion: The existence of complete and accurate records undermines the Department's case for penalty; deletion of the penalty was justified. Cross-reference and overall conclusion Cross-reference: Issues 1-3 are interrelated: the transient statutory change (Issue 1) explains the omission; lack of mens rea and prompt payment (Issue 2) negate concealment; and proper accounting records (Issue 3) corroborate absence of deliberate evasion. Together they formed the factual matrix on which the Tax Board's deletion of penalty was upheld. Overall conclusion: The Court found no infirmity or perversity in the Tax Board's factual conclusion deleting the penalty under section 25(1) read with section 61 of the Act, and dismissed the revision petition. No substantial question of law arose from the factual determinations.