2014 (3) TMI 155 - HC - VAT and Sales Tax

Court allows Tax Case Revision, overturns penalty, emphasizes good faith disclosure.

M/s. Sree Mannikandan Leathers Versus The State of Tamilnadu rep. By Deputy Commissioner (CT)

The Court allowed the Tax Case Revision, concluding that the turnover disclosed in good faith could not be disregarded, and the penalty was unjustified. ... Imposition of penalty under Section 12(5)(iii) - Whether in the facts and circumstances of the case, when the taxability of the portion in respect of the sale of entry 7(a) and 7(b) of Second Schedule of Tamil Nadu General Sales Tax Act was not concluded, the imposition of penalty under Section 12(5)(iii) is legally sustainable - Held that:- once an assessment is made on the basis of the books of accounts, for invoking the provisions of Section 12(5) of the Act to levy penalty, the element of deliberateness, wilfulness or blameworthy conduct on the part of the assessee may not be necessary - assessee was under the bonafide impression as regards the liability of the turnover claimed as exempted in the return, and that it is not the case of the Revenue that the said turnover is not shown in the return - turnover disclosed the return could not be lost sight of while considering the plea of the assessee as regards the bona fide claim to levy penalty - Following decision of CEMENT MARKETING CO., OF INDIA LTD v. ASSISTANT COMMISSIONER OF SALES TAX [1979 (10) TMI 184 - SUPREME COURT OF INDIA] - Decided in favour of assessee. Issues:1. Assessment of taxability of certain sales under the Tamil Nadu General Sales Tax Act.2. Imposition of penalty under Section 12(5)(iii) for non-disclosure of turnover.Analysis:Issue 1: Assessment of taxability of certain sales under the Tamil Nadu General Sales Tax ActThe petitioner, a dealer in hides and skins, claimed exemption from tax on the turnover of selling finished leather, stating it was the same as raw skin purchased from other states. The dispute arose from the vires of Section 3 of the Tamil Nadu General Sales Tax Act. The petitioner filed a writ petition challenging its liability and obtained an injunction in 1992, which was later vacated in 1996. Despite paying the tax and challenging the assessment, a penalty was proposed and subsequently levied under Section 12(5)(iii) for non-disclosure of turnover. The Appellate Assistant Commissioner canceled the penalty, citing lack of wilfulness on the petitioner's part. However, the Revenue appealed to the Sales Tax Appellate Tribunal, which upheld the penalty. The petitioner then filed a revision challenging the Tribunal's decision.Issue 2: Imposition of penalty under Section 12(5)(iii) for non-disclosure of turnoverThe Revenue argued that since the claimed exemption was legally unsustainable, the turnover disclosed by the petitioner was incorrect, justifying the penalty under Section 12(5)(iii). However, the Court referred to a previous decision where it was held that for imposing penalties, the element of deliberateness or wilfulness on the part of the assessee must be considered. In this case, as the turnover was disclosed in good faith under the belief of exemption, and not disputed by the Revenue, the penalty was deemed unjustified. The Court set aside the Tribunal's decision, emphasizing the importance of assessing the bona fides of the assessee before imposing penalties.The Court allowed the Tax Case Revision, concluding that the turnover disclosed in good faith could not be disregarded, and the penalty was unjustified. The aspect of limitation regarding the penalty levy was not pursued further given the decision to set aside the Tribunal's order.