2021 (1) TMI 1101 - HC - VAT and Sales Tax

Direct to Home Broadcasting Co. liable for VAT on free goods, penalties overturned due to procedural errors

M/s Sun Direct TV. Pvt. Ltd. Versus The State of Tripura (represented by the Principal Secretary), The Principal Secretary, The Commissioner of Taxes (Revisional Authority), The Asst. Commissioner of Taxes (Appellate Authority), The Superintendent of Taxes, Tripura

The court upheld the liability of a Direct to Home broadcasting services company to pay value-added tax on goods provided to customers without charge but ... Levy of VAT - goods provided by a DTH provider to its customer - petitioner contends that for providing such equipments no charge is collected from the subscriber and petitioner continues to be the owner of the goods and thus the State authorities cannot collect value added tax on such equipments - HELD THAT:- The present petition are squarely covered by the decision of Division Bench of this Court in case of BHARTI TELEMEDIA LTD. VERSUS STATE OF TRIPURA AND OTHERS, TATA SKY LTD. VERSUS STATE OF TRIPURA AND OTHERS [2015 (11) TMI 46 - TRIPURA HIGH COURT]. The question involved in the said petition was with respect to inviting value added tax on the goods provided by a DTH provider to its customer so that the customer could enjoy such service. It is also a case where concededly there was no sale of goods - Nevertheless the High Court referring to the decision of Supreme Court in case of BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA [2006 (3) TMI 1 - SUPREME COURT] invoked the principle of transfer of right to use the goods. There are no hesitation in confirming the revisional order insofar as it pertains to the liability of the petitioner to pay tax with interest. However, in relation to penalty we find that the authorities have committed a serious error. Firstly, contrary to what the revisional authority has recorded in the impugned order, sufficient opportunity of hearing was not granted to the petitioner before imposing penalty by the Assessing Officer - The Assessing Officer, therefore, issued an oral notice to the accountant who was present, thereafter kept the further hearing of the assessments and penalty proceedings and recently orally instituted penalty proceedings in the afternoon on the same day, heard the accountant on penalty as well and concluded that the assessee was deliberately in default. Penalty - HELD THAT:- Such order of penalty cannot be upheld. Firstly, there was gross violation of principles of natural justice. Even if the accountant did not insist on a written notice for penalty, it is questionable whether the Assessing Officer could dispense with the same. More importantly, the penalty proceedings could not have been completed in a summary fashion after giving time from morning to afternoon to the accountant of the company to make his submissions. The penalty proceedings being quasi criminal in nature, strict requirement of procedural adherence is always insisted upon. The orders passed by the Assessing Officer and revisional authority confirming penalty against the petitioner are set aside - Petition allowed in part. Issues involved:Interpretation of value-added tax liability on goods provided by a Direct to Home broadcasting services company to customers without charge; Imposition of penalty by the Assessing Officer without sufficient opportunity of hearing; Application of principles of natural justice in penalty proceedings.Analysis:Issue 1: Interpretation of value-added tax liability on goods provided by the company to customers without chargeThe petitioner, a company providing Direct to Home broadcasting services in Tripura, contended that it offers Customer Premises Equipments (CPE) like Set Top Box, Smart Card, etc., free of cost to subscribers and remains the owner of these goods. The State VAT authorities believed the company was liable to pay VAT on these goods. The Assessing Officer issued a notice for unpaid VAT for the years 2009-10 to 2013-14, imposing penalties as well. The revisional authority upheld this decision, citing the transfer of the right to use the goods to subscribers. The court referred to a previous judgment involving a similar issue and upheld the liability of the petitioner to pay tax but found the penalty imposition erroneous.Issue 2: Imposition of penalty without sufficient opportunity of hearingThe court noted that the penalty proceedings against the petitioner were conducted hastily, with a lack of adherence to principles of natural justice. The Assessing Officer did not provide adequate opportunity for the petitioner to present their case before imposing the penalty. The court emphasized that penalty proceedings, being quasi-criminal in nature, require strict procedural adherence. It was observed that the petitioner did not act with mala fide intention in not offering the transaction to tax, especially considering the arguable nature of the issue and the petitioner's bona fide belief in the non-taxability of the transaction.Issue 3: Application of principles of natural justice in penalty proceedingsThe court found a serious error in the penalty imposition process, highlighting the violation of principles of natural justice. The hasty manner in which the penalty proceedings were conducted, without proper opportunity for the petitioner to present their case, was deemed unacceptable. The court emphasized the importance of procedural adherence in penalty proceedings, especially given their quasi-criminal nature. Ultimately, the court set aside the penalty orders against the petitioner, ruling in favor of the petitioner on this aspect.In conclusion, while confirming the liability of the petitioner to pay tax, the court set aside the penalty orders due to procedural irregularities and lack of sufficient opportunity for the petitioner to present their case. The judgment highlighted the importance of adhering to principles of natural justice in such proceedings, ensuring fair treatment and due process for all parties involved.