Strict construction of VAT penalty provisions limits liability to the statutory minimum where no tax is payable on transported goods.

Under Section 72(6) of the Jharkhand Value Added Tax Act, 2005, where transported goods were treated as stock transfers and no tax was leviable, the tax-based component of penalty could not be computed. Applying strict construction of the penal provision, the Court held that the minimum penalty of Rs. 5,000 was the operative amount when tax liability was nil. Penalty orders, along with the appellate and tribunal orders, were set aside to the extent they imposed a higher penalty, and liability was confined to Rs. 5,000 in each matter.

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Issues: Whether, under Section 72(6) of the Jharkhand Value Added Tax Act, 2005, a penalty exceeding Rs. 5,000 can be imposed when no tax is leviable on the goods being transported.

Analysis: Section 72(6) prescribes penalty at three times the tax leviable on the goods or Rs. 5,000, whichever is greater. The goods in both matters were found to have moved on stock transfer basis, and the assessment orders also treated the transactions as exempt from sales tax/VAT. On that footing, tax leviable on the goods was nil. The statutory language was read to mean that where no tax is leviable, the higher component based on tax cannot be computed, and the minimum figure of Rs. 5,000 becomes the operative penalty. The Court also applied the settled rule that a penal provision must be construed strictly and, in case of ambiguity, in favour of the assessee. The authorities relied on by the Revenue were distinguished on facts.

Conclusion: No penalty above Rs. 5,000 could be levied where no tax was payable on the transported goods. The penalty orders and the appellate and tribunal orders were set aside to that extent, and the petitioners were held liable only to pay Rs. 5,000 in each case.

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