2020 (3) TMI 734 - HC - VAT and Sales Tax

Court upholds penalty under Tamil Nadu Sales Tax Act, emphasizes deterrence against evasion. Appellate error corrected, reassessment ordered. Penalty not justified for incorrect returns.

Audco India Limited Versus Commercial Tax Officer (Anna Salai II), The Appellate Assistant Commissioner (CT), The Sales Tax Appellate Tribunal, State of Tamil Nadu

The Court upheld the penalty imposed under Section 12(3)(b) of the Tamil Nadu General Sales Tax Act, emphasizing the deterrent effect against tax evasion. ... Imposition of penalty u/s 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959 - imposition of additional tax on the sales made by the Assessee, which were not supported by declaration in 'C' Forms - Best Judgment Assessment - HELD THAT:- The parameters of Section 12(3)(b) of the Act are not satisfied in the present case. Section 12(3)(b) provides for imposition of penalty in case of submission of incorrect or incomplete return by the Assessee. Both the grounds given above for imposition of additional tax on the Assessee did not result in Best Judgment Assessment against the Assessee and it cannot amount to filing of incorrect or incomplete return by the Assessee. On debatable issues, even if the addition in taxable turnover is made by the Assessing Officer, it does not amount to Best Judgment Assessment, which can be passed, only if the regular books of accounts and the return filed by the Assessee are rejected for given reasons. Therefore, the learned Tribunal has erred in relying upon the insertion of the Explanation in Section 12(3) of the Act at a later date with effect from 01.04.1996 to uphold such penalty in the year 1993-94. Thus, the Explanation to Section 12(3) does not get attracted to the facts of the present case at all. Petition allowed. Issues:1. Imposition of penalty under Section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959.2. Interpretation of the legal provisions regarding penalty for incorrect or incomplete returns.3. Application of the Explanation under Section 12(3)(b) of the Act to the case.Issue 1: Imposition of penalty under Section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959The Assessee filed a writ petition challenging the penalty imposed under Section 12(3)(b) of the TNGST Act. The Tribunal had upheld the penalty, emphasizing that until the insertion of the 'Explanation' under Section 12(3)(b), all types of balances in tax payable derived in an assessment order would attract a penalty. The Court cited a case law to support the position that delaying taxes legally payable to the State would attract a penalty as an effective deterrent against tax evasion. The Court highlighted that the penalty was consequential to the balance of tax payable derived in the assessment order, and the Appellate Assistant Commissioner erred in deleting the penalty. The Court directed the Assessing Officer to reevaluate the penalty amount based on the modified balance of tax payable, as determined by the Appellate Assistant Commissioner.Issue 2: Interpretation of the legal provisions regarding penalty for incorrect or incomplete returnsThe appellant argued that the imposition of penalty was based on additional tax imposed by the assessing authority on sales not supported by 'C' Forms and on cash incentives received on exports, which were considered part of the taxable turnover. The appellant contended that the penalty under Section 12(3)(b) was attracted only in cases of Best Judgment Assessment under Section 12(2) of the Act. The Court disagreed with the Tribunal's decision, stating that the parameters of Section 12(3)(b) were not satisfied in this case. It clarified that the grounds for additional tax did not result in Best Judgment Assessment or filing of incorrect or incomplete returns by the Assessee. The Court held that the Explanation to Section 12(3) did not apply to the facts of the case, and the penalty was not justified.Issue 3: Application of the Explanation under Section 12(3)(b) of the Act to the caseThe Court concluded that the Explanation under Section 12(3)(b) did not apply to the case, as the grounds for additional tax did not lead to Best Judgment Assessment or submission of incorrect or incomplete returns by the Assessee. The Court allowed the Assessee's writ petition, setting aside the Tribunal's order upholding the penalty. The Court held that the penalty was not justified in this case, and no costs were awarded.This analysis provides a detailed overview of the judgment, addressing the issues involved and the Court's reasoning behind setting aside the penalty imposed under Section 12(3)(b) of the TNGST Act.