2020 (9) TMI 3 - HC - VAT and Sales Tax

Court quashes penalties for non-filing of returns under Entry Tax Act, citing lack of willful non-compliance

The court quashed the penalties imposed on the petitioner for non-filing of returns under the Entry Tax Act, citing lack of willful non-compliance, prompt ... Penalty for failure to submit return - penalty for submission of incorrect or incomplete return - willful non-disclosure - mens rea requirement for imposition of penalty - application of General Sales Tax Act procedures to Entry Tax Act - right to personal hearing before imposition of penaltyPenalty for failure to submit return - willful non-disclosure - mens rea requirement for imposition of penalty - application of General Sales Tax Act procedures to Entry Tax Act - Validity of the penalties levied under the Entry Tax Act read with the General Sales Tax Act for the transactions in assessment years 2004-05 and 2005-06 - HELD THAT: - The Court found that penalties were imposed solely on the ground that returns were not filed and that the assessing authority invoked the penal machinery under the Entry Tax Act as applied through the General Sales Tax Act. The Court held that levy of penalty carries a penal element and requires a recorded satisfaction of willful non-disclosure or mens rea; no such satisfaction or finding appears in the impugned orders. The petitioner was not a regular importer or trader in the goods, promptly paid the tax when pointed out during inspection and did not challenge the department's demand. The Court also relied on precedents holding that payment of tax on inspection and absence of a recorded satisfaction of wilfulness are factors militating against imposition of penalty. In the circumstances, the impugned penalty orders were found unsustainable and were quashed. [Paras 9, 11, 13, 14]Penalties levied for the assessment years 2004-05 and 2005-06 are quashed for want of any recorded finding of willful non-disclosure and mens rea.Right to personal hearing before imposition of penalty - penalty for failure to submit return - Whether the petitioner was afforded a personal hearing before imposition of penalty - HELD THAT: - The Court noted the pre-assessment notice, the petitioner's detailed reply and that the impugned assessment orders were passed within days of the reply without affording personal hearing. The absence of personal hearing was considered relevant to the fairness of the proceedings, particularly given the penal consequence sought to be imposed. This procedural lapse reinforced the conclusion that the penalty orders could not be sustained. [Paras 10, 13, 14]Orders imposing penalty were quashed also on account of failure to afford the petitioner a personal hearing prior to imposition of penal consequences.Final Conclusion: Impugned assessment orders imposing penalties for the assessment years 2004-05 and 2005-06 are quashed on substantive and procedural grounds (absence of recorded satisfaction of willful non-disclosure/mens rea and denial of personal hearing); writ petitions allowed and connected matters closed. Issues Involved:1. Non-filing of returns under the Entry Tax Act.2. Levy of entry tax at a higher rate.3. Imposition of penalty for non-payment of entry tax.4. Procedural fairness and opportunity for personal hearing.Issue-wise Detailed Analysis:1. Non-filing of Returns Under the Entry Tax Act:The petitioner, engaged in retail sales of textiles and clothing, imported goods like aluminium sheets and air conditioners for renovation purposes between 2004 and 2006. The petitioner believed that since these imports were for one-time use and not for trading, they were not required to file returns under the Entry Tax Act. However, upon inspection, it was revealed that the petitioner had not filed the relevant returns, leading to the imposition of penalties under Section 10 of the Tamil Nadu Tax on Entry of Goods Into Local Areas Act, 2001, read with Section 12(3) of the Tamil Nadu General Sales Tax Act, 1959.2. Levy of Entry Tax at a Higher Rate:Initially, the petitioner paid entry tax at the rate of 3%, but enforcement officials later pointed out that the tax should have been 10%. The petitioner subsequently paid the additional 7% without contesting the department's stance. The petitioner argued that according to Notification No.II(2)/ct/568(f-4)/2002-G.O.No.81, dated 01.07.2002, the correct rate should have been 3%, and thus, the department erred in levying an extra 7%.3. Imposition of Penalty for Non-payment of Entry Tax:The penalties were levied because the petitioner did not file the relevant returns, as per the provisions of Section 12(3) of the Tamil Nadu General Sales Tax Act, 1959. The petitioner contended that the penalty could only be imposed if the non-payment of tax was willful. The court noted that the petitioner promptly paid the tax upon being informed and did not challenge the respondent's stand, indicating a lack of willful non-compliance. Additionally, the court referenced a previous case (U.D. Enterprises vs. The Commercial Tax Officer) where it was held that penalties require a specific observation of willful non-disclosure, which was absent in this case.4. Procedural Fairness and Opportunity for Personal Hearing:The court observed that the proceedings were initiated after a significant delay of over 14 years, with the pre-assessment notice issued on 12.06.2020, the reply given on 24.06.2020, and the impugned order passed on 29.06.2020. The court criticized the lack of personal hearing and the hasty conclusion of the proceedings, especially given the pandemic context. The court emphasized that penalty imposition involves a penal element, necessitating a finding of mens rea (guilty mind), which was not present in the impugned orders.Conclusion:The court found that the penalties were unjustified due to the absence of willful non-compliance, the prompt payment of the primary tax component, and the procedural unfairness in the assessment process. Consequently, the impugned orders were quashed, and the writ petitions were allowed without costs.