2021 (3) TMI 890 - HC - VAT and Sales Tax

High Court overturns Tribunal's penalty decision under TNVAT Act, emphasizing mens rea requirement and proper reasoning

Marutham Electricals Versus State of Tamil Nadu, The Joint Commissioner (CT), Salem Division, Salem

The High Court allowed the tax case revision, setting aside the Tribunal's order and reinstating the First Appellate Authority's decision to delete the ... Restoration of penalty levied under Section 27(3) of the TNVAT Act - no finding rendered by the Assessing Officer in the assessment order that the petitioner willfully failed to disclose the assessable turnover - HELD THAT:- The Tribunal, exceeded its jurisdiction in adjudicating upon an issue which was never adjudicated by the Assessing Officer at the first instance, more particularly, there was no prima facie finding recorded by the Assessing Officer while proposing to impose penalty in the prerevision notice dated 18.04.2016. Yet the dealer objected to the levy of penalty stating that there is no allegation of willful suppression made by the assessee. In the assessment order dated 02.12.2016, there is no finding rendered by the Assessing Officer as to why penalty is being levied. Therefore, the Tribunal need not have embarked upon such exercise and converted itself into a fact finding body of the first instance without noting the fact that they are an Appellate Tribunal examining the correctness of the finding recorded by the First Appellate Authority. Thus, the Tribunal committed a serious error in reversing the order passed by the First Appellate Authority. The tax case revision is allowed. Issues:Challenge against restoration of penalty under Section 27(3) of TNVAT Act by the Appellate Tribunal without a specific finding of willful suppression of turnover by the Assessing Officer.Detailed Analysis:1. Challenge against Restoration of Penalty:The tax case revision was filed by the assessee against the order of the Tamil Nadu Sales Tax Appellate Tribunal restoring the penalty levied under Section 27(3) of the TNVAT Act for the assessment year 2015-16. The primary question raised was whether the Appellate Tribunal was correct in restoring the penalty without a finding by the Assessing Officer regarding willful failure to disclose the assessable turnover. The Assessing Officer proposed to levy a penalty at 150% based on an inspection that revealed alleged stock difference and subsequent objections by the assessee. The First Appellate Authority considered two issues: sustainability of stock variation and the correctness of the penalty under Section 27(3). While the assessment was confirmed, the penalty was deleted based on legal precedents emphasizing the necessity of proving mens rea for penalty imposition.2. Lack of Reasoning for Penalty Imposition:The High Court observed that the Assessing Officer's order lacked reasoning for proposing the penalty under Section 27(3) and did not address the objections raised by the assessee adequately. The court highlighted that the assessment order did not provide justification for the penalty imposition, rendering it a non-speaking order concerning the penalty issue. The absence of a prima facie finding on mens rea in the proposal and the failure to address objections undermined the validity of the penalty imposition.3. Exceeding Jurisdiction by the Tribunal:The High Court criticized the Tribunal for overstepping its jurisdiction by adjudicating on an issue not addressed by the Assessing Officer initially. The Tribunal's decision to restore the penalty without a prima facie finding by the Assessing Officer and in the absence of a specific reason for penalty imposition was deemed erroneous. The court emphasized that the Tribunal should have focused on reviewing the First Appellate Authority's findings rather than acting as a fact-finding body, thereby committing a serious error in reversing the First Appellate Authority's order.4. Decision and Conclusion:The High Court allowed the tax case revision, setting aside the Tribunal's order and reinstating the First Appellate Authority's decision to delete the penalty. The court emphasized the necessity of establishing mens rea for penalty imposition and highlighted the importance of proper reasoning and findings by the Assessing Officer. The judgment favored the petitioner/assessee, emphasizing the legal requirements for penalty imposition under the TNVAT Act.