2022 (7) TMI 607 - HC - VAT and Sales Tax

High Court Upholds Penalty for Tax Evasion, Emphasizes Mandatory Nature

State of Odisha, represented by the Commissioner of Sales Tax Versus M/s. Chandrakanta Jayantilal, Cuttack and Another

State of Odisha, represented by the Commissioner of Sales Tax Versus M/s. Chandrakanta Jayantilal, Cuttack and Another - [2023] 108 G S.T.R. 81 (Ori) Issues Involved:1. Validity of the deletion of penalty under Section 42(5) of the OVAT Act by the Odisha Sales Tax Tribunal.2. Legal interpretation of Section 42(5) of the OVAT Act in the context of tax audit assessments.Issue-wise Detailed Analysis:1. Validity of the Deletion of Penalty under Section 42(5) of the OVAT Act:The State filed a revision petition against the order of the Orissa Sales Tax Tribunal, which partially allowed the dealer's appeal and deleted the penalty imposed under Section 42(5) of the OVAT Act. The Tribunal had upheld the orders of the STO and JCST regarding the tax on the uncollected VAT amount but deleted the penalty, citing the Supreme Court decision in Sree Krishna Electricals v. State of Tamil Nadu (2009) 23 VST 249 (SC). The Tribunal reasoned that the dealer disclosed the uncollected VAT in its books of accounts, which were verified by the authority, and thus, the dealer was not involved in evading tax.2. Legal Interpretation of Section 42(5) of the OVAT Act:The High Court examined whether the Odisha Sales Tax Tribunal erred in law by deleting the penalty under Section 42(5) of the OVAT Act. The Court noted that Section 42(5) mandates an automatic imposition of a penalty equal to twice the amount of tax assessed under Section 42(3) or (4) following an audit assessment. The Court referred to its previous decision in Jindal Stainless Limited v. State of Odisha (2012) 54 VST 1 (Orissa), which upheld the constitutional validity of Section 42(5) and emphasized that the penalty is not discretionary but mandatory once the tax is assessed under the specified sections.The Court also distinguished the case from Sree Krishna Electricals, noting that the latter dealt with the Tamil Nadu General Sales Tax Act, which did not involve provisions similar to the tax audit assessment under the OVAT Act. Therefore, the deletion of the penalty by the Tribunal was not justified as the assessment was a tax audit assessment, and the penalty under Section 42(5) was automatic.Conclusion:The High Court concluded that the Tribunal erred in deleting the penalty under Section 42(5) of the OVAT Act. The penalty was mandatory once the tax was assessed under Section 42(4), and there was no discretion for the STO to waive it. The Court set aside the Tribunal's order to the extent that it deleted the penalty and allowed the revision petition in favor of the Department, thereby reinstating the penalty imposed on the dealer.