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

The High Court held that the Odisha Sales Tax Tribunal erred in deleting the penalty under Section 42(5) of the OVAT Act. The Court emphasized the ... Deletion of penalty levied under Section 42(5) of the OVAT Act - illegality committed by the fora below in levying tax on the uncollected value added tax amount by the Opposite Party-dealer or not - Section 42(5) of the OVAT Act - HELD THAT:- The question is whether there is any discretion in the STO not to impose the penalty under Section 42 (5) of the OVAT Act? In this context, it may be noticed that this Court in M/s. National Aluminium Company Ltd. v. Deputy Commissioner of Commercial Taxes [2021 (3) TMI 1024 - ORISSA HIGH COURT] noticed the distinction between the penalty imposable under Section 43(2) of the OVAT Act and the default penalty that stands attracted under Section 42(5) of the OVAT Act where it was held that The Court notes that under Section 42 (5) of the OVAT Act the penalty levied is “equal to twice the amount of tax assessed” under Section 42(3) or 42(4) pursuant to an audit assessment - There is no discretion with the Assessment Officer (AO) to reduce this amount of penalty. In the present case, there is no manner of doubt that the assessment was as a result of the AVR and was made under Section 42(4) of the OVAT Act. The consequence of the penalty attracted under Section 42(5) of the OVAT Act was automatic - It will be straightway noticed that the very wording of Section 42 (5) indicates that once as assessment is completed under Section 42(4) of the OVAT Act, the penalty leviable under Section 42(5) automatically follows. There is no discretion in the STO unlike the penalty imposable under Section 43(2) of the OVAT Act. The Court is of the view that in the present case the Tribunal erred in deleting the penalty imposable on the dealer under Section 42(5) of the OVAT Act, particularly since it came to the conclusion that the levy of tax on the uncollected VAT amount by the dealer was not excusable and upholding the orders of the STO and the JCST in that regard. Consequently, the question framed is answered in the affirmative i.e. in favour of the Department and against the Dealer. The revision petition is allowed. 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.