2022 (3) TMI 1652 - HC - VAT / Sales Tax

Revision allowed; penalty under VAT Act s.54(1)(14) set aside for no intent to evade tax, clerical lapse

HC allowed revision and set aside Tribunal's order imposing penalty under s.54(1)(14) of the UP VAT Act. The court found no material showing intent to ... Levy of penalty u/s 54(1)(14) of the UP Value Added Tax Act - no material on the record to indicate any kind of intention to evade the payment of tax by the applicant - ground of Form 38 column 6 was blank - HELD THAT:- Admittedly, the goods in question were transported from Delhi and all relevant documents, as required under the Act, were accompanying the goods. Neither the genuineness of the documents were doubted, nor any discrepancy was found with regard to quantity, prescription or amount mentioned in the accompanying documents. Merely column no. 6 of Form - 38 was not filled, will not automatically create a suspicion, but before levying the penalty, the intention has to be looked into. Once the first appellate authority, after due consideration of the fact, came to the conclusion that non-filling of column no. 6 of Form - 38 was a clerical mistake, the Tribunal, without reversing the said finding and on irrelevant consideration, has come to the conclusion that there was intention to evade payment of tax. While coming to the said conclusion, the Tribunal has recorded the fact that the distance from Delhi to Allahabad is not much. Further, the dealer has failed to disclosed the details of toll on the way and therefore, came to the conclusion that there was intention to evade payment of tax, but the fact remains that the transaction in question was through banking channel as the Tribunal itself has recorded that part payment was made through cheque. Further, this Court in the Commissioner, Commercial Tax, U.P. Lucknow Vs. S/S Dabur India Limited, [2014 (10) TMI 529 - ALLAHABAD HIGH COUR], has held that no adverse inference can be drawn if column no. 6 of Form – 38 is not filled. The impugned order passed by the Tribunal is set aside. The penalty proceedings are dropped - revision allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under Section 54(1)(14) of the U.P. Value Added Tax Act can be levied where the only defect is non-filling of column 6 of Form 38, in the absence of material demonstrating any intention to evade payment of tax. 2. What is the requisite standard and nature of evidence (including inference of intention) required before imposing penalty under Section 54(1)(14) when documents accompanying goods are otherwise genuine and consistent with books of account and assessment proceedings. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Legitimacy of imposing penalty where only Form 38 column 6 is blank Legal framework: Section 54(1)(14) provides for imposition of penalty for offences involving evasion of tax; imposition requires demonstration of culpable conduct or intention to evade tax rather than mere technical defects in documentation. Precedent Treatment: The Court relied on settled decisions of this Court holding that non-filling of column 6 of Form 38, standing alone, does not attract adverse inference and does not automatically justify imposition of penalty under the penal provision. Interpretation and reasoning: The Court examined the contemporaneous record - goods transported from outside the State were accompanied by prescribed documents; genuineness was not doubted; no discrepancy in quantity, description or amounts; transaction reflected in books of account; part payment effected through banking channel; assessment authority had already found non-filling to be a clerical mistake. In that factual matrix, mere omission of information in a single column of Form 38 did not, without more, demonstrate mens rea to evade tax. The Tribunal's contrary conclusion rested on irrelevant or insufficient considerations (e.g., short distance between source and destination, non-disclosure of toll particulars) which by themselves did not establish intention to evade tax. Ratio vs. Obiter: Ratio - penalty under Section 54(1)(14) cannot be levied on the basis of a solitary clerical omission in Form 38 where documents are otherwise genuine, books reflect the transaction and assessment does not support evasion; Tribunal's reliance on peripheral factors to infer intention is impermissible. Obiter - observations about ease of selling trading goods if not seized and speculative reuse of forms are ancillary and not foundational to the decision. Conclusions: The Court concluded that, on the facts, there was no material to indicate intention to evade tax; therefore the penalty could not be sustained and must be dropped. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Standard and sufficiency of evidence to infer intention to evade tax before imposing statutory penalty Legal framework: Penal consequences under the Value Added Tax regime require proof of culpable intention or conduct showing evasion; administrative suspicion arising from technical defects is insufficient. The fact-finding of the first appellate authority on intention is relevant and should not be lightly displaced unless demonstrably perverse or unsupported by record. Precedent Treatment: The Court treated prior rulings of the same court as affirming that adverse inference cannot be drawn solely from omission in Form 38 and that clerical mistakes do not ipso facto attract penal consequences; these authorities were followed in reaching the present conclusion. Interpretation and reasoning: The Court emphasized that the Tribunal failed to overturn the first appellate authority's specific finding that the omission was clerical; it substituted its own view by drawing inferences from unrelated facts. Where an assessment has been carried out, documents verified, goods recorded in books, and part payment traced through banking channels, the existence ofenticement or intention to evade must be established by positive evidence or cogent inference - not by conjecture from minor procedural lapses. The tribunal's emphasis on distance and alleged non-disclosure of toll particulars amounted to speculative reasoning insufficient to meet the statutory standard for penalty. Ratio vs. Obiter: Ratio - imposition of penal liability requires positive material supporting intention to evade; absence of such material, particularly where assessment and books corroborate the transaction, mandates discharge from penalty. Obiter - discussion of possible misuse of forms for resale or broad policy remarks about trading goods' marketability do not form part of the binding rationale. Conclusions: The Court held that the standard of proof for inferring intention was not met; the Tribunal's reversal of the appellate finding lacked basis; penalty proceedings were therefore liable to be quashed. CONCLUSION AND DISPOSITION (cross-reference) Having found (i) no discrepancy in accompanying documents, (ii) corroboration in books of account and assessment proceedings, and (iii) absence of material demonstrating intention to evade tax, the Court set aside the Tribunal's order reinstating penalty and directed that penalty proceedings be dropped. The questions of law as framed were answered accordingly.