2025 (1) TMI 665 - HC - VAT / Sales Tax

Sales tax assessment on auction turnover upheld, automatic penalty confirmed under Section 12(3)(a)

The HC dismissed the petition challenging sales tax assessment on auction turnover. The petitioner, liable for sales tax on unredeemed articles sold ... Levy of penalty under Section 12(3)(a) of the Tamil Nadu General Sales Tax Act, 1959 - Taxability of the consideration received on sale of unredeemed articles by the auctioneers in terms of the Tamil Nadu General Sales Tax Act, 1959 - assessee's contention at the stage of assessment was that it is the auctioneer that would be so liable - HELD THAT:- The levy of penalty under Section 12 (3) (a), in the case of non-filing of returns, is, in our view, automatic. Admittedly, in the present case, the petitioner has not filed the returns and hence, the basis of assessment would be irrelevant - in any event, the assessing authority has rightly proceeded to assess the actuals of the sale consideration as obtained from the auctioneers and hence there is no question of best judgment assessment. This argument of the petitioner is hence rejected and levy of penalty under Section 12 (3) (a) is confirmed. Since the petitioner has raised a dispute in respect of the period for which the amounts have remained unpaid (relating to the levy of penal interest alone), let objections be submitted in writing before the assessing authority within a period of two (2) weeks from date of receipt of a copy of this order. Upon receipt of the objections, if any, petitioner will be heard and orders will be passed in respect of the quantification of the penal interest to be demanded, if any. It is made clear that there is no flaw in the demand of penal interest per se and it is only in respect of the period to which the interest relates, that the assessee is extended an opportunity. The reduction in rate of tax dealt with under paragraph 3 will be taken note of at this juncture and a revised demand prepared. Conclusion - i) The petitioner is liable for sales tax on auction turnover. ii) The penalty under Section 12(3)(a) is confirmed due to non-filing of returns. Petition dismissed. ISSUES: Whether the consideration received on sale of unredeemed pledged goods by auctioneers is taxable under the Tamil Nadu General Sales Tax Act, 1959 in the hands of the permanent fund. Whether the auctioneer, as a dealer, is liable to pay sales tax on the auction consideration received for unredeemed goods. The proper rate of sales tax applicable for the assessment years in question. The validity and computation of penalty under Section 12(3)(a) of the Tamil Nadu General Sales Tax Act, 1959, particularly in relation to non-filing of returns and best judgment assessments. Whether the petitioner is entitled to an opportunity to dispute the quantification and periods relating to penal interest demands. RULINGS / HOLDINGS: The turnover received from auction of unredeemed pledged goods is taxable in the hands of the permanent fund under the Tamil Nadu General Sales Tax Act, 1959, as the fund acts as a 'seller' and 'dealer' in respect of such sales. The auctioneer, although a dealer in its own right, is not liable to pay sales tax on the auction consideration in this case because the consideration enures as turnover of the permanent fund; hence, the tax liability rests with the fund. The applicable rate of tax for the period between 12.03.1993 and 16.07.1996 is 3%, and for the period post 17.07.1996 is 4%; the assessing authority's uniform adoption of 4% for all years is 'clearly erroneous' and requires rectification. Penalty under Section 12(3)(a) of the Act is 'automatic' in cases of non-filing of returns, regardless of whether the assessment is by best judgment; since the petitioner did not file returns, the levy of penalty is confirmed. The petitioner is entitled to submit written objections regarding the quantification and periods of penal interest demands, and must be heard before final orders are passed; however, there is no flaw in the demand of penal interest per se. RATIONALE: The Court relied on the authoritative pronouncement of the Supreme Court in Karnataka Pawn Brokers' Association v. State of Karnataka, which held that a pawnbroker selling unredeemed goods acts in two capacities and is liable as a 'dealer' under the Sales Tax Act; this principle was affirmed by the Madras High Court in Madras Pawn Brokers Association v. State of Tamil Nadu. The Court rejected the contention that the auctioneer alone is liable, distinguishing the roles and emphasizing that the turnover from the auction enures to the permanent fund, making it liable for tax. The Court applied the rates prescribed under the Tamil Nadu General Sales Tax Act, 1959, as clarified by the assessing authority, correcting the erroneous uniform rate application. Regarding penalty, the Court interpreted Section 12(3)(a) as mandating automatic penalty for non-filing of returns, independent of best judgment assessment principles, thereby overruling the petitioner's reliance on case law limiting penalty to best judgment assessments. In respect of penal interest demands, the Court granted procedural fairness by allowing objections and hearing on the period of interest, while upholding the legality of the demand itself.