2025 (7) TMI 1634 - HC - VAT / Sales Tax

Penalty reduced to 5% for carelessness in Way-bill violation without intent to evade tax under relevant rules

The HC held that although the petitioner failed to generate the required Way-bill before moving goods, this constituted a statutory violation without ... Seeking condonation of delay of 440 days in filing the application - sufficient reasons for delay or not - no Way-bill was generated in Form- 50A - intent to evade tax present or not - penalty - HELD THAT:- It is an admitted fact that on the said date, no Way-bill was generated in Form- 50A. On information being received that a huge stock of cement was being shifted from the railway rake point, the officers of the respondent/department inspected the godown on 7th May, 2013. On the very same day, the petitioner had generated the Way-bill and it was placed before the authority. Thus, it is clear that on the date when the cement bags were moved to the godown from the railway station, there was no valid Way-bill. This would undoubtedly be a statutory violation but while imposing penalty, what is required to be seen is whether there was any intention on the part of the petitioner, who is a registered dealer to evade payment of tax. The Hon’ble Supreme Court in Hindusthan Steel Ltd. v. State of Orissa [1969 (8) TMI 31 - SUPREME COURT] observed that the “liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out the statutory obligation is the result of quasi-criminal proceedings and penalty could not ordinarily be imposed unless the party concerned either acted deliberately in defiance of law or was guilty of conduct which was contumacious or dishonest or that the dealer in question had acted in conscious disregard of his obligation”. It was further observed “penalty could not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation was a matter of discretion of the authority to be exercised judicially and on a consideration of all relevant circumstances.” It is no doubt true that there was a statutory obligation on the part of the petitioner to generate the Way-bill, which it had done only on 7th May, 2013, which ought to have been done on 5th May, 2013 before the goods were despatched to the godown from the railway rake point. Certain reasons have been assigned by the petitioner in not being able to do so including glitches in the system etc., which has not been established beyond reasonable doubt - non-generation of the Way-bill can be construed to be a clerical error for which there is discretion vested with the Commissioner to impose lesser penalty than the penalty provided in the table under sub-section (1) of section 77. The petitioner should have exercised more caution and care especially when the petitioner is a very large business house and has been carrying on such activities for a prolonged period of time. There has been some carelessness and clerical mistake on their part and therefore, penalty has to be imposed but not @14.5% imposed by the authority. The order passed by the learned tribunal is set aside and the order passed by the authority imposing penalty @ 14.5% is modified and the rate of penalty is reduced to 5% of the fair market value of the seized goods on the date of seizure - Petition allowed. ISSUES: Whether delay in filing an application for recalling an order can be condoned in the absence of satisfactory reasons and proper affidavit.Whether penalty imposed under the relevant tax statute for non-generation of statutory Way-bill can be sustained where there is no intention to evade tax.Whether the rate of penalty imposed (@14.5%) is justified in circumstances where the violation is a clerical error without deliberate tax evasion.Whether the statutory obligation to generate Way-bill can be excused or mitigated due to bona fide mistakes or technical glitches.Whether the discretion of the tax authority to impose penalty should be exercised judicially considering all relevant circumstances. RULINGS / HOLDINGS: The tribunal rightly refused to condone the delay of 440 days in filing the application due to unsatisfactory reasons and improper affidavit, and this Court found no error in that conclusion.Penalty for failure to generate Way-bill is a statutory violation but 'penalty could not ordinarily be imposed unless the party concerned either acted deliberately in defiance of law or was guilty of conduct which was contumacious or dishonest or that the dealer in question had acted in conscious disregard of his obligation'.The imposition of penalty at the rate of 14.5% was excessive given the absence of any intention to evade tax and the nature of the violation as a clerical error.The petitioner's failure to generate the Way-bill on the date of movement was a 'clerical error' and the statutory obligation, though not fulfilled timely, was ultimately complied with on the same day of inspection.The discretion vested in the Commissioner to impose penalty under sub-section (1) of section 77 must be exercised judicially and penalties may be reduced in cases of bona fide mistakes without deliberate tax evasion. RATIONALE: The Court applied the legal principles laid down in Hindusthan Steel Ltd. v. State of Orissa, emphasizing that penalty liability arises only upon deliberate or contumacious conduct or conscious disregard of statutory obligation.Precedents from the same High Court in Zarghamuddin Ansari and Kodak India Limited were considered, reinforcing the discretionary and judicial nature of penalty imposition in tax matters.The Court noted the absence of any allegation or evidence of tax evasion or dishonest conduct by the petitioner, and the existence of Form-F declaration establishing the stock transfer.The Court recognized the statutory obligation to generate Way-bill but found that the failure was due to 'clerical error' and possibly technical glitches, which were not proven beyond reasonable doubt.The decision reflects a doctrinal approach that penalty imposition must be proportionate and considerate of the facts, allowing reduction of penalty where the violation is not deliberate.The Court modified the penalty to 5% of the fair market value of the seized goods, directing refund of excess amounts deposited without interest, emphasizing fairness and judicial discretion.