IS PENALTY A REVENUE DUE TO THE STATE?

[Sadanand Bulbule]

Dear Experts.

Navarathri Greetings.

Under VAT statute, there was an ambiguity regarding the levy of penalty even for petty violation of provisions of the Act particularly in respect of documents being accompanied with the goods under transportation, some times without the knowledge of another State law, despite binding rulings on the subject. Subsequently the provisions were challenged before the Karnataka High Court.The revision order levying penalty in respect of interstate transaction was set aside by the State High Court on the ground that those provisions apply only to the State of Karnataka and not in respect State interstate transactions. since the State did not enjoy such jurisdiction.

Some are facing charges of purported loss of revenue on the ground of incorrect adjudication of penalty proceedings which were initiated despite the said State High Court judgement. Therefore in terms of the said State High Court judgement when the provisions to levy penalty did not apply to interstate transactions, the question of revenue due to the State does not arise at all. Factual and legal position being so, the question of loss of revenue naturally shall not come into existence.

Therefore it is requested to clarify what is revenue due to the State? In other words, is penalty a revenue due to the State? Relevant rulings, if any, are solicited.

AI Summary

Penalty as revenue: statutory scope and territorial limits determine whether non imposition constitutes revenue loss.
Whether a penalty is revenue due to the State depends on the penalty provision's statutory scope and territorial application; where a court held the provision inapplicable to interstate transactions, penalty could not be treated as revenue due, and tribunal authority indicates non imposition of penalty does not automatically constitute revenue loss, while other authority holds lawful imposability of penalty alone is insufficient to deem an assessment order erroneous and prejudicial to revenue.