TaxTMI 
TaxTMI 
2011 (9) TMI 471
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....of the State is that while there is a discretion on whether or not a penalty should be imposed in the first place, no discretion is conferred by Section 61(2) to reduce the amount of penalty, once the Commissioner comes to the conclusion that a penalty is liable to be imposed. 2. We admit the appeal on the following substantial questions of law (as recast by the Court to bring out the nature of the controversy in the appeal): "(i) Does Section 61(2) of the MVAT Act confer a discretion on whether or not a penalty should be imposed as well as on the quantum of penalty? (ii) In the event that the Commissioner holds that a penalty has to be imposed under Section 61(2) upon the failure of a dealer to furnish an audit report within the prescribed period, does the Commissioner have the discretion to impose a penalty less than one tenth per cent of the total sales? (iii) Is the reduction in the quantum of penalty from Rs.83, 013/- to Rs.25,000/- justified in the facts and circumstances of the case?" 3. The Respondent is a registered dealer under the provisions of the MVAT Act, 2002. The Respondent filed an audit report under Section 61 in the prescri....
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.... the MVAT Act, 2002 in which the imposition of a penalty is not mandatory, but discretionary; (iii) In the event that two constructions are possible a construction which favours the Assessee should be adopted; (iv) The Tribunal has consistently taken the same position which has not been challenged by the Revenue; (v) Unless a discretion were to be construed to have been granted to the Commissioner by Section 61(2) both in regard to the imposition of a penalty and in regard to the extent of the penalty the provisions would be confiscatory; and (vi) The Commissioner has passed orders imposing arbitrary penalties as high as Rs.52.92 lakh in one case, upon which reliance was placed. 6. The rival submissions now fall for determination. Section 61 provides for the audit of accounts in certain cases. In clause (1) of section 61 (as it stood at the material time), every dealer liable to pay tax, if his turnover of sales or as the case may be, of purchases exceeds rupees forty lakh in any year, is required to get his accounts in respect of such year audited by an accountant within the prescribed period from the end of that year and furnish within that period the report of such audit....
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....) of Section 61 is not mandatory has been emphasized in a judgment of a Division Bench of this Court in Nitco Paints Ltd. V. State of Maharashtr a 2 in the following terms " Section 61(2) clearly specifies that upon the failure of the dealer to get his accounts audited and to furnish a copy of the report within the time as prescribed, the Commissioner may after furnishing a reasonable opportunity of being heard, impose a penalty at the rate stipulated. The law provides that the penalty may be imposed and contemplates that a reasonable opportunity should be furnished to the dealer. Obviously there would be no occasion to furnish a reasonable opportunity of being heard if the liability to levy the penalty was automatic. Since the legislation has used the expression "may", the imposition of a penalty is discretionary. Undoubtedly, such a discretion has to be exercised in accordance with law and judiciously." 8. But the submission which has been urged on behalf of the Revenue is that once the Commissioner proceeds to hold that a penalty is liable to be imposed, he must necessarily impose a penalty equal to one tenth per cent of the total sales. In other words, it is urged that ....
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....ndra Textile decides." In the case of State of Rajasthan V. D.P. Metals 4 , a three judge bench of the Supreme Court interpreted Section 78(5) of the Rajasthan Sales Tax Act, 1994 which read as follows: "The Incharge of the check-post or the officer empowered under sub-section (3), after having given the person incharge of the goods a reasonable opportunity of being heard and after having held such enquiry as he may deem fit, shall impose on him for possession or movement of goods, whether seized or not, in violation of the provisions of clause (a) of sub-section (2) or for submission of false or forged documents or declaration, a penalty equal to thirty percent of the value of such goods." There, the Court laid emphasis on the use of the word "shall" to hold that: "This provision cannot be read as to imply that the penalty of 30% is the maximum and lesser penalty can be levied. The legislature thought it fit to specify a fixed rate of penalty and not give any discretion in lowering the rate of penalty. The penalty so fixed is meant to be a deterrent and we do not see anything wrong in this5." Thus, the Supreme Court has held that where the l....
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....he State treated the provision for the levy of penalty equal to ten times of the amount of entry tax as a maximum penalty and not a fixed amount of penalty leaving no discretion for imposition of a lesser penalty. Undoubtedly, therefore, there was a concession before the Supreme Court by the State. Moreover, it was urged before the Supreme Court by the State that the presumption was rebuttable. After recording the submissions, the Supreme Court held as follows: "From the aforesaid it follows that Section 7(5) has to be construed to mean that the presumption contained therein is rebuttable and secondly the penalty of ten times the amount of entry tax stipulated therein is only the maximum amount which could be levied and the assessing authority has the discretion to levy lesser amount, depending upon the facts and circumstances of each case. Construing Section 7(5) in this manner the decision of the High Court that Section 7(5) is ultra vires cannot be sustained." (emphasis supplied) Now, no doubt, in that case a statement was made before the Supreme Court by the State of Madhya Pradesh that the levy of a penalty equal to ten times the amount of entry tax was the max....