TaxTMI 
TaxTMI 
2015 (11) TMI 96
X X X X Extracts X X X X
X X X X Extracts X X X X
....xable turnovers under both the above enactments. Insofar as CST is concerned, the assessee claimed the benefit of the concessional rate of tax in respect of inter-State sales against 'C' Forms and claimed exemption from tax on the turnovers covered by 'F' Forms and T Forms. He also claimed certain other exemptions. Under Section 38(1) of the KVAT Act when once a dealer has filed his return under Section 35 of the KVAT Act, he shall be deemed to have assessed to tax. The Deputy Commissioner of Commercial Taxes issued notice under Section 39(1) of the KVAT Act for reassessment. After over-ruling the objections of the assessee, the Assessing Authority denied the benefit of concessional rate of tax in respect of inter-State sales against 'C' Forms on the ground that the 'C' Forms are either defective or not filed. He also disallowed the exemption claimed on the basis of 'F' and T Forms. 3. Aggrieved by the said order, the assessee preferred an appeal to the Joint Commissioner of Commercial Taxes, Bangalore. The First Appellate Authority partly allowed the appeals granting the benefit of concessional rate of tax in those cases where 'C' F....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ished to the assessee and, therefore, he submits the impugned order requires to be set aside on that short ground. He further submits that, though the assessee was not able to produce the original 'C' Form, he has produced duplicate 'C' Form and the authorities were not justified in denying the benefit of concessional rate of tax on the ground that the original 'C' Forms are not produced. He further contended that the assessee has been denied the concessional rate of tax also, on the ground that the invoices mentioned in 'C' Form pertain to a different quarter which is contrary to the circular issued by the Commissioner of Commercial Taxes. Lastly he contended that the levy of interest and penalty is not automatic nor is it mandatory but the authorities have proceeded on the assumption that once the liability to tax arises, the liability to pay interest and penalty is automatic and, therefore, he submits for the aforesaid reasons the impugned order requires to be set aside. 7. Per contra, the learned Counsel for the revenue submitted that:- "(a) In the instant case, before initiation of reassessment proceedings under Section 39(1) of the KVAT Act,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... separate order of assessment is required. However, if the Commissioner notifies the dealer of any requirement of production of accounts before the Prescribed Authority in support of a return filed for any period, then such authority shall proceed to assess such dealer on the basis of the return filed or to the best of his judgment when the return filed is incomplete or incorrect. 10. Section 39 provides that, where the Prescribed Authority has grounds to believe that any return furnished which is deemed as assessed or any assessment issued under Section 38 understates the correct tax liability of the dealer, then it may proceed to reassess and also make any further reassessment in addition to such earlier reassessment. As is clear from the language employed in Section 39, before that provision could be invoked there should be grounds to believe that any return furnished earlier understates the correct tax liability. Unless such grounds exist, the Assessing Authority has no jurisdiction to initiate reassessment proceedings. In fact, the question, what does the expression 'reason to believe' means, was the subject-matter of judgment of the Bombay High Court in the case of S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....upon reasonable grounds and that the Sales Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. It cannot be merely a pretence. 'Reason to believe is a common feature in taxing statutes. It has been considered to be the most salutary safeguard on the exercise of power by the officer concerned. It is made of two words 'reason' and 'to believe'. The word 'reason' means cause or justification and the word 'believe' means to accept as true or to have faith in it. Before the officer has faith or accepts a fact to exist there must be a justification for it. The belief may not be open to scrutiny as it is the final conclusion arrived at by the officer concerned, as a result of mental exercise made by him on the information received. But, the reason due to which the decision is reached can always be examined. The existence of reason(s) to believe is supposed to be the check, a limitation upon the power to reopen the assessment (See the leading decision on this subject in Barium Chemicals Limited and Another v. Company Law Board and Others,: AIR 1967 SC 295 at 324). The power conferred upon the Sales Tax Of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the Court that such "a reason to believe" or "opinion" was not formed on relevant facts or within the limits. It is an alternative safeguard to rules of natural justice where the function is administrative. 12. From the aforesaid judgment it is clear that, when an assessment is made either under Section 38(1) which is called a deemed assessment or an assessment after hearing the assessee or after the best judgment assessment is made, if such an assessment is to be reopened, it has to be for good and sufficient reasons. Section 39(1) clearly sets out under what circumstances such a reassessment could be done. It is only when the return furnished understates the correct tax liability. Therefore, unless such a ground exists or at least the Assessing Authority has reasons to believe that such a ground exists, he cannot initiate proceedings under Section 39(1). To see that such a power conferred under the Act is not unbridled one and it is not exercised with mala fide intention, in order to operate as a check or a limitation or the power to reopen the assessment, it is required that such reasons should be stated in writing. Once such reasons are stated in writing, it is not open to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e attached to the return. This requirement is not a mere formality or technicality but it is intended to achieve the object of preventing the forms being misused for the commission of fraud and collusion with a view to evade payment of taxes. The statutory provisions in this regard have to be construed strictly. Without producing the original 'C' Form as prescribed under the relevant section, a dealer is not entitled for concessional rate of tax under Section 8(4) of the CST Act. In that view of the matter, the said question of law is answered in favour of the revenue and against the assessee. Question 4: 15. The Commissioner of Commercial Taxes has issued Circular No. 1/2014-2015. Paras 2, 4(a) and 4(b) of the same reads as under:- "2. The date of invoice or consignment note indicates the date on which the seller or consignor has effected the sale or stock transfer from the State of Karnataka and the buyer or consignee in the other State would account for such transactions after the goods are delivered to him. Thus, there is a gap of time between the raising of sale invoice or consignment note by a dealer of this State and the actual receipt of the goods by the dealer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of law is answered in favour of the assessee and against the revenue. Question 5: 17. This Court had an occasion to consider the very question in the case of State of Karnataka v. Maintec Technologies Private Limited, Bangalore: 2014(79) Kar. L.J. 642 (HC) (DB) (STRP Nos. 120 and 229 to 250 of 2013 and connected matters, decided on 12-6-2014), where at para 16, it has been held as under:- "16. From the aforesaid judgment of the Apex Court it is clear, provision for charging interest is introduced in order to compensate for the loss occasioned to the revenue due to delay in payment of tax. The provision for charging of interest can only be on the basis of a statutory provision. It is a substantive law. The object is to compensate the revenue for delay in payment of tax. Therefore, effect has to be given to the said provision strictly in accordance with law. So long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under the Act. Therefore, it cannot be said that the assessee has not paid the tax which is payable. It is only after the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty to tax, he is liable to pay penalty equal to 10% of the amount of such tax under or overstated. However, before levying penalty he shall be given an opportunity of showing cause in writing against the imposition of penalty. It is only after considering the said cause, the penalty could be imposed. Therefore, it is clear that imposition of penalty under Section 72(2) is not automatic. A discretion is conferred on the Assessing Authority to impose penalty or not and the rate of such penalty is statutorily provided. The Apex Court in the case of Hindustan Steel Limited v. State of Orissa: (1950-2004)2 SCST 2123: AIR 1970 SC 253: (1969)2 SCC 627: (1970)25 STC 211 (SC) has categorically held that, 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 a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fence and to deter him from committing such offences. The penalty imposed under the said Section 78(5) is a civil liability. Willful concealment is not an essential ingredient for attracting the civil liability as in the case of prosecution. Section 78(2) is a mandatory provision. If the declaration Form ST 18-A/18-C does not support the goods in movement because it is left blank then in that event Section 78(5) provides for imposition of monetary penalty for non-compliance. Default or failure to comply with Section 78(2) is the failure/default of statutory civil obligation and proceedings under Section 78(5) is neither criminal nor quasi-criminal in nature. The penalty is for statutory offence. Therefore, there is no question of proving of intention or of mens rea as the same is excluded from the category of essential element for imposing penalty. Penalty under Section 78(5) is attracted as soon as there is contravention of statutory obligations. Intention of parties committing such violation is wholly irrelevant. Moreover, in the present case, we find that goods in movement carried with Form ST 18-A/18-C. The modus operandi adopted by the assessees itself indicates mens rea. This....
X X X X Extracts X X X X
X X X X Extracts X X X X
....then it is impossible for the Assessing Officer to assess the taxable goods. Moreover, in the absence of value/price it is not possible for the A.O. to arrive at the taxable turnover as defined under Section 2(42) of the said Act. Therefore, we have emphasised the words "material particulars" in the present case. It is not open to the assessees to contend that in certain cases of inter-State transactions they were not liable in any event for being taxed under the RST Act, 1994 and, therefore, penalty for contravention of Section 78(2) cannot be imposed. As stated hereinabove, declaration has to be given in Form ST 18-A/18-C even in respect of goods in movement under inter-State sales. It is for contravention of Section 78(2) that penalty is attracted under Section 78(5). Whether the goods are put in movement under local sales, imports, exports or inter-State transactions, they are goods in movement, therefore, they have to be supported by the requisite declaration. It is not open to the assessee to contravene and say that the goods were exempt. Without disclosing the nature of transaction it cannot be said that the transaction was exempt. In the present case, we are only concerned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The provisions of the CST Act also provides for 3 months time to the purchaser to furnish the 'C' Form. Even after the assessment order is passed and the dealer/assessee is denied the benefit of concessional rate of tax under the CST Act on the ground that 'C' Forms are not furnished, if he is able to secure the forms either at the time of assessment before the Assessing Authority or he is able to produce the said 'C' Forms before the First Appellate Authority or the Second Appellate Authority, the judicial opinion is that he is entitled to the benefit of the said concessional rate of tax. In fact, in the instant case, on production of 'C' Form at the appellate stage, the Appellate Authority has granted the benefit of concessional rate which had been denied by the Assessing Authority on the ground that the 'C' Forms were not furnished. Therefore, it is not a case of assessee trying to understate his liability to tax. His conduct in claiming concessional rate of tax in his return cannot be construed as a deliberate act in defiance of law or contumacious or dishonest or acted in conscious disregard of its obligations. On the contrary his decl....