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2010 DIGILAW 92 (GAU)

Indian Oil Corporation v. State of Tripura

2010-02-08

I.A.ANSARI

body2010
JUDGMENT I.A. Ansari, J. 1. This writ petition, made under Article 226 of the Constitution of India, puts to challenge the order, dated May 18, 2009 issued by respondent No. 3, namely, Superintendent of Taxes, Charge VII, Agartala, in so far as the same relates to imposition of penalty on the petitioner, which is a public limited company incorporated under the Companies Act, 1956, in respect of the assessment year 2003-04. 2. The materials facts, which are not in dispute and have given rise to the present writ petition, may be, first, noted. 3. The petitioner was a registered dealer under the Tripura Sales Tax Act, 1976 (since repealed and is hereinafter referred to as "the TST Act"). The petitioner presently holds a certificate of registration as a registered dealer under the Tripura Value Added Tax Act, 2004. A notice under Sub-section (2) of Section 9 read with Sub-section (4) thereof was issued, on June 11, 2009 by respondent No. 3 to the petitioner to produce the accounts and documents for the purpose of making assessment together with any objection, which the petitioner may have, the notice having been issued on the ground that the petitioner had not furnished returns correctly for the assessment year 2003-04. The notice also directed the petitioner to show cause as to why the petitioner shall not be made liable to pay, in addition to the amount, which may be assessed as tax, penalty under the provisions of Section 13 of the TST Act. The notice was followed by an order of assessment, dated May 18, 2009 whereby respondent No. 3, while assessing a sum of Rs. 9,45,61,497 as tax payable by the petitioner, imposed interest of a sum of Rs. 7,29,956.87 and penalty of Rs. 35,03,793.10. A notice of demand was accordingly raised, on May 18, 2009, itself. As against the amount assessed as tax payable by the petitioner and interest charged on the said unpaid amount of tax, while the petitioner preferred a statutory appeal, it has assailed the penalty, imposed by the order, dated May 18, 2009, aforementioned in this writ petition and also the notice of demand issued in this regard. It is, thus, the imposition of penalty, which forms the subject-matter of challenge in this writ petition. 4. It is, thus, the imposition of penalty, which forms the subject-matter of challenge in this writ petition. 4. Contending, inter alia, that the impugned order, imposing penalty and/or the notice demanding payment of penalty had not preceded by giving any notice to show cause to the petitioner, which ought to have been given to the petitioner, the petitioner has come to this Court seeking to get set aside and quashed, with the help of this writ petition, the impugned order to the extent that the same imposes penalty and also the notice of demand to the extent that the same relates to payment of penalty. 5. I have heard Dr. A.K. Saraf, learned senior Counsel, for the petitioner, and Mr. N.C. Pal, learned Senior Government Advocate, appearing on behalf of the respondents. 6. Appearing on behalf of the petitioner, it is submitted by Dr. Saraf, learned senior Counsel, that no penalty can be imposed on a person unless the conditions precedent, embodied in this regard, in Section 13 of the TST Act, are fulfilled. In the case at hand, contends Dr. Saraf, that respondent No. 3 had not, before imposing the penalty, given any notice to the petitioner giving him opportunity to make his submissions about the proposed penalty though, such a notice, according to Dr. Saraf, was mandatory and required to be given under Section 13(2). The impugned order, points out Dr. Saraf, does not assign any reason for imposing the penalty. The impugned order, imposing penalty, being bereft of any reasons, needs to be, pleaded Dr. Saraf, set aside and quashed. Dr. Saraf also contends that respondent No. 3 has imposed maximum penalty, which is imposable by virtue of the provisions of Section 13, but, while making the impugned order, no reason for such extreme step of imposing the maximum limit of liability has been assigned by respondent No. 3. 7. Controverting the submissions made on behalf of the petitioner, learned Senior Government Advocate, appearing on behalf of the respondents, resists the writ petition by contending, inter alia, that the imposition of penalty had preceded by a notice to show cause, the petitioner had received full and effective opportunity of having its say against the imposition of penalty and that the impugned order, imposing penalty, assigns valid and justifiable reasons and, hence, the writ petition is liable to be dismissed. 8. 8. Before dealing with the validity and justification of the impugned order and the notice of demand, it needs to be pointed out that under Section 8(1) of the TST Act, every registered dealer shall furnish such returns of his turnover by such dates and to such authorities as may be prescribed. In the case of any other dealer, whose business, in the opinion of the prescribed authority, is such as to render him liable to pay tax under the TST Act for any year or part thereof, the prescribed authority may serve, within three years of the completion of that year, a notice, in the prescribed form, upon the dealer requiring him to furnish return of his turnover and such dealer shall thereupon furnish the return within the period and to the authority mentioned in the notice. Section 8(3) gives a right to a dealer to furnish a revised return at any time before the assessment is made on the original return if the dealer discovers any omission or other error in any return furnished by him either under Sub-section (1) or Sub-section (2) of Section 8. When a prescribed authority is satisfied that the returns furnished by a registered dealer under Sub-section (1) or under Sub-section (2) of Section 8 thereof are correct and complete, he shall, by an order in writing, assess the dealer and determine the tax payable by him on the basis of such returns. When, however, the prescribed authority is not satisfied that the returns, furnished under Section 8, is correct and complete, he shall serve, on the dealer, a notice requiring him, on the date, and at the hour and place specified therein, either to attend in person or to produce or cause to be produced any evidence on which the dealer may rely in support of his return. Sub-section (4) of Section 9provides that if a dealer fails to make return as required by Sub-section (1) or Sub-section (2) or the dealer, having made the return, fails to comply with all the terms of the notice issued under Sub-section (2) of Section 8, the prescribed authority shall, by an order, in writing, assess, to the best of his judgment, the dealer and determine the tax payable by him on the basis of such assessment. 9. 9. From the scheme of the statutory provisions as contained in Sections 8 and 9, what clearly transpires is that while Section 8 relates to filing of return by a registered dealer on his own or on a direction issued, in this regard, by the prescribed authority, Section 9(1) empowers the prescribed authority to determine the tax payable by a dealer on the basis of the return, which the dealer may have furnished or on the basis of the evidence, which may have been produced on a direction issued, in this regard, by the prescribed authority in exercise of its powers under Section 9(2). However, when the dealer fails to furnish a return under Sub-section (1) or Sub-section (2) or, having made return, fails to comply with all the terms of the notice, which the prescribed authority may have issued under Section 9(2), the prescribed authority would have, under Section 9(4), the power to determine, to the best of his judgment, as to what the taxable liability of the dealer is. 10. Considering the fact that the present writ petition challenges the impugned order only to the extent that the same imposes penalty on the petitioner and considering also the fact that the penalty can be imposed, under the TST Act, by taking resort to the provisions of Section 13thereof and under no other provisions, let me, now, take note of the provisions contained in Section 13, which, I find, read as under: 13. Penalty for concealment of turnover and evasion of tax.- (1) If the Commissioner, in the course of any proceedings under this Act is satisfied that any dealer, - (a) has without reasonable cause, failed to furnish the return which he was required to furnish under Section 8 or Section11, or has, without reasonable cause, failed to furnish it within the time allowed and in the manner required, or (b) has without reasonable cause, failed to comply with a notice under Sub-section (2) of Section 9, or (c) has concealed the particulars of his turnover or deliberately furnished inaccurate particulars of such turnover, or (d) has evaded in any way the liability to pay tax, he may direct that such dealer exceeding one and half times that amount but which shall not be less than 10 per cent that amount. (2) No order under Sub-section (1) shall be made unless the dealer has been heard or has been given a reasonable opportunity of being heard. (3) (deleted) (4) The penalty payable under the Section shall be paid by such date as may be specified in the notice of demand and, where no such date is specified, it shall be paid within thirty days of the service of the notice. 13A. (1) If the Commissioner is satisfied that any transporter has delivered taxable goods to any person without obtaining from the dealer copy of the valid permit or has concealed the actual particulars of the consignment transported by him, the Commissioner may direct that such transporter, shall pay, in addition to tax, by way of penalty, a sum, which may extend to one hundred and fifty per cent of the tax involved. (2) No order under Sub-section (1) shall be made unless the transporter has been heard or has been given reasonable opportunity of being heard. 11. From a bare reading of Section 13, what clearly transpires is that penalty can be imposed only when the authority concerned is satisfied that a dealer has, without reasonable cause, failed to furnish return, which he was required to furnish under Section 8 or Section 11 of the TST Act or has, without reasonable cause, failed to furnish return within the time allowed and the manner required or has, without reasonable cause, failed to comply with a notice under Sub-section (2) of Section 9 or has concealed the particulars of his turnover or deliberately furnished inaccurate particulars of such turnover or has evaded the liability to pay tax. If the prescribed authority forms the view that any of the conditions aforementioned, as embodied under Clauses (a), (b), (c) and (d) of Section 13(1), is satisfied, he may direct such dealer to pay, by way of penalty, in addition to the tax payable by him, a sum not exceeding one and half times that amount, but which shall not be less than ten per cent of the amount. 12. What is, now, of utmost importance to note is that the proviso to Sub-section (2) of Section13 provides that no order, under Sub-section (1) of Section 13, imposing penalty, shall be made unless the dealer has been heard or has been given a reasonable opportunity of being heard. 12. What is, now, of utmost importance to note is that the proviso to Sub-section (2) of Section13 provides that no order, under Sub-section (1) of Section 13, imposing penalty, shall be made unless the dealer has been heard or has been given a reasonable opportunity of being heard. Thus, granting of an opportunity of hearing, before imposition of penalty, is a mandatory pre-condition for imposition of penalty under Section 13. Necessarily, therefore, imposition of penalty is not permissible unless an effective opportunity of hearing is granted to the person, on whom the penalty is proposed to be imposed, and, unless, upon such opportunity having been provided to the person concerned, the prescribed authority is satisfied that any of the conditions, embodied in Sub-section (1) of Section 13, is fulfilled. 13. Though the respondents have contended that against the proposed penalty, notice, dated June 11, 2009, had been given to the petitioner before the impugned order imposing penalty was passed, what needs to be noted is that the notice, dated June 11, 2009, aforementioned, is a notice, which was, admittedly, issued under Section 9(2) of the TST Act. The questions, therefore, are as to what Section 9(2) provides and whether a notice, under Section 9(2) or 9(4), is sufficient compliance of the requirement of giving of notice under Section 13(2) to the person on whom penalty is proposed to be imposed? Section 9(2), it may be borne in mind (as already pointed out above), empowers the prescribed authority to require a dealer to produce evidence in support of his return and Sub-section (4) of Section 9 empowers the prescribed authority to make assessment to the best of his judgment and determine the tax payable by the dealer on the basis of such best judgment assessment. Unless, therefore, a dealer fails to comply with a notice as regards production of evidence as may have been issued to him by a prescribed authority, the question of not complying with the requirement of Section 9(2) or Section 9(4) does not arise at all. Unless, therefore, a dealer fails to comply with a notice as regards production of evidence as may have been issued to him by a prescribed authority, the question of not complying with the requirement of Section 9(2) or Section 9(4) does not arise at all. This apart, a mere failure to comply with a notice, which may have been issued under Section9(2), shall not ipso facto make a dealer liable to suffer penalty inasmuch as Clause (b) of Section13(1) makes it clear that it is only when a dealer, without any reasonable cause, fails to comply with a notice issued under Section 9(2), that penalty can be imposed on him. Hence, while issuing a notice under Section 9(2), it is not possible to contend by a prescribed authority that the dealer has failed to comply with a notice issued under Section 9(2). The question of failure to comply with a notice arises only when a notice is served upon the dealer and the dealer fails to comply with the notice. Hence, merely because the notice dated June 11, 2009, aforementioned, which was, admittedly, issued under Section 9(2), mentions as to why penalty shall not be imposed, the impugned order, imposing penalty, cannot be treated to have met the requirement of service of notice on the petitioner as contemplated by Section 13(2). 14. A direction, issued under Section 9(2), to a person, to attend in person or to produce or cause to be produced any evidence, which he may rely in support of his return, is a step towards making assessment of tax and it is only upon assessment of tax that the question of imposition of penalty would arise or it is only when a direction, contained in the notice, issued under Section 9(2), is not complies with that penalty can be imposed by resorting to Section 13 if Section 9 is to be made a basis for imposition of penalty. 15. It is also worth noticing that the requirement of hearing, as contemplated by Section 13(2), cannot be satisfied unless a notice is given for hearing to the person on whom the penalty is proposed to be imposed informing him as to why penalty is sought to be imposed on him. 15. It is also worth noticing that the requirement of hearing, as contemplated by Section 13(2), cannot be satisfied unless a notice is given for hearing to the person on whom the penalty is proposed to be imposed informing him as to why penalty is sought to be imposed on him. As Section 13(1) contains a number of grounds on which penalty can be imposed, the prescribed authority, such as, the respondent No. 3, is duty-bound to inform the person, such as, the petitioner, on whom the penalty is sought to be imposed, as to why the prescribed authority proposes to impose the penalty. A mere notice permitting a person to make his submission as to why penalty shall not be imposed upon him under Section 13 will not be adequate compliance with the provisions embodied in Section 13 unless the reason as to why penalty is proposed to be imposed is assigned in the notice or the prescribed authority, when questioned, can show that the ground as to why penalty was sought to be imposed was known to the person on whom the penalty was proposed to be imposed. 16. The imposition of penalty is not a routine affair nor can the penalty be imposed as an automatic consequence of the conditions prescribed by Clauses (a), (b), (c) and (d) of Section13(1). The act of imposition of penalty on failure to perform a statutory obligation is an exercise of discretion of a prescribed authority and such discretion has to be exercised judicially and on consideration of all relevant circumstances. The petitioner rightly contends that in order to justify imposition of penalty, the authority concerned must not only have reasons to hold that there has been a default, but must also be satisfied that there was no good and sufficient reasons for the default. The order, imposing penalty, must assign reasons reflecting that the authority has applied his mind judicially to the facts and circumstances of a given case and has considered the explanation, if any, submitted by the assessee. Section 13 is a complete code inasmuch as Section13 not only embodies the conditions, which may make the assessee liable to suffer imposition of penalty, but also lays down the procedure regulating imposition of penalty. Section 13 is a complete code inasmuch as Section13 not only embodies the conditions, which may make the assessee liable to suffer imposition of penalty, but also lays down the procedure regulating imposition of penalty. The proceedings, as regards imposition of penalty, must be conducted in accordance with the procedure prescribed by Section 13, namely, that an effective opportunity of hearing be accorded to the person concerned before the penalty is imposed and an effective opportunity cannot be said to have been given to the person on whom the penalty is imposed unless the prescribed authority informs the person, proceeded against, as to why the penalty is proposed to be imposed. 17. What needs to be further noted is that Section 13(1) empowers the authority concerned to impose penalty, which may be as much as one and half times of the tax payable by an assessee. Section 13(1) also lays down that the penalty, if found imposable, shall not be less than ten per cent of the amount payable as tax by the dealer. Thus, imposition of penalty, beyond the minimum prescribed limit of ten per cent of the tax payable, falls in the realm of discretion of the authority concerned. Such a discretion cannot be exercised mechanically. An order, imposing penalty, must, therefore, disclose judicious application of mind. 18. Because of the fact that discretion has to be judiciously exercised, it is the bounden duty of the authority concerned to determine if the non-compliance was wilful and as to how serious the non-compliance of the statutory obligation was. The proceedings, as regards imposition of penalty, are distinct from, and independent of, the assessment proceedings inasmuch as an assessment proceeding is a proceeding as regards imposition of tax, whereas a penalty proceeding is, by its very nature, a criminal proceeding. The imposition of penalty is not an automatic concomitant of the assessment; it is for this reason that the safeguards have been provided by the statute itself to ensure that penalty is levied in appropriate cases only. The materials on record must prima facie reveal a tentative satisfaction of the authority concerned that penalty needs to be imposed on an assessee before a notice, seeking to impose penalty, is issued. Consequently, an order, imposing penalty, must record the findings as to what is the precise nature of default. The materials on record must prima facie reveal a tentative satisfaction of the authority concerned that penalty needs to be imposed on an assessee before a notice, seeking to impose penalty, is issued. Consequently, an order, imposing penalty, must record the findings as to what is the precise nature of default. No penalty can be imposed if no finding, as regards the precise nature of penalty, is mentioned. 19. In the case at hand, no finding has been recorded by respondent No. 3 for imposition of penalty. 20. In Hindustan Steel Ltd. v. State of Orissa reported in [1970] 25 STC 211 (SC) : [1969] 2 SCC 627, the apex court had, which dealing with imposition of penalty under the Orissa Sales Tax Act, 1947, which provide for imposition of penalty on a person for his failure to register himself as a dealer under the said Act, pointed out (at page 214 of STC) : 8. Under the Act penalty may be imposed for failure to register as a dealer: Section 9(1) read with Section 25(1) (a) of the Act. But 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 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 to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those incharge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Those incharge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out. 21. What follows from the above observations, made in Hindustan Steel Ltd. [1970] 25 STC 211 (SC) : [1969] 2 SCC 627, is that a mere default in discharging a statutory obligation, or a mere default in performing a duty cast upon a person under a taxing statute, cannot automatically entail penalty unless the default is found to be wilful and mala fide. 22. What crystallises from the above discussion is that the impugned directions, contained in the order, dated May 18, 2009, passed by respondent No. 3 imposing penalty of Rs. 35,03,793.10 on the petitioner, are not sustainable in law inasmuch as no notice, as is required under Section 13(2)of the TST Act, was issued to, and served upon, the petitioner before the said penalty was imposed on the petitioner and the petitioner was, thus, denied the opportunity of having his say in the matter. Situated thus, this Court cannot but be interfered with the impugned order, dated Match 18, 2009, to the extent that the same, as indicated hereinabove, imposes penalty on the petitioner. 23. In the result and for the reasons discussed above, the impugned order, dated May 18, 2009, is hereby set aside and quashed to the extent that the same imposes penalty on the petitioner leaving it open to the respondents to proceed with the matter in accordance with law if penalty, according to the respondents, need to be imposed on the petitioner. 24. With the above observations and directions, this writ petition shall stand disposed of. 25. No order as to costs.