Research › Search › Judgment

Bombay High Court · body

2011 DIGILAW 646 (BOM)

NITCO PAINTS LTD. v. STATE OF MAHARASHTRA

2011-06-10

ANOOP V.MOHTA, D.Y.CHANDRACHUD

body2011
JUDGMENT This appeal arises out of an order passed by the Maharashtra Sales Tax Tribunal on July 12, 2010. The appeal pertains to assessment year 2006-07. The appellant is a registered dealer under the Maharashtra Value Added Tax Act, 2002 (the MVAT Act) as well as the Central Sales Tax Act and engages in the manufacturer and sale of paint. The appellant filed returns for assessment year 2006-07 and was under an obligation to get the accounts audited and to file an audit report within the prescribed period which was ten months from the end of the year to which the returns relate. The audit report for the assessment year 2006-07 had to be filed by January 31, 2008. It is not in dispute that the Commissioner of Sales Tax had extended the prescribed period until August 31, 2008. The appellant failed to file the audit report even by August 31, 2008. A notice was issued to the appellant on March 20, 2009 by the Deputy Commissioner of Sales Tax by which a penalty was proposed to be levied under section 61(2). As a matter of fact, the appellant did file an audit report on April 15, 2009 and submitted an explanation for the delay. The Deputy Commissioner of Sales Tax by an order dated May 25, 2009 was of the view that the reasons given were not "considerable" and hence a penalty of Rs. 6,48,632 was imposed. In a first appeal, the Joint Commissioner of Sales Tax (Appeals) by an order dated September 9, 2009 held that the liability to levy a penalty was automatic on failure to file an audit report within the prescribed time. The penalty was confirmed. Before the Tribunal two issues were raised by the appellant. The first submission was that for assessment year 2006-07 section 61(2) as it originally stood provided that a penalty for a failure to file an audit report within the prescribed time could be imposed in an amount equal to 1/10th per cent of the total sales or, as the case may be, purchase, or a sum of Rs. 1 lac whichever is less. This provision was amended with effect from August 15, 2007 by Maharashtra Act 25 of 2007. As a result of the amendment it has been provided that a penalty equal to 1/10th per cent of the total sales may be imposed. 1 lac whichever is less. This provision was amended with effect from August 15, 2007 by Maharashtra Act 25 of 2007. As a result of the amendment it has been provided that a penalty equal to 1/10th per cent of the total sales may be imposed. According to the appellant, the amended provision would not apply to assessment year 2006-07. Secondly, it was urged before the Tribunal that the explanation tendered by the appellant had not been considered by the first appellate authority which had come to the conclusion that the liability to levy a penalty was automatic. Both these aspects were considered by the Tribunal. The Tribunal on the first issue relied on the judgment of the Supreme Court in Maya Rani Punj v. Commissioner of Income-tax [1987] 65 STC 416 (SC). The Tribunal held that a penalty is not a continuation of the assessment proceeding and the liability would be attracted as soon as the wrongful act was committed. The omission to file the audit report was completed on August 31, 2008 on which the liability to penalty arose. In this view of the matter, the Tribunal held that the amended provision would apply as on August 31, 2008 when the default was committed. Counsel appearing on behalf of the appellant has during the course of the hearing not challenged this finding of the Tribunal. In that view of the matter nothing further needs to be added on this aspect. However, during the course of the hearing, the learned counsel has submitted that in the present case the adjudicating authority, viz., the Deputy Commissioner of Sales Tax had merely held that the reasons which were furnished by the appellant in defence to the notice to show cause were not "considerable" and that as a matter of fact those reasons were not considered. Insofar as the first appellate authority is concerned, it had held that the liability to pay a penalty was automatic on a breach of section 61(2). Now on perusing the record, it is evident that the Deputy Commissioner of Sales Tax furnished virtually no reasons for discarding the justification which was sought to be advanced by the appellant. In its reply dated March 30, 2009 to the Deputy Commissioner of Sales Tax the appellant had pointed out that the entire business of the company was transferred on April 1, 2007. In its reply dated March 30, 2009 to the Deputy Commissioner of Sales Tax the appellant had pointed out that the entire business of the company was transferred on April 1, 2007. As a consequence all the employees of the appellant were taken over by the transferee and all statutory requirements were complied with by the transferee. The new management recruited fresh staff and as such the old records pertaining to the paint business were not traceable and could not be readily identified. However, the appellant undertook to ensure compliance with the requirements of the sales tax legislation by the promoters of the appellant group. The first appellate authority has, in our view, manifestly erred in coming to the conclusion that the liability to levy a penalty was automatic on the failure to file an audit report within the prescribed time. 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. The Tribunal in the course of its judgment also seems to proceed on the basis that the liability to impose a penalty would arise as soon as the omission is completed and the sales tax authority is satisfied about the default in not filing an audit report within the prescribed period. There can be no dispute about the principle that a penalty is liable to be imposed once the wrongful act was committed, but that does not conclude the exercise of the discretion by the assessing authority. The assessing authority is necessarily duty-bound to consider the reasons which have been furnished by the dealer and to enquire into whether those reasons are genuine and bona fide. The assessing authority is necessarily duty-bound to consider the reasons which have been furnished by the dealer and to enquire into whether those reasons are genuine and bona fide. The Tribunal has, as a matter of fact, also dealt with the reasons which have been furnished by the appellant for condoning the default, but we find from the order of the Tribunal that much of its reasoning is based on conjecture. The Tribunal has observed that the appellant had transferred the business from April 1, 2007 and would in all human probability be having the accounts with it for, otherwise it was not possible for the appellant to file the returns and pay the tax. Having regard to the facts and circumstances of this case, and particularly having regard to the background that (i) the Deputy Commissioner of Sales Tax had furnished no reasons whatsoever for rejecting the explanation; and (ii) The Joint Commissioner of Sales Tax in appeal had proceeded on the wrong premise that the liability to levy a penalty was automatic and that the reasons furnished by the dealer need not be considered at all, we are of the view that an order of remand would subserve the ends of justice. Accordingly, we set aside the order of the Tribunal and remand the proceedings back to the Deputy Commissioner of Sales Tax for a fresh determination in accordance with law having regard to the observations contained in the earlier part of this judgment. The Deputy Commissioner of Sales Tax shall consider the matter having regard to the reasons which have already been furnished by the assessee on the record. The appeal is accordingly disposed of. There shall be no order as to costs.