Orissa High Court
Afr vs State Of Odisha on 29 March, 2023
Author: B.R.Sarangi
Bench: B.R.Sarangi
ORISSA HIGH COURT: CUTTACK
STREV NO. 47 OF 2017
In the matter of an application under Section 9(2) of the
Central Sales Tax Act, 1956 and Rule 22 of the Central
Sales Tax (Odisha) Rules, 1957 read with Section 80 of
the Odisha Value Added Tax Act, 2004.
---------------
AFR M/s Sri Padmavati Cashew ..... Petitioner Industries
-Versus-
State of Odisha, represented by Commissioner of Sales Tax, Odissa ..... Opp. Party For Petitioner : M/s. Bhabani Prasad Mohanty, Niranjan Paikray, Rudra Prasad Kar and Aditya Narayan Ray, Advocates For Opp. Parties : Mr. Susanta Kumar Pradhan, Addl. Standing Counsel (CT & GST Organisation) P R E S E N T:
THE HONOURABLE DR. JUSTICE B.R.SARANGI AND THE HONOURABLE MR. JUSTICE M.S. RAMAN DECIDED ON : 29.03.2023 DR. B.R. SARANGI,J. M/s. Sri Padmavati Cashew Industries, a proprietorship concern of Sri M. Nagabhusan Rao, has // 2 // filed this revision to quash the order dated 04.02.2017 under Annexure-3 passed by the Odisha Sales Tax Tribunal, Cuttack in dismissing S.A. No. 90 (C) of 2013- 14 preferred by the petitioner-dealer and allowing S.A. No. 143 (C) of 2013-14 preferred by the revenue and setting aside the order dated 30.10.2013 passed by the Joint Commissioner of Sales Tax, Koraput Range, Jeypore under Annexure-2 and restoring the assessment order dated 19.02.2013 passed by the Asst.
Commissioner of Sales Tax, Koraput Circle, Jeypore under Annexure-1 imposing tax and penalty of Rs.1,83,078.00 under Rule 12(4) of the Central Sales Tax (Odisha) Rules, 1957, pertaining to the tax periods from 01.04.2010 to 31.03.2012.
2. The petitioner before this Court is a dealer and an assessee being assigned with TIN 21331601578. As per the tax evasion report received from the Deputy Commissioner of Sales Tax, Vigilance, Koraput Division, Jeypore, proceedings under Section 43 of the Odisha Value Added Tax Act (for short "OVAT Act") and Rule // 3 // 12(4) of the Central Sales Tax (Odisha) Rules, 1957 (for short "CST (O) Rules, 1957") were initiated against the dealer. For assessment under the CST Act, notice in Form-IVA under the CST (O) Rules, 1957 was issued. In response to the said notice, the dealer appeared and produced its books of accounts. On examination of the same, it was found that the dealer processed cashew nut to produce cashew kernel and its by-products and also effected purchase of cashew nuts from both inside and outside the State of Odisha. During the period of assessment, the dealer had disclosed its total sale under inter-State at Rs.2,86,41,600/-, CST of Rs.9,33,802/- and shown adjustment of Rs.56,041/- against VAT ITC. But on verification it was found that the dealer had no input tax credit for that tax period to adjust. As the dealer had paid excess amount of tax under the OVAT Act, it could not adjust the same against CST dues in view of Rule 7(3)(c) of the CST (O) Rules. Except the said irregular claim of adjustment of excess payment made under the OVAT Act against the tax due under the CST // 4 // Act, the return figures were accepted. But against total sale of Rs.82,56,800/- at concessional rate of tax against declaration in Form 'C', the dealer submitted 'C' forms for Rs.75,41,800/- and failed to submit the 'C' forms for the rest amount of Rs.7,15,000/-. Therefore, in absence of 'C' form for Rs.7,15,000/-, the dealer was taxed at the appropriate rate of tax. Accordingly, tax dues was calculated on the net taxable turnover @ 2% on Rs.75,41,800/- (sale against 'C' form as an SSI Unit), 4% on Rs.2,10,99,800/- (sale without 'C' form of cashew kernel) came to Rs.9,94,828/-, against which the dealer had already paid Rs.9,33,802/- through challans. Therefore, the tax dues came to Rs.61,026/-. As such, an amount of Rs.1,22,052/- was imposed as penalty under Rule 12(4)(c) of the CST (O) Rules, 1957. Therefore, the total tax and penalty together came to Rs.1,83,078/- to be paid by the petitioner-dealer. Consequentially, the demand notice was issued to the petitioner-dealer.
// 5 // 2.1 Against the aforesaid order of assessment demanding Rs.1,83,078/- which includes penalty of Rs.1,22,052/- under Rule 12(4)(c) of the CST (O) Rules, 1957, the petitioner-dealer preferred an appeal under Section 9(2) of the CST Act and Rule 22 of the CST (O) Rules read with Section 77(1) of the OVAT Act, 2004 which was registered as AAC (KOR) 20/12-13. The appellate authority, upon hearing, vide order dated 30.10.2013, came to a definite finding that, so far as imposition of maximum penalty under Rule 12(4)(c) of the CST (O) Rules, 1957 is concerned, the petitioner had not suppressed any turnover which would affect the revenue. The appellate authority also held that no suppression of any turnover or fraud was established nor the dealer was found to have illegally deducted any turnover as exempted sale which would affect the tax liability. By holding so, resorting to the discretionary power vested under Rule-12(4)(c) of the CST (O) Rules, 1957, the appellate authority limited the penalty to Rs.30,000/- instead of Rs.1,22,052/- and accordingly // 6 // allowed the appeal in part and reduced the assessment to Rs.91,026/-. The calculation is detailed hereunder:-
As determined As As determined by
by STO claimed JCST
by
Appellant
Gross Rs.2,86,41,600.00 Rs.2,86,41,600.00
turnover
Taxable Rs.2,86,41,600.00 Rs.2,86,41,600.00
turnover
Tax assessed Rs. 9,94,828.00 Rs. 9,94,828.00
Tax paid Rs. 9,33,802.00 Rs. 9,33,802.00
Balance tax Rs. 61,026.00 Rs. 61,026.00
Penalty Rs. 1,22,052.00 Rs. 30,000.00
imposed
Total to pay Rs. 1,83,078.00 Rs. 91,026.00
2.2 Against the aforesaid order of the appellate
authority, viz., Joint Commissioner of Sales Tax,
Koraput Range, Jeypore, the petitioner preferred S.A. No. 90 (C) of 2013-14 and, as such, the State of Orissa also preferred S.A. No. 143 (C) of 2013-14 before the Odisha Sales Tax Tribunal, Cuttack. The tribunal heard both the appeals together and by a common order dated 04.02.2017, while dismissing the appeal preferred by the petitioner, allowed the appeal preferred by the revenue and set aside the order passed by the Joint Commissioner of Sales Tax, Koraput Range, Jeypore and // 7 // restored the order passed by the Asst. Commissioner of Sales Tax, Korapur Circle, Jeypore. As such, the cross objection filed by the revenue was also disposed of. Hence, this revision.
3. The assessee-petitioner, in the revision petition, formulated following questions of law for determination:-
"(A) Whether on the facts and in the circumstances of the case, the order of the Tribunal is perverse and erroneous?
(B) Whether on the facts and circumstances of the case, the Tribunal was justified in upholding the penalty equal to twice the amount of tax particularly when there was no suppression of any turnover by the petitioner nor any fraud has been established nor the petitioner is found to have illegally deducted any turnover as exempted sale which affects the tax liability?
(C) Whether on the facts and in the circumstances of the case, the Tribunal is justified in upholding the levy of tax and penalty imposed under clause (c) of sub-rule (4) of Rule 12 of the CST (O) Rules particularly when the order of assessment has been made under Rule 12(4) (a) of the CST (O) Rules on the basis of the scrutiny of returns without completion of assessment under sub-
// 8 // rule (1), (2) or (3) of Rule 12 of the CST (O) Rules?
(D) Whether on the facts and in the circumstances of the case, the Tribunal has committed gross illegality in upholding the levy of penalty undisputedly when the first appellate authority has satisfied that there was no escapement of tax and the adjustment of VAT against CST payable was with reasonable cause?
(E) Whether on the facts and
circumstances of the case, the
imposition of penalty under Rule 12 (4)
(c) of the CST (O) Rules is maintainable or sustainable in the eye of law in absence of any substantial provisions under the CST Act, 1956?"
4. As a matter of fact, this Court, vide order dated 28.11.2017, has admitted the revision petition on the following question of law:-
"(B) Whether in the facts and circumstances of the case, the learned Tribunal was justified in upholding the penalty equal to twice the amount of tax particularly when there was no suppression of any turnover by the petitioner nor any fraud has been established nor the petitioner is found to have illegally deducted any turnover as exempted sale which affects the tax liability?"
5. In course of argument, Mr. Bhabani Prasad Mohanty, learned counsel appearing for the petitioner // 9 // laid emphasis on the question No.B and contended that on perusal of the order of the first appellate authority it would be evident that he has categorically found that there was no suppression of any turnover by the petitioner nor was any fraud established nor was the petitioner found to have illegally deducted any turnover as exempted sale to affect the tax liability. It is further contended that neither the order of the assessing authority nor the order of the Sales Tax Tribunal indicates that there was "escapement" of any turnover or any fraud was established or the petitioner was found to have illegally deducted any turnover as exempted sale so as to impose penalty. His further contention is that when there was no escapement of turnover and the adjustment of excess tax paid under the OVAT Act against the CST payable, imposition of penalty under Rule 12(4)(c) of the CST (O) Rules, 1957 is without jurisdiction and without any authority of law.
6. Sri Susanta Kumar Pradhan, learned Addl. Standing Counsel appearing for the Revenue justifies the // 10 // order passed by the tribunal and contended that no illegality or irregularity has been committed by the second appellate tribunal, so as to warrant interference of this Court, as imposition of penalty under Rule 12(4)(c) of the CST (O) Rules, 1957 is within the discretionary power of the authority.
Sri Susanta Kumar Pradhan, learned Additional Standing Counsel referred to a decision rendered by this Court in the case of State of Odisha Vrs. Chandrakanta Jayantilal, Cuttack, STREV No.69 of 2012, vide Order dated 05.07.2022, wherein earlier decisions in National Aluminium Company Ltd. Vrs. Deputy Commissioner of Commercial Taxes, Bhubaneswar-III Circle, Bhubaneswar, 2021 (I) OLR 828 and Jindal Stainless Ltd. Vrs. State of Odisha, (2012) 54 VST 1 (Ori) are taken note of, and harped on the point that the penalty as was imposed by exercising judicious discretion on the finding that there was erroneous adjustment of tax touching the liability under the CST Act, the assessment order restored by the learned // 11 // Odisha Sales Tax Tribunal does not deserve indulgence in the present proceeding.
7. "Escaped Assessment" can be understood in common parlance as that the turnover cannot be said to have escaped assessment except in the case where an assessment has been made which does not include the turnover. At all events, such turnover has not escaped assessment if they are pending at the time proceedings for the assessment of the assessee's figures disclosed in the return which have not yet terminated in a final assessment thereof. More so, the words "for any reason"
placed before the expression "escaped assessment"
clearly indicate that the Legislature intended to include all those cases which either resulted from mere inadvertence or from conscious misapprehension of the proper situation. There is no justification for confining the meaning of the word "escape" to those cases only which have not come to the notice of the assessing officer at all and excluding those cases where he has applied his mind, but on account of an error of judgment // 12 // has set any part of the turnover free from assessment. More specifically, the expression "escaped assessment"
is not the same thing as "escaped from assessment". But in the technical sense an 'escape' is an unauthorized departure from legal custody; in a loose sense the word is used to indicate either such an unlawful departure or an avoidance of capture.
8. In the case at hand, nothing has been placed on record indicating that the turnover disclosed in the return has been escaped assessment so as to entitle the assessing authority to impose penalty under Rule12(4)(c) of CST (O) Rules, 1957. But the assessing authority imposed penalty in exercising his discretion and such discretion has been exercised without any reasonable cause. There is a specific finding that the petitioner has not suppressed any turnover which will affect the revenue. It is no doubt true that a discretionary power has been vested with the assessing officer for imposing penalty under Rule 12(4)(c), but when suppression of any turnover or commission of any fraud has not been // 13 // established, nor the petitioner has been found to have illegally deducted any turnover as exempted sale to affect the tax liability, in that case imposition of penalty under Rule 12(4)(c) cannot have any justification.
9. It may be relevant to extract the relevant provisions of Rule 12(4) of the CST (O) Rules as it existed during the relevant tax periods with respect to which returns were furnished and assessment was undertaken:
"12. Assessment.--
(4) (a) Where, after a dealer is assessed under sub-rule (1), (2) or (3) for any period, the Assessing Authority, on the basis of any information in his possession, is of the opinion that the whole or any part of the turnover of the dealer in respect of any period or periods has escaped assessment, or has been under-assessed, or has been assessed at a rate lower than the rate at which it is assessable or that the dealer has been allowed wrongly any deduction from his turnover or exemption under the Act or has been wrongly allowed set off of input tax credit in excess of the amount admissible under clause (c) of sub-
rule (3) of Rule 7 of these rules, he shall serve a notice in Form IVA on the dealer.
(b) The hearing of the dealer shall be concluded in accordance with the provisions of clauses (b) and (d) of sub-rule (3).
// 14 //
(c) The Assessing Authority shall, after hearing the dealer in the manner specified in clause (b), assess the amount of tax payable by the dealer in respect of such period or periods for which assessment proceedings has been initiated and if he is satisfied that the escapement is without any reasonable cause, he may direct the dealer to pay, by way of penalty, a sum equal to twice the amount of tax additionally assessed.
***"
10. Bare perusal of aforesaid provisions of Rule 12(4) which enables the Assessing Authority to initiate action for assessment is dependent on certain pre- conditions, namely:
i. Initiation of the assessment under Rule 12(4) should be preceded by assessment under sub-rule (1), (2) or (3);
ii. The basis for action is information in
the possession of the Assessing
Authority;
iii. On the basis of such information opinion must be formed by the Assessing Authority;
iv. Such opinion must relate to the following eventualities:
a. the whole or any part of the turnover of the dealer in respect of any period // 15 // or periods has escaped assessment; or b. the whole or any part of the turnover of the dealer in respect of any period or periods has been under-assessed; or c. the whole or any part of the turnover of the dealer in respect of any period or periods has been assessed at a rate lower than the rate at which it is assessable; or d. the dealer has been allowed wrongly any deduction from his turnover; or e. the dealer has been allowed wrongly exemption under the Act; or f. the dealer has been allowed wrongly set off of input tax credit in excess of the amount admissible under clause
(c) of sub-rule (3) of Rule 7 of these rules.
In presence of aforesaid eventualities, the Assessing Authority is empowered to serve a notice in Form IVA on the dealer.
11. So far as imposition of penalty for the present context is concerned, upon adherence to the principles // 16 // of natural justice, the Assessing Authority shall assess the amount of tax payable by the dealer in respect of such period or periods for which assessment proceedings has been initiated. Upon determination of tax liability upon assessment, the Assessing Authority is bestowed with power to apply his mind whether to impose penalty. For invoking power under Rule 12(4)(c) for imposition of penalty, it is mandated as follows:
i. The Assessing Authority is required to be satisfied that:
a. There has been escapement of
turnover;
b. Such escapement was without any reasonable cause.
ii. Upon fulfilment of said requirements, the Assessing Authority may exercise his discretion by directing the dealer to pay, by way of penalty, a sum equal to twice the amount of tax additionally assessed.
12. When the aforesaid provisions are juxtaposed with the factual position of the present case, without ascertaining whether the amount of Rs.56,041/- disallowed on account of adjustment availed by the // 17 // assessee-dealer against excess tax paid under the OVAT Act (which fact remained uncontroverted) would tantamount to escapement of turnover, the Assessing Authority straightway imposed penalty under Rule 12(4)(c) of the CST (O) Rules. Neither the Assessing Authority has assigned any reason nor does the Assessment Order reveal recording of his satisfaction. Said amount of Rs.56,041/- ex facie emanates from the turnovers disclosed by the petitioner in the returns. This fact is returned by the Assessing Authority in his Assessment Order in the following words:
"*** On verification it is found that the dealer processes cashew nut to cashew kernel and its by-products. He has effected purchase of cashew nuts from both inside and outside the State of Odisha. During the period of assessment he disclosed his total sale under inter-State at Rs.2,86,41,600/-, i.e., sale against C Form for Rs.82,56,800.00, without C Form for Rs.2,03,84,800.00, CST of Rs.9,33,802.00 and shown adjustment of Rs.56,041.00 against VAT ITC. But on verification it is found that the dealer has no input tax credit for that tax period to adjust. As the dealer has paid excess amount of tax under the OVAT Act, he cannot adjust the same against the CST dues. ***"
// 18 //
13. Against imposition of penalty, the assessee has submitted by way of grounds of appeal before the First Appellate Authority as follows, which forms part of the Appellate Order:
"In the instant case, the dealer has by mistake paid under the OVAT challan instead of CST challan. The tax payment is made, so the dealer cannot be penalized on wrong interpretation and it should be broadly considered."
Since the aforesaid fact and figure of turnover found incorporated in the account books, this Court is of the considered opinion that the Assessing Authority has not applied his mind to the material fact available on record. This view is supported by the dicta of Hon'ble Supreme Court laid down in Sree Krishna Electricals Vrs. State of Tamil Nadu and Another, (2009) 23 VST 249 (SC).
14. The discretionary exercise of power amounts to something that is not compulsory, but it is left to discretion of the person or authority involved, such as a discretionary grant. It is opposite to mandatory. Therefore, discretionary is a term which involves an alternative power, i.e., a power to do or refrain from // 19 // doing a certain thing. In other words, it would be power of free decision or choice within certain legal bounds.
15. Necessity, thus, arises to state from K.K. Gopalan & Co. Vrs. Assistant Commissioner (Assessment), (2000) 118 STC 111 (Ker), wherein it has been observed that 'discretion' means use of private and independent thought. When anything is left to be done according to one's discretion the law intends it to be done with sound discretion and according to law. Discretion is discerning between right and wrong and one who has power to act at discretion is bound by rule of reason. Discretion must not be arbitrary. The very term itself stands unsupported by circumstances imports the exercise of judgment, wisdom and skill as contra distinguished from unthinking folly, heady violence or rash injustice. When applied to a Court of Justice or Tribunal or quasi-judicial body, it means sound discretion guided by law. It must be governed by rule, not by humor; it must not be arbitrary, vague and fanciful but legal and regular. Discretion must be // 20 // exercised honestly and in the spirit of the statute. It is the power given by a statute to make choice among competing considerations. It implies power to choose between alternative courses of action. It is not unconfined and vagrant. It is canalized within banks that keep it from overflowing.
16. In S.P. Road Link Vrs. State of Tripura, (2006) 144 STC 380 (Gau) reference has been made to Kumaon Mandal Vikas Nigam Ltd. Vrs. Girja Shankar Pant, (2001) 1 SCC 182 to observe that 'discretion' means when it is said that something is to be done within the discretion of the authorities, that something is to be done according to the rules of reason and justice, not according to private opinion, according to law, and not humour. It is to be, not arbitrary, vague, and fanciful, but legal and regular. And it must be exercised within the limit, to which an honest man competent to the discharge of his office ought to confine himself.
// 21 //
17. Therefore, if Rule 12(4)(c) provides for exercise of discretionary power for imposition of penalty, the assessing officer should have exercised such discretionary power reasonably. In absence of any rationality or reasonability, exercise of discretionary power can be construed as arbitrary and unreasonable exercise of power by the authority. Therefore, when the first appellate authority examined the fact vis-à-vis contention raised by the parties and came to a definite finding that the petitioner has not suppressed any turnover which will affect the revenue and the discretionary power has been vested with the assessing officer while imposing penalty under Rule 12(4)(c) and in fact there has been no suppression of any turnover or fraud nor the petitioner has been found to have illegally deducted any turnover as exempted sale which will affect the tax liability, it limited the penalty to Rs.30,000/- instead of Rs.1,22,052/-. But the tribunal, while passing the order impugned, has come to a different conclusion construing as if the assessing authority is mandatorily // 22 // required to impose penalty of a sum equal to twice the amount of tax additionally assessed under Rule 12(4)(c), restored the assessment order. The learned Tribunal has failed to consider the effect of words "if he is satisfied that the escapement is without any reasonable cause"
contained in Rule 12(4)(c) of the CST (O) Rules. But nothing has been placed on record to that extent and, as such, there is no question of levy of two times of penalty in case the assessing authority comes to the conclusion that the escapement is with reasonable cause. Therefore, reduction of penalty by the first appellate authority appears to be improper, when such determination of liability against the petitioner is absolutely based on no record.
18. A pari materia provision is contained in Section 43(2) of the Odisha Value Added Tax Act, 2004 giving discretion to the assessing officer to impose penalty, wherein it has been provided that it is imperative for the assessing officer to be satisfied that the escapement or under assessment of tax "is without // 23 // any reasonable cause." This was considered by this Court in National Aluminium Co. Ltd. v. Deputy Commissioner of Commercial Taxes, (2012) 56 VST 68 (Ori) = 2013 (I) ILR-CUT 595 read with clarificatory order dated 08.03.2021 in RVWPET Nos. 211, 212 and 213 of 2013 (National Aluminium Co. Ltd. v. Deputy Commissioner of Commercial Taxes), 2021 (I) OLR 828, wherein it has been enunciated as follows:
"6. While considering the second question viz., whether imposition of penalty under Section 43(2) of the Orissa Value Added Tax Act, 2004 (OVAT Act) can only be levied if the escapement is "without any reasonable cause", an observation was made in paragraph 36 of the judgment that "penalty is not independent of the tax assessed. If the tax is assessed, imposition of penalty under Section 42(5) is warranted. ***
8. Again in paragraph 39 of the judgment, it is observed as under:
'*** once the Assessing Officer comes to the conclusion that the dealer is indulged in fraudulent activities and assesses him under Section 43 of the OVAT Act, there is no need for the Assessing Officer to make further investigation to find out whether the escapement is without reasonable cause for the purpose of imposition of penalty under Section 43(2) of the OVAT Act.
// 24 //
9. The grievance of the NALCO is to the limited extent of the manner in which the second question has been dealt with by this Court in the aforementioned judgment. Mr. Mishra, learned counsel for the NALCO points out that this Court has in the above judgment while placing reliance on the decision of the Supreme Court in Union of India Vrs. Dharamendra Textile Processors and others (2008) Volume-18 VST 180 (SC), not considered the subsequent decision of the Supreme Court in Union of India Vrs.
Rajasthan Spinning and Weaving Mills 2009 (Vol.238) ELT Page-3, both of which were in the context of Section 11 AC of the Central Excise Act, 1944. The wording of the said provision was not on par with the wording of Section 43(2) of the OVAT Act. The further grievance is that there was no occasion for the Court to have made any observations as regards the imposition of penalty under Section 42 (5) of the OVAT Act as the said provision was in the context of audit assessment and differently worded from Section 43(2) of the OVAT Act.
***
11. The Court notes that under Section 42(5) of the OVAT Act the penalty levied is "equal to twice the amount of tax assessed"
under Section 42(3) or 42(4) pursuant to an audit assessment. There is no discretion with the Assessment Officer (AO) to reduce this amount of penalty. On the other hand, Section 43(2) of the OVAT Act is under the heading "Turnover escaping assessment", and is differently worded. It reads thus:
'43 (2) If the assessing
authority is satisfied that the
escapement or under assessment of tax on account of any reason(s) mentioned in sub-section (1) above is without any reasonable cause, he may direct the dealer to pay, by way // 25 // of penalty, a sum equal to twice the amount of tax additionally assessed under this section."
12. It is seen under Section 43(2) of the OVAT Act the levy of penalty in the event of turnover escaping assessment, or under assessement, is not automatic. The AO has to be satisfied that escapement or under assessment of tax "is without reasonable cause". Further upon arriving at such conclusion, the AO 'may direct the dealer to pay, by way of penalty, a sum equal to twice the amount of tax additionally assessed under the Section.' The word 'may', in this context gives the AO a discretion, which is unavailable to him under Section 42(5) of the OVAT Act.
13. The Court, therefore, finds merit in the contention of the learned counsel for the Petitioner that the observation in the judgment dated 9th October 2012, on the aspect of penalty under Section 42 (5) of the OVAT Act was not warranted. All that was required to be observed was that since the question had been rendered academic in view of the finding on issue No.1, the imposition of penalty under Section 43(2) of the OVAT Act, was not automatic and that there is a discretion in the AO in this regard upon finding that there has been an escapement or under assessment of tax."
19. While considering pari materia provision contained in Section 10(2) of the Odisha Entry Tax Act, 1999 in comparison to Section 43(2) of the Odisha Value Added Tax Act, 2004, this Court following interpretation // 26 // in National Aluminium Company Limited, 2021 (I) OLR 828 stated in the case of Shree Plastics Pvt. Ltd., Berhampur Vrs. State of Odisha, STREV No. 15 of 2013, vide Order dated 13.07.2022 as follows:
"10. Section 10(2) of the OET Act reads as under:
'(2) If the assessing authority is satisfied that the escapement or under assessment of tax on account of any reason(s) mentioned in sub-section (1) above is without any reasonable cause, he may direct the dealer to pay in addition to the tax assessed under sub-section (1), by way of penalty, a sum equal to twice the amount of tax additionally assessed under this section.'
11. That can be no doubt that the levy of penalty does not have to be automatic. It is contingent on the STO being satisfied that the escapement of tax was 'without any reasonable cause'. ***"
20. Applying the above ratio to the present context, the essential component of Section 43(2) of the OVAT Act for attracting the penalty, i.e., satisfaction of the assessing officer that the escapement of tax was without reasonable cause, if the same principle will apply to the provisions contained under Rule 12(4)(c) of the CST (O) Rules, 1957, nothing has been placed on record to indicate that there is satisfaction of the // 27 // assessing officer that the escapement of tax was without reasonable cause. In absence of the same, imposition of penalty cannot be sustained in the eye of law.
21. In the judgment dated 07.12.2022 rendered in STREV No. 17 of 2016 (M/s United Electricals & Engineering Pvt. Ltd. v. State of Odisha) to which one of us (Mr. Justice M.S. Raman) was a party, this Court has come to the similar finding and answered the question in favour of the assessee and against the department.
22. Another pertinent aspect which deserves discussion in the present context is non-recording of satisfaction by the Assessing Authority to the effect that "the escapement is without any reasonable cause". The following observation of this Court is found in United Electricals & Engineering Pvt. Ltd. Vrs. State of Odisha, STREV No.17 of 2016, vide Order dated 07.12.2022:
"2. As far as question I is concerned, it is seen that in the assessment order dated 5th February, 2013 while raising a demand on the basis 'erroneous claim of Input Tax Credit (ITC)', the Sales // 28 // Tax Officer (STO), Ganjam-I Circle, Berhampur proceeded to impose penalty under Section 43(2) of the Odisha Value Added Tax Act, 2004 (OVAT Act) without actually coming to any conclusion that ITC with differential tax wrongly availed by the Petitioner-Assessee was 'without reasonable cause'.
3. As explained by this Court in National Aluminium Co. Ltd. v. Deputy Commissioner of Commercial Taxes, (2012) 56 VST 68 (Ori) read with clarificatory order dated 8th March, 2021 in RVWPET Nos.211, 212 & 213 of 2013 (National Aluminium Co. Ltd. Vrs. Deputy Commissioner of Commercial Taxes), 2021 (I) OLR 828, there is a discretion in the Assessing Officer under Section 43(2) of the OVAT Act to impose penalty. It is imperative for the Assessing Officer to be satisfied that the escapement of under assessment of tax 'is without any reasonable cause'.
4. As far as present case is concerned, the assessment order of the Assessing Officer does not record the satisfaction of the Assessing Officer that wrongful availment of ITC by the Petitioner was 'without reasonable cause'. Thus, the essential component of Section 43(2) of the OVAT Act for attracting the penalty, viz., the satisfaction of the Assessing Officer that the escapement of tax was without reasonable cause, is absent in the present case."
// 29 //
23. The counsel for the Revenue failed to cite recording of satisfaction that the dealer did not discharge his liability under the CST Act without reasonable excuse. Rather it is not disputed that the petitioner-dealer while discharging liability under the CST Act adjusted the excess tax paid under the OVAT Act and such fact is supported by explanation that instead of deposit being made through challan relating to CST, the dealer had made it through challan relating to VAT. The reasoning so assigned appears to be "reasonable" one. The record does not bear allegation of mischief like fraud, collusion, wilful misstatement or suppression of fact or deliberate breach of law, much less contumacious conduct on the part of the assessee. Therefore, it can be said that there was "reasonable cause" shown by the petitioner-assessee in connection with the discharge of tax liability, but there is no intention to evade payment of tax. Unless the assessing authority records satisfaction as provided under clause
(c) of Rule 12(4) to the effect that the escapement was // 30 // "without any reasonable cause", he should not have imposed penalty.
24. Penalty is not prescribed for mechanical imposition because law permits such a levy. It is well settled legal position that while interpreting the provisions of the statute, every part of the provisions of the statute has to be given effect to and one part cannot be interpreted in a manner inconsistent with another part of the statute that would defeat the object and purpose of the Act and rules framed thereunder. As laid down in Mohammad Ali Khan and Others Vrs. Commissioner of Wealth Tax, AIR 1997 SC 1165 wherein the following lines has been quoted from J.K. Cotton Spinning & Weaving Mills Co. Ltd. Vrs. State of Uttar Pradesh, AIR 1961 SC 1170:
"The Courts always presume that the Legislature inserted every part thereof for a purpose and the legislative intention is that every part of statute should have effect."
It is also well-established that where language of any provision in a statute is clear, it is impermissible // 31 // to vary the language unless the plain and unambiguous language leads to an absurd result. In the present case, the language of Rule 12(4)(c) in unequivocal terms spells out that satisfaction of the Assessing Authority as to the reasonableness of the cause is imperative. In absence of such material borne on record, the very invocation of exercise of power to impose penalty is considered to be flawed.
In Khemka and Co. (Agencies) Pvt. Ltd. Vrs. State of Maharashtra, (1975) 2 SCC 22 Constitution Bench (5-Judge) of the Hon'ble Supreme Court has been pleased to render the conceptual understanding of "penalty" qua Section 9(2) of the CST Act in the following manner:
"25. Penalty is not merely sanction. It is not merely adjunct to assessment. It is not merely consequential to assessment. It is not merely machinery. Penalty is in addition to tax and is a liability under the Act. *** penalty is not a continuation of assessment proceedings and that penalty partakes of the character of additional tax.
***
28. *** A penalty is a statutory liability. The Central Act contains specific provisions for penalty. Those are the only provisions for penalty available against the dealers under // 32 // the Central Act. Each State Sales Tax Act contains provisions for penalties. These provisions in some cases are also for failure to submit return or failure to register. It is rightly said that those provisions cannot apply to dealers under the Central Act because the Central Act makes similar provisions. The Central Act is a self- contained code which by charging section creates liability for tax and which by other sections creates a liability for penalty and imposes penalty. Section 9(2) of the Central Act creates the State authorities as agencies to carry out the assessment, re-assessment, collection and enforcement of tax and penalty payable by a dealer under the Act."
25. Since penalty is a statutory liability and is substantive in nature, the provisions for imposition thereof are to be strictly construed. It is, therefore, pertinent to put forth the well-accepted principle with regard to strict interpretation. In a taxing statute one has to look at what is clearly said. There is no equity about a tax. There is no intendment. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly on the language used. If the meaning of the provision is reasonably clear, Courts have no jurisdiction to mitigate harshness. A Court of law, has nothing to do with the // 33 // reasonableness or unreasonableness of a provision of a statute except so far as it may hold it in interpreting what the Legislature has said. If the language of a statute be plain, admitting of only one meaning, the Legislature must be taken to have meant and intended what it has plainly expressed, and whatever it has in clear terms enacted must be enforced though it should lead to absurd or mischievous results. The Court is not to be concerned with the question whether the policy that the provision embodies is wise or unwise, or whether it leads to consequences just or unjust, beneficial or mischievous. As long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words used it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent // 34 // and do not manifest the intention of the Legislature. Artificial and unduly latitudinarian rules of construction which, with their general tendency to give the taxpayer the breaks are out of place where the legislation has a fiscal mission. Be it noted that individual cases of hardship and injustice do not and cannot have any bearing for rejecting the natural construction by attributing normal meanings to the words used since hard cases do not make bad laws. A fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. No words ought to be added and only the language used ought to be considered so as to ascertain the proper meaning and intent of the legislation. The Court is to ascribe the natural and ordinary meaning to the words used by the Legislature and the Court ought not, under any circumstances, to substitute its own impression and ideas in place of the legislative intent as is available from a plain reading of the statutory provisions. Reference be had to Cooke Vrs. Charles A Vogeler Co., (1901) AC // 35 // 102 (HL); Cape Brandi Syndicate Vrs. Inland Revenue Commrs., (1921) 1 KB 64; Canadian Eagle Oil Co. Vrs. King, (1945) 2 AllER 499 (HL); Inland Commrs. Vrs. Ross & Coulter, Re Bladnoch Distillery Co., (1948) 1 AllER 616 (HL); Keshavji Ravji & Co. Vrs. CIT, (1990) 183 ITR 1 (SC); Orissa State Warehousing Corporation Vrs. CIT, (1999) 4 SCC 197; State of Andhra Pradesh Vrs. Gouri Shankar Modern Rice Mill, (2006) 147 STC 370 (AP).
26. This Court at this juncture wishes to take cognizance of well-settled proposition of law as restated in Zuari Cement Limited Vrs. Regional Director, Employees' Insurance Corporation, Hyderabad and Others, (2015) 7 SCC 690, wherein it has been laid down that it is the basic principle of law long settled that if the manner of doing a particular act is prescribed under any statute, the act must be done in that manner or not at all. This Court in Rudra Prasad Sarangi Vrs. State of Odisha and Others, 2021 (I) OLR 844 has observed as follows:
// 36 // "10. In Nazir Ahmed Vrs. King Emperor, AIR 1936 PC 253, law is well settled 'where a power is given to do a certain thing in a certain way the thing must be done in that way or not at all. Other methods of performance are necessarily forbidden.' The said principles have been followed subsequently State of Uttar Pradesh Vrs.
Singhara Singh, AIR 1964 SC 358, Dhananjay Reddy Vrs. State of Karnataka, AIR 2001 SC 1512, Chandra Kishore Jha Vrs. Mahabir Prasad, AIR 1999 SC 3558, Gujrat Urja Vikas Nigam Ltd. Vrs. Essar Power Ltd., AIR 2008 SC 1921, Ram Deen Maurya Vrs. State of U.P., (2009) 6 SCC 735.
11. It is apt to refer here the legal maxim 'Expressio unius est exclusion alterius i.e. if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and any other manner are barred. Similar question had come up for consideration before this Court in Subash Chandra Nayak Vrs. Union of India, 2016 (1) OLR 922 and this Court in paragraph-8 observed as follows:
'*** the statute prescribed a thing to be done in a particular manner, the same has to adhered to in the same manner or not at all. The origin of the Rule is traceable to the decision in Taylor Vrs. Tailor, (1875) LR I Ch D 426, which was subsequently followed by Lord Roche in Nazir Ahmad v. King Emperor, AIR 1936 PC 253(2). But the said principle has been well recognized and holds the field till today in Babu Verghese Vrs. Bar Council of Kerala (1999) 3 SCC 422, and Zuari Cement Limited Vrs. Regional Director, Employees' State insurance Corporation, Hyderabad and others, (2015) 7 SCC 690 and the said principles has been referred to by this Court in Manguli Behera Vrs. State of // 37 // Odisha and Others, W.P.(C) No. 21999 of 2014 disposed of on 10.03.2016."
27. Aforesaid salutary principle has been noticed by this Court while dealing with assessment under the OVAT Act in the matter of Patitapabana Bastralaya Vrs.
Sales Tax Officer and Others, (2015) 79 VST 425 (Ori) = 2015 (I) OLR 183 and Balaji Tobacco Store Vrs. Sales Tax Officer, 2015 SCC OnLine Ori 85; .
28. The demand raised in the assessment order also seen to have on account of non-submission of declaration in Form C. As an illustrative case, viz. General Traders Vrs. State of Odisha, STREV No.64 of 2017, vide Judgment dated 08.12.2022, needs to be taken note of, where this Court was in seisin of imposition of penalty under Rule 12(3)(g) of the CST (O) Rules, which is pari materia with the provision in Section 42(5) of the OVAT Act, in connection with non- submission of declaration forms. It has been held by referring to benevolent Circular bearing No. 42/III(I)38/09/CT, dated, 20.04.2015 issued by the Commissioner of Commercial Taxes that even though // 38 // the language of said provision employed in the mandatory sense and the imposition of penalty is construed to be automatic, no penalty is required to be insisted upon by the revenue authorities for mere non- submission of declaration forms in order to avail concessional rate of tax. On the same principle, for non- submission of declaration form in the present case, the penalty imposed under Rule 12(4)(c) is liable to be deleted. In the instant case, therefore, the learned Odisha Sales Tax Tribunal has not taken care of the provisions contained in Rule 12(4) of the CST (O) Rules in proper perspective.
29. In the above view of the matter, the order dated 04.02.2017 passed by the Odisha Sales Tax Tribunal, Cuttack in S.A. No. 90 (C) of 2013-14 and S.A. No. 143 (C) of 2013-14, as well as the order of the 1st appellate authority dated 30.10.2013 and the order passed by the assessing authority, so far as it relates to imposition of penalty of Rs.1,22,052/- on the petitioner under Rule 12(4)(c) of the CST (O) Rules, 1957, cannot // 39 // be sustained in the eye of law and the same are liable to be quashed and are, hereby, quashed.
30. As a consequence thereof, the question of law as framed by this Court is answered in the negative, i.e., in favour of the petitioner-assessee and against the State of Odisha-Revenue. Thereby, the sales tax revision petition succeeds, but, in the circumstances, with no order as to costs.
(DR. B.R. SARANGI)
JUDGE
M.S. RAMAN, J. I agree.
(M.S. RAMAN)
JUDGE
Orissa High Court, Cuttack
The 29th March, 2023, Ashok/GDS