Kerala High Court
Jindal Photofilms Ltd. vs State Of Kerala And Ors. on 26 September, 2003
Equivalent citations: [2006]146STC499(KER)
Author: J.M. James
Bench: G. Sivarajan, J.M. James
JUDGMENT J.M. James, J.
1. The question that arises for consideration in this appeal is as to whether for default in compliance of the provisions of rule 21(7) of the Kerala General Sales Tax Rules, 1963 (for short, "the Rules"), in so far as it provides for payment of not less than 90 per cent of the tax payable on the taxable turnover for the month of March on or before the end of the month, in proceedings for imposition of penalty Under Section 45A of the Kerala General Sales Tax Act, 1963 (for short, "the Act"), the quantum of penalty can go beyond Rs. 10,000.
2. The appellant is a private limited company engaged in the sale of photographic processing equipments. It is an assessee to sales tax under the Act. Under rule 21(7) of the Rules, the appellant is liable to file monthly return in form No. 9 in respect of the taxable turnover of every month, on or before 10th of the succeeding month accompanied by proof of payment of tax due as per the return. However, so far as the tax payable for the last month of the financial year, i.e., for the month of March, the appellant is liable to pay not less than 90 per cent of the tax payable on the taxable turnover for the month of March on or before the end of that month, in cash or through demand draft under the said rule. The appellant had remitted a sum of Rs. 3,00,000 towards advance tax for the month of March on March 25, 2002. The appellant had effected sale of goods of the value of Rs. 57,00,000 on March 28, 2002, on which he is liable to pay tax (both sales tax and additional tax) of Rs. 5,24,400. Thus, the total advance tax payable for the month of March as per the provisions of rule 21(7) of the Rules was Rs. 8,24,400. As already noted, the appellant had paid only a sum of Rs. 3,00,000 which is very much less than 90 per cent of the tax due. The appellant had remitted a sum of Rs. 5,24,400 by way of sales tax and additional tax for the month of March only on April 10, 2002 as in the case of returns for the other months of the year. Since the appellant omitted to remit not less than 90 per cent of the tax due for the month of March, 2002, before March 31, 2002 which amounted to contravention of the provisions of rule 21(7) of the Rules, the assessing authority initiated proceedings Under Section 45A of the Act for imposition of penalty. The explanation of the appellant before the assessing authority was that the appellant had remitted the tax due for the month of March 2002 on March 25, 2002; that there was an unexpected sale to the extent of Rs. 57,00,000 on March 28, 2002; that 29th was a holiday; that on 30th the manager of the appellant was ill; that 31st was a Sunday, and therefore, the appellant could not remit the balance tax of Rs. 5,24,400 due on the sales turnover of Rs. 57,00,000 effected on March 28, 2002 on or before March 31, 2002. According to the appellant, this was only a technical default, viz., delay in remitting the tax, and therefore, even if the explanation offered by the appellant is not accepted, since there is no evasion of tax, the maximum penalty that can be imposed is only Rs. 10,000. The assessing authority did not accept the explanation offered by the appellant. He found that the non-payment of the advance tax as provided Under rule 21(7) was intentional. He accordingly levied a penalty of Rs. 5,68,957 Under Section 45A(l)(g) of the Act, on the basis that the assessee had evaded the payment of tax due for the month of March, 2002. Being aggrieved by the penalty order, the appellant filed revision before the Deputy Commissioner of Sales Tax, and also moved for stay of collection of the disputed penalty. The revisional authority passed an order (exhibit P7) granting stay of collection of the penalty due as per the penalty order on condition that the petitioner pays a sum of Rs. 2,85,000 and furnishes security for the balance till the disposal of the appeal. The appellant challenged this order in the writ petition. The learned single Judge considered the matter on merits and held that the appellant had contravened the provisions of rule 21(7) of the Rules, which attracted the provisions of Section 45A(l)(g) of the Act, and further held that, the facts disclosed establish that the appellant had wilfully delayed the payment. Learned single Judge also found that the explanation offered by the appellant is not acceptable. Learned single Judge further held that the non-compliance of the provisions rule 21(7) also attracted the provisions of Section 45AA of the Act, and therefore, there is no merit in the contention that the maximum penalty that can be imposed Under Section 45A of the Act is only Rs. 10,000. It is against this judgment, the present appeal is filed.
3. Sri K.I. Mayankutty Mather, learned Counsel appearing for the appellant, submitted that the provisions of Section 45AA is not attracted in the instant case, since there was no notice of demand which is the foundation for invoking the said section, and that there are no circumstances warranting the exercise of powers Under Section 45A of the Act. He also submitted that penalty cannot be imposed merely upon proof of default and that the 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's conduct is contumacious or dishonest or acted in conscious disregard of its obligation and that the quantum of penalty is a matter of discretion. The counsel has also relied on the decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 and of the division Bench decision of this Court in P.D. Sudhi v. Intelligence Officer, Agricultural Income- tax and Sales Tax, Mattancherry [1992] 85 STC 337 and other cases.
4. Learned Government Pleader appearing for the respondent, on the other hand, submitted that the very purpose of amending rule 21(7) of the Rules providing for payment of the tax due for the month of March every year before the end of the financial year, i.e., on or before the 31st March, is for the purpose of satisfying the budgetary provisions already made and that the appellant knowing very well of the above had wilfully remitted the advance tax for the month of March, 2002, on March 25, 2002, knowing fully well that there will be substantial transactions before the close of the financial year. The Government Pleader also submitted that there was enough time for the appellant to remit the tax due in respect of the transaction effected on March 28, 2002 and that the appellant under some pretext had remitted the balance tax as usual only on the 10th of April, 2002. The Government Pleader also submitted that if as a matter of fact, the explanation offered by the appellant is bona fide, it would have remitted the tax due for the month of March at least on the first of April, 2002. The Government Pleader submitted that the conduct of the appellant in remitting the advance tax for the month of March, 2002 on March 25, 2002 itself is a dishonest act with the intent to evade the payment of the tax due for the remaining period in the month of March till April 10, 2003. The Government Pleader accordingly submitted that penalty was rightly imposed and that the learned single Judge was also justified in sustaining the penalty Under Section 45AA of the Act. The Government Pleader further submitted that the learned single Judge had exercised the discretionary jurisdiction vested in the assessing authority and had limited the penalty to Rs. 50,000 as against the penalty of Rs. 5,68,957 imposed by the assessing authority.
5. The facts are not in dispute. There is infraction or contravention of the last limb of rule 21(7) of the Rules. As against the tax due and payable for the month of March, 2002, at Rs. 8,24,400 on or before March 31, 2002 the appellant had paid only a sum of Rs. 3,00,000 on March 25, 2002, which is far less than 90 per cent of the tax due. The appellant was very well aware of its obligations as is evident from the payment of Rs. 3,00,000 on March 25, 2002. When the advance tax for the month of March has to be paid on or before March 31, 2002, to remit the advance tax on March 25, 2002 knowing fully well that there will be bulk sales before the close of the year is a clear indication of the wilful conduct of the appellant considered in the background of non-remittance of tax of Rs. 5,24,400 for the remaining period.
6. The learned single Judge considered the explanations of the appellant about the default as follows:
The petitioner is a limited company and the sickness of the manager cannot be said to be ground for not complying with a rigorous statutory requirement which is introduced in the statute to achieve certain purpose. Therefore, I feel the petitioner's explanation that the manager of the company was sick and therefore, petitioner could not make payment of advance tax, was rightly rejected by the assessing officer. This is only a lame excuse evident from the fact that the petitioner made no effort to make the payment even on any of the succeeding working days. Though the petitioner says 31st March, 2002 was a holiday, the same also cannot be accepted because on the last day of the financial year Government counters work for the purpose of receipt of money, even if it is a holiday. Of course in this case this is immaterial and assume that 31st March was a holiday, the petitioner had a full day to make the payment on 30th March which was a working day. Further, the petitioner did not make a belated payment of the advance tax at least on 1st April at least as a defence against penalty. However, the petitioner has chosen to remit the tax on April 10, 2002 as usual monthly tax and the payment so made is no advance tax at all. Therefore, there is violation of rule 21(7) so far as the deficiency in payment of advance tax, i.e., Rs. 5,68,957 is concerned. The justification offered by the petitioner is only a lame excuse and was rightly rejected by the assessing officer.
7. The learned single Judge considered the correctness of the levy of penalty Under Section 45A(l)(g) and whether penalty levied can alternatively be justified Under Section 45AA of the Act. The relevant portion reads:
The offence is non-payment of advance tax for March, 2002 and such an offence, if committed, is irreversible. So long as the Government has not received advance tax in March, 2002, the petitioner cannot rectify the same by making payment on April 10, 2002. The liability is therefore absolute. The subsequent payment of tax goes to the Government credit in April, 2002 as monthly tax payable for the preceding month and that payment cannot be treated as payment of advance tax because the petitioner cannot make any payment of advance tax after 31st March of the year. Therefore, the offence is not the case of delay in payment of tax, but non-payment of advance tax. Going by the allegation and finding in exhibit P7 and the limit of penalty equal to the amount of deficiency of advance tax, the officer appears to have levied penalty Under Section 45AA of the Act. As already held, there is violation of Section 45A(l)(g) of the Act. While Section 45A(l)(g) provides for all violations of the provisions of the Act and Rules, Section 45AA takes care of a situation of violation of provisions of the Act and Rules with regard to payment of tax. Non-payment of tax can occur either on account of non-payment on the due dates under the statutory provisions which is mandatory or non-payment of demanded tax. Advance tax is not to be paid against demand, but is to be paid in accordance with the statutory provision. Therefore, the violation of rule 21(7) in regard to nonpayment of advance tax or deficiency in payment of advance tax is specifically covered by Section 45AA and so much so, the specific provision should exclude the general provision. So a penalty in the case if violation of rule 21(7) in regard to payment of tax has to be treated as violation of Section 45AA and penalty has to be considered if leviable only Under Section 45AA of the Act. It is a well-settled position that misquoting of a section will not invalidate an order, if the authority issuing the same was competent to do so. As already stated, going by the allegations that constituted the offence and the order of the officer limiting the penalty to the extent of deficiency of advance tax, the order has to be considered as one passed Under Section 45AA and the quoting of Section 45A(l)(g) alone by itself will not affect its validity. In fact the order can be treated as an order passed Under Section 45A(l)(g) read with Section 45AA of the Act. In other words, all the sections under which order is issued are not quoted therein is the only deficiency about the order. Therefore I feel the order issued Under Section 45A(l)(g) can be sustained as an order issued under the said section read with Section 45AA of the Act.
8. The learned single Judge also considered the question whether the conduct of the appellant amounted to conscious disregard of the statutory obligation so as to subject the appellant to penalty. The question whether the maximum penalty payable on the facts of the case was also considered. The relevant portion reads as follows:
Exhibit P1 sale which led to the deficiency of advance tax was sufficiently early on March 28, 2002 and the petitioner had time to make the payment on March 30, 2002, assume the other two days, Government did not make provision for receipt of tax which itself has to be doubted. I feel the petitioner acted in conscious disregard of the statutory provision and therefore should be subjected to penalty. The contention of counsel for the petitioner that the maximum penalty in a case not involving evasion of tax is Rs. 10,000 cannot be accepted because the same applies only to cases of infraction of law not involving non-payment of tax for which separate penalty is provided Under Section 45AA. If this argument of the counsel is accepted, then the position would be that those willing to pay a fine of Rs. 10,000 need not pay advance tax Under rule 21(7). If the interest saving on nonpayment of 90 per cent of advance tax for the month of March, i.e., for ten days, i.e., from 31st March till the due date of payment of monthly returns on 10th April is more than Rs. 10,000 then no dealer need pay the advance tax for the month of March and if this proposition is accepted, the same will defeat the entire purpose of rule 21(7). Therefore, I am of the view that the penalty in a case of non-payment of tax is not to be considered Under Section 45A(l)(g) alone, but has to be considered along with Section 45AA and the maximum penalty payable therein is equal to the amount of tax.
The learned single Judge however sustained the levy Under Section 45AA which according to the learned Judge can go up to the amount of tax sought to be evaded.
9. We are in full agreement with the learned single Judge that the appellant had acted in contravention of the provisions of rule 21(7), that the said conduct attracted the provisions of Section 45A of the Act and that the conduct of the appellant in not remitting the entire advance tax on or before March 31, 2002 was wilful and penalty was rightly imposed.
10. We note that the learned single Judge did not independently consider the question whether penalty Under Section 45A attracting sub-section (l)(g) can be imposed beyond Rs. 10,000 treating the infraction of rule 21(7) on a par with evasion of tax. The learned Judge only held that the present case attracted the special provision contained in Section 45AA of the Act. The main grievance, as understood from the arguments of the counsel for the appellant, is against the imposition of penalty above Rs. 10,000 and at Rs. 50,000 by invoking Section 45AA of the Act.
11. Now let us see the provisions of Section 45AA of the Act, inserted by the Finance Act, 1994, which reads as follows:
45AA. Penalty for default of payment of tax.--(1) Where an assessee makes default in payment of tax or any other amount due under this Act within the time specified in the notice of demand, he shall, in addition to the tax or other amount in arrears and the amount of interest payable Under Sub-section (3) of Section 23, be liable to pay, by way of penalty such amount and in the case of a continuing default, amount at such rate for every day during which the default continues, as the assessing authority may direct, so, however, that the total amount of penalty shall not exceed the amount of tax or other amount in arrears.
(2) No penalty Under Sub-section (1) shall be imposed without giving the assessee a reasonable opportunity of being heard.
The opening words "Where an assessee makes default in payment of tax or any other amount due under this Act within the time specified in the notice of demand" would show that a notice of demand and default is condition precedent for application of Section 45AA. If the said section applies, penalty can go up to the amount in arrears. In the instant case, penalty sustained by the learned Judge is only Rs. 50,000 and the maximum penalty that can be imposed is Rs. 5,68,957 and hence, the levy can be sustained. As already noted, Section 45AA is clear and unambiguous. A written demand for the tax due and default in complying with the said demand within the period specified therein is a condition precedent. Admittedly, there was no written demand and default. The appellant had voluntarily remitted the balance tax due on April 10, 2002, i.e., nine days after the due date Under rule 21(7) of the Rules. We do not agree with the learned Judge that Section 45AA of the Act in terms applied to the case on hand. Of course, the principle behind the said section is appealing and worthy of application. Probably, this prompted the learned Judge in sustaining the penalty above Rs. 10,000.
12. Now, the question to be considered is whether the penalty of Rs. 50,000 sustained by the learned Judge can be justified Under Section 45A(1) itself. As already noted, the learned Judge did not consider this question. We have already extracted the relevant portion of the judgment of the learned Judge, which gives the background of the levy. It is evident that the last limb of rule 21(7) was inserted in 1991 with the sole purpose of meeting the budgetary deficit and to avoid the possible financial constraints. If the failure to remit the tax Under rule 21(7) of the Rules in advance is to be treated as a technical default the very purpose of the rule will be defeated.
13. Section 45A(1) of the Act provides for imposition of penalty for violation of clauses (a) to (g) thereof. In the absence of any specific provisions in the Act for imposition of penalty for any such violation, the assessing authority and the Appellate Assistant Commissioner is given the power to impose the penalty on being satisfied of such contravention of an amount not exceeding twice the amount of sales tax or other amount evaded or sought to be evaded, where it is practicable to quantify the evasion, or an amount not exceeding ten thousand rupees in any other case. Thus, in cases where the contravention of Section 45A(1), clauses (a) to (g) results in evasion of tax or attempt to evade payment of tax, then the penalty Under Section 45A(1) can be imposed up to double the tax evaded or sought to be evaded. In other cases of contravention the maximum penalty that can be imposed is only Rs. 10,000.
14. Thus, the further question to be considered is only as to whether the non-payment of advance tax Under rule 21(7) before 31st March can be equated to a situation of evasion of tax or an attempt to evade the tax contemplated Under Section 45A(1) of the Art.
15. The expressions used are "evaded", "sought to be evaded" and "evasion". The said expressions have not been defined in the Act. The dictionary meaning of the word "evasion", is the act or process of finding a way of not doing something that is legally or morally required to be done. Collins Cobuild English Dictionary for Advanced Learners, Major New Edition, defines the word "evasion" as "deliberately avoiding something that you are supposed to do or deal with."
16. A Constitution Bench of the Supreme Court in J.K. Synthetics Ltd. v. Commercial Taxes Officer [1994] 94 STC 422, while considering the question regarding payment of interest on tax on the amount of freight charged in respect of the sale of cement under the Cement Control Order dealt with the principles regarding the interpretation of charging provisions and machinery provision in taxing statutes and observed thus:
Before we proceed further we must emphasise that penalty provisions in a statute have to be strictly construed and that is why we have pointed out earlier that the considerations which may weigh with the authority as well as the court in construing penal provisions would be different from those which would weigh in construing a provision providing for payment of interest on unpaid amount of tax which ought to have been paid. Section 3, read with Section 5 of the Act, is the charging provision whereas the rest of the provisions provide the machinery for the levy and collection of the tax. In order to ensure prompt collection of the tax due certain penal provisions are made to deal with erring dealers and defaulters and these provisions being penal in nature would have to be construed strictly. But the machinery provisions need not be strictly construed. The machinery provisions must be so construed as would enable smooth and effective collection of the tax from the dealers liable to pay tax under the statute.
The Constitution Bench further observed as follows:
It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same.
17. The Supreme Court in Associated Cement Co. Ltd. v. Commercial Tax Officer [1981] 48 STC 466, relying on the principles applied by it in Gursahai Saigal v. Commissioner of Income-tax, Punjab , observed as follows:
It is the duty of the court while interpreting the machinery provisions of a taxing statute to give effect to its manifest purpose having a full view of it. Wherever the intention to impose liability is clear courts ought to have no hesitation in giving what we may call a commonsense interpretation to the machinery sections so that the charge does not fail.
18. We have already referred to the dictionary meaning of the word "evasion" as deliberately avoiding something which is legally required to be done. In the present case, what is required to be done under the last limb of rule 21(7) is to remit not less than 90 per cent of the tax due for the month of March, 2002 on or before the last day of March. The appellant has only remitted the tax due only up to March 25, 2002, which is far less than the tax due for the month of March. Admittedly, a sum of Rs. 5,24,400 was due as on 31st March from March 28, 2002 onwards. The appellant, it was found by the learned Judge, has wilfully defaulted payment of the advance tax, which, in the words of the learned Judge, is "irreversible". This satisfies the definition of the word "evasion" and consequently, it has to be held that the appellant has sought to evade the payment of advance tax payable Under rule 21(7) of the Rules. The amount of tax sought to be evaded is an ascertained liability. Even by applying the principles regarding the interpretation of a rule, that a machinery provision must be construed as would effectuate the object and purpose of the Act and not to defeat the same; that it is the duty of the court, while interpreting the machinery provision of a taxing statute, to give effect to its manifest purpose, having a full view of it and that wherever the intention to impose liability is clear, courts ought to have no hesitation in giving a commonsense interpretation to the machinery provisions so that the charge does not fail as laid down in the decisions of the Supreme Court supra. The object of the rule being clear that it is intended to meet the budgetary deficit, any other view, rather than advancing the object sought to be achieved, would only defeat the very object with which the last limb of rule 21(7) was inserted. In these circumstances, we are of the definite view that the situation of non-payment of advance tax due for the month of March, 2002, as per rule 21(7) of the rules, amounts to evasion of tax due or sought to be evaded and since the tax evaded or sought to be evaded is a definite figure, the assessing authority is perfectly justified in imposing penalty Under Section 45A of the Act on the basis that the appellant has evaded or sought to evade the tax due for the month of March, 2002. As already noted, the learned Judge had exercised the discretion vested Under the section and limited the penalty to Rs. 50,000 as against Rs. 5,68,957 imposed by the assessing authority, which we think, on the facts of the case is justified.
19. The decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 and the decision of this Court in P.D. Sudhi v. Intelligence Officer [1992] 85 STC 337, on the facts of this case, are satisfied in that it has been categorically held by the learned single Judge that the default is not technical, that it is serious and that it was deliberate and wilful. The decision of the Supreme Court in Maruti Wire Industries Pvt. Ltd. v. Sales Tax Officer [2001] 122 STC 410 and other decisions relied on by the counsel for the appellant related to the levy of penal interest Under Section 23(3) of the Act, which has no relevance in the matter of levy of penalty Under Section 45A of the Act, for the provisions regarding imposition of penal interest Under Section 23(3) and penalty Under Section 45A of the Act are different. Here, we may note that another learned single Judge of this Court in Zakir Hussain v. Additional Sales Tax Officer, Trichur 1993 KLJ 42, considered a similar question where penalty was levied Under Section 45A of the Act for delay in filing the return. The assessing authority imposed a penalty of Rs. 47,000 which was reduced to Rs. 23,500 by the first revisional authority and confirmed by the Board of Revenue. The contention of the petitioner before the High Court was dealt with as follows:
4. One of the contentions advanced is that the 'delay' in filing the annual return will not constitute 'default' contemplated Under Section 45(1)(c) of the Act. The case is that the delay in filing the return does not attract Section 45A as no evasion is involved. Before dealing with this question, it is primarily to be understood that this is a case where the sales tax had been collected by the petitioner and the said tax was payable to that Government every month. That means the petitioner was collecting tax with effect from April 1, 1986 to March 31, 1987 but all the returns showing the amount of tax collected, total and taxable turnover, etc. for all months were together filed only on August 4, 1987, that is to say four months after the expiry of the assessment year in question. The tax collected was Rs. 46,715. This amount was not paid till the books of accounts were verified by the officer.
Adverting to the decision of the division Bench in P.D. Sudhi case [1992] 85 STC 337 (Ker), it was observed thus:
It is difficult to hold that in this case there is only 'mere default' but there is something more than that, that is to say, there are positive circumstances which will establish the fraudulent and objectionable conduct of the petitioner. In other words this is a case of 'wilful default' with a fraudulent intention attracting penal action. This is not a case where the tax payable is disputed or doubted. The petitioner had been authorised to collect and pay over to the Government. He was all along conscious that what was collected was the tax payable to the Government. He did not file the monthly returns obviously to evade the payment of collected tax to the Government.
It was further observed as follows:
The petitioner contended that the maximum penalty leviable in the present case is only Rs. 5,000. That contention does not appear to be correct. It will apply only in cases where it is not practicable to quantify the tax involved. This is a case where it is sufficiently practicable to quantify the amount of tax involved in the evasion. In such cases, the maximum penalty prescribed is the amount equal to twice the amount of sales tax so involved in the evasion. The tax evaded as earlier pointed out is Rs. 46,715. Then the maximum penalty leviable in the present case is Rs. 93,430.
This view of the learned single Judge accords with the view which was already taken and we concur with the view of the learned Judge.
20. We accordingly uphold the judgment of the learned single Judge sustaining the penalty Under Section 45A of the Act to the extent of Rs. 50,000 though not Under Section 45AA but Under Section 45A itself.
There is no merit in this appeal. It is accordingly dismissed.