Gauhati High Court
Vishal Retail Ltd vs The State Of Assam And Ors on 14 November, 2014
Author: Ujjal Bhuyan
Bench: Ujjal Bhuyan
THE GAUHATI HIGH COURT
(THE HIGH COURT OF ASSAM : NAGALAND : MIZORAM AND
ARUNACHAL PRADESH)
WP(C) No. 4112 OF 2007
VISHAL RETAIL LTD.,
A COMPANY INCORPORATED UNDER THE PROVISIONS OF
THE INDIAN COMPANIES ACT, 1956, HAVING ITS
REGISTERED OFFICE AT RZ-A-95 & 96, ROAD NO. 4,
STREET NO. 9, MAHIPALPUR EXTENSION, NEW DELHI-1100377
AND ONE OF ITS RETAIL OUTLET AT AMAZE SHOPPING MALL,
AT ROAD, GUWAHATI-781001 IN THE NAME & STYLE OF
'VISHAL MEGA MART'.
............ Petitioner
-Versus-
1. THE STATE OF ASSAM,
REPRESENTED BY COMMISSIONER AND SECRETARY,
FINANCE (TAXATION) DEPARTMENT, DISPUR, GUWAHATI - 6.
2. THE COMMISSIONER OF TAXES, ASSAM,
KAR BHAVAN, DISPUR, GUWAHATI - 6.
3. THE DEPUTY COMMISSIONER OF TAXES,
GUWAHATI, ZONE - C, KAR BHAVAN, DISPUR, GUWAHATI - 6.
4. THE SUPERINTENDENT OF TAXES,
GUWAHATI, ZONE - C, KAR BHAVAN, DISPUR, GUWAHATI - 6.
5. THE CERTIFICATE OFFICER (TAXATION) KAMRUP,
KAR BHAVAN, DISPUR, GUWAHATI - 6.
.......... Respondents
BEFORE HON'BLE THE CHIEF JUSTICE (ACTG.) THE HON'BLE MR. JUSTICE UJJAL BHUYAN Advocate for the Petitioner : Mr. S Banik, Advocate.
Mr. A Dhar, Advocate.
Advocate for the Respondents : Mr. S Chetia, SC, Finance Deptt.
Date of Hearing : 14.11.2014
Date of Judgment : 14.11.2014
WPC No. 4112/2007 Page 1 of 12
Judgment & Order
(Bhuyan, J)
Heard Mr. S Banik, learned Counsel for the petitioner and Mr. S Chetia, learned Standing Counsel, Finance Department, Assam.
02. This petition has been filed under Article 226/227 of the Constitution of India, basically challenging imposition of penalty on the petitioner for default in payment of tax.
03. A brief recital of the facts is considered necessary.
04. Petitioner is a public limited company, incorporated under the Companies Act, 1956, having retail business premises all over the country, including one at Amaze Shopping Mall, AT Road, Guwahati under the name and style of Vishal Mega Mart. Petitioner is a registered dealer under the Assam Value Added Tax Act, 2003 (VAT Act). On 02.05.2006, a notice under section 74 (1) of the VAT Act was issued to the petitioner and books of accounts were seized. As per seizure list, grounds of seizure were mentioned as failure to maintain proper accounts, records of purchase and sales, and also failure to produce such accounts or records before the taxing authority. This was followed by respondent No. 4 stating that on scrutiny of the seized documents, wilful evasion of tax by the petitioner to the tune of Rs.10,09,712.00 for the period from October, 2005 to March, 2006 was detected. Petitioner was asked to show cause and to submit explanation, including prayer for composition against initiation of prosecution. According to the petitioner, there was no wilful evasion of tax. The default in payment of Rs.10,09,712.00 was on account of mistake in application of rates of tax, which was a bonafide error, the said figure being the WPC No. 4112/2007 Page 2 of 12 differential amount. Subsequently, petitioner deposited the said amount of Rs.10,09,712.00 to the State respondents.
05. Petitioner submitted reply on 17.08.2006 denying the charge of wilful evasion of tax. It was stated that non-deposit of the aforesaid amount was on account of erroneous application of lower rate of tax on goods sold by the petitioner. There was no intention to evade tax. It was further stated that for the said period from October, 2005 to March, 2006, petitioner had already paid tax to the tune of Rs.1,09,32,278 which showed that petitioner was a good tax payer and there could never be any intention to evade payment of any tax. It was also stated that since there was no wilful evasion of tax, no offence was committed by the petitioner. However, to avoid further controversy, it was stated that petitioner was willing to get the matter compounded within the meaning of Section 89 (1) (b) of the VAT Act.
06. Following a series of correspondence between the petitioner and the departmental authorities, petitioner was served with a show cause notice dated 13.09.2006 to explain as to why penalty of Rs.10,09,712.00 should not be imposed under section 90 of the Act. This was followed by another demand notice dated 27.09.2006 informing the petitioner that the authority was agreeable to compound its various acts of omission and commission at a sum of Rs.10,00,000.00. Petitioner was directed to deposit the said amount into Govt. account on or before 04.10.2006.
07. Petitioner contested the above demand notice and requested for an opportunity of hearing vide representation dated 04.10.2006. It appears that WPC No. 4112/2007 Page 3 of 12 opportunity of hearing was given on 07.11.2006, wherein, petitioner submitted its stand in writing denying the allegation of wilful evasion of tax.
08. However, respondent No. 4 issued fresh demand notice dated 16.11.2006 under section 90 of the VAT Act directing the petitioner to deposit Rs.10,00,000.00 on or before 24.11.2006. It was stated that after considering all aspects of the case, respondent No. 4 was agreeable to compound the various acts of omission and commission of the petitioner for the said sum. This was followed by two other reminders dated 08.12.2006 and 17.01.2007. However, demand notice dated 02.03.2007 was again issued by the office of the respondent No.3, stating that a penalty of Rs.10,00,000.00 was imposed on the petitioner under section 75(12)(b)(v) of the VAT Act on the evaded tax amounting to Rs.10,09,712.00. Petitioner was directed to deposit the penalty amount into the Govt. account on or before 12.03.2007.
09. It appears that certificate of public demand was drawn up by the Certificate Officer (Taxation), Kamrup, Guwahati describing respondent No. 3 as the certificate holder and the petitioner as certificate debtor, quantifying the public demand at Rs.10,00,000.00 recoverable from the certificate debtor. Based on the same, Bakijai Case No.9/07-08/AGST was registered and notice under section 7 of the Bengal Public Demands Recovery Act, 1913 was issued to the petitioner. Petition denying liability filed by the petitioner was rejected and the petitioner was asked to deposit the certificate amount.
10. At that stage, petitioner filed the present writ petition for quashing of demand notices dated 16.11.2006 and 02.03.2007 as well as for quashing of the bakijai proceeding.
WPC No. 4112/2007 Page 4 of 12
11. Respondent No. 2 i.e., Commissioner of Taxes, Assam has filed affidavit. It is stated that penalty of Rs.10,00,000.00 was imposed by the respondent No. 4 for evasion of principal tax amounting to Rs.10,09,712.00 attributable to the petitioner. Imposition of penalty is valid and justified. Since penalty has not been paid, recourse to the provisions of Bengal Public Demands Recovery Act, 1913 has been taken, which resulted in institution of the bakijai case. Appraisal of the seized documents from the petitioner reveal evasion of tax to the tune of Rs.10,09,712.00 for the period from October, 2005 to March, 2006 making the petitioner liable for prosecution. The contention of the petitioner that non-payment of the aforesaid principal amount of tax was due to confusion on the applicable rate of tax has been denied. It is stated that petitioner neither approached the assessing officer nor the Commissioner of Taxes for removal of any doubt. Petitioner deposited the differential tax amount of Rs.10,09,712.00 only after demand notice was served on it. He offered proposal for composition of the matter to avoid prosecution. Instead of prosecution, penalty has been imposed. In paragraph 14, it is stated that in the demand notice dated 02.03.2007, there is an inadvertent mistake as instead of section 90, section 75 (12) (b) (v) of the VAT Act has been mentioned. Similar mistake has been repeated in the order dated 16.04.2007. Mentioning of wrong section does not vitiate the proceeding, it is contended.
12. From the above, what transpires is that faced with the show cause notice dated 29.07.2006 for prosecution, petitioner had submitted reply on 16.08.2006 informing about deposit of the difference in tax liability of Rs.10,09,712.00 and stating that the said default had occurred because of application of wrong rate of tax. Contending that there was no intention to WPC No. 4112/2007 Page 5 of 12 evade tax, proposal was submitted for compounding the matter under section 89 (1) (b) of the VAT Act to avoid further hassles. But it appears that it was not followed up and ultimately demand notice dated 02.03.2007 was issued imposing penalty of Rs.10,00,000.00 under section 75 (12) (b) (v) of the VAT Act. In the affidavit, it has been clarified by respondent No. 2 that reference to section 75 (12) (b) (v) was an inadvertent error and the demand has been made under section 90 of the VAT Act. Registration of the bakijai case is a consequential step for realisation of the penalty.
13. It is a settled proposition that misquoting of a section will not invalidate an action which can otherwise be traced to a valid source. Having said that, since it is averred that the penalty has been imposed under section 90 of the VAT Act, it would be useful to refer to the said provision at the outset. Section 90 of the VAT Act reads as under: -
"90. Penalties - Whosoever contravenes or fails to comply with, any of the provisions of this Act or the rules made thereunder or any order or direction made or given under this Act or the rules thereunder, shall, if no other penalty is provided under this Act for such contravention or failure, be liable to imposition of a penalty of an amount not exceeding twice the amount of tax involved or tax evaded or sought to be evaded where it is practicable to quantify such amount or an amount not exceeding fifty thousand rupees in any other case, subject to a minimum of two thousand rupees and where such contravention or failure is a continuing one, to a further penalty of one hundred rupees for every day during the period or continuance of the contravention or failure:
Provided that no penalty under this section shall be imposed unless the person concerned is given a reasonable opportunity of being heard."
14. A careful reading of the aforesaid provision would indicate that in case of contravention or failure to comply with any provision of the VAT Act or WPC No. 4112/2007 Page 6 of 12 the Rules framed thereunder, if no other penalty is provided under the VAT Act for such contravention or failure, penalty of an amount not exceeding twice the amount of tax evaded or sought to be evaded or involved, may be imposed. As per the proviso, no penalty under the said section shall be imposed unless the person concerned is given a reasonable opportunity of being heard. Therefore, in the event of any contravention or failure to comply with any provision of the VAT Act or any order or direction made thereunder, penalty may be imposed which may extend to an amount not exceeding twice the amount involved or tax evaded or sought to be evaded. However, before imposition of penalty, the affected person is required to be given a reasonable opportunity of being heard.
15. Question is whether in the event of any contravention or failure as per section 90 of the VAT Act, imposition of penalty would be automatic or whether some discretion is vested on the authority to impose the penalty or not. The fact that the section itself mandates providing of reasonable opportunity of hearing before imposition of penalty is a clear pointer to the legislative intent that imposition of penalty in the event of any contravention or failure to comply in terms of section 90 would not be automatic. Discretion is vested in the authority whether to impose penalty at all or not or in the event of the need to impose penalty, the quantum of penalty that should be imposed. This would require application of mind to all the relevant factors including the response of the affected person. Imposition of penalty is a coercive measure and, therefore, the order of penalty should be a speaking order.
16. Way back in the case of HINDUSTAN STEEL LTD. VS. STATE OF ORISSA, [VL.83 1972] ITR 26, the Hon'ble Supreme Court considered amongst others, the issue relating to imposition of penalty under the Orissa Sales Tax WPC No. 4112/2007 Page 7 of 12 Act, 1947. The dealer was directed to pay additional sales tax on application of appropriate rates of tax and additionally was imposed penalty. In that case, the Hon'ble Supreme Court laid down the general principles relating to levy of penalty. It was held that 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 or not is a matter of discretion to be exercised judicially and on a consideration of all relevant circumstances. It was further held that 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 statute or where the breach flows from a bona fide belief that the dealer is not liable to act in the manner prescribed by the statute.
17. Relying on the aforesaid judgment of the Apex Court, a Division Bench of this Court in the case of BRAJALAL BANIK VS. STATE OF TRIPURA & ANR., reported in 79 STC 217, also held that imposition of penalty cannot be an automatic consequence of a failure to pay due tax. That was a case dealing with imposition of penalty under the Tripura Sales Tax Act, 1976 for failure to pay sales tax by the due date. It was held that non-payment of tax in difference is not sufficient to attract penalty. That can only make the dealer a defaulter. Once a dealer is deemed to be defaulter, discretion is vested with the authority to levy penalty or not. Proceeding for imposition of penalty is not a proceeding for recovery of tax. Penalty is a measure to ensure that taxes are WPC No. 4112/2007 Page 8 of 12 paid. It is a measure of deterrence. Penalty cannot be imposed without hearing the affected party. Hearing has to be given even if there is no express provision in the statute for such hearing. The Division Bench held as under: -
"12. In order to justify imposition of penalty the authority concerned must find not only that there has been a default but should also consider the question whether there was good and sufficient reason for the default and only if he finds that there was none can he proceed to impose penalty. There may be extenuating circumstances explaining why the dealer failed to pay the dues. All these also will have to be considered. In a proper case he may not levy a penalty even if the tax is not paid by the dealer in time. The ultimate decision in this regard will depend upon the facts and circumstances of each case. The authority concerned must come to a judicious determination as to whether the facts and circumstances of the case justify levy of penalty and must state the reasons in his order for arriving at such a conclusion or in other words, the order levying penalty must be a speaking order. It must show that the authority concerned has applied his mind judicially to the facts and circumstances of the case and has considered the explanation, if any, submitted by the dealer. A bald statement that the explanation is not acceptable by him is not sufficient as it does not indicate application of mind of the authorities. The order of penalty is also subject to appeal and revision. It will be necessary for the appellate or revisional authorities to know as to what reasons prevailed in the mind of the authority concerned levying penalty to decide the same. If the authority concerned arrives at a conclusion that the facts and circumstances of the case justify levy of penalty, he has to further decide as to what should be the quantum of penalty. Section 26(2) only speaks of the maximum amount of penalty in all cases. The authority concerned has to consider the relevant factors such as period of delay, conduct of the dealer and such other considerations. Levy of maximum penalty without stating any reasons therefor may not be sustainable."
18. Therefore, from the order imposing penalty, the reasons for imposition of penalty as well as the quantum of penalty must be discernible. This will reflect application of mind by the authority imposing the penalty and also allow the higher authorities to examine the reasons assigned for imposition WPC No. 4112/2007 Page 9 of 12 of penalty in the event of appeal or revision. The order of penalty must indicate that all relevant factors were taken into consideration before imposing penalty. The discretionary power to impose penalty must be exercised in a reasonable and rational manner, otherwise it would be arbitrary and capricious.
19. A Constitution Bench of the Hon'ble Supreme Court in SN MUKHERJEE VS. UNION OF INDIA, reported in AIR 1990 SC 1984, underlined the need for recording reasons. It was held that recording of reasons serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision making. It was further held that the requirement of recording reasons should govern the decisions of an administrative authority exercising quasi-judicial functions. The need for recording of reasons would be greater in a case where the order is passed at the original stage.
20. In EAST COAST RAILWAY & ANR. VS. MAHADEV APPA RAO & ORS., reported in (2010) 7 SCC 678, the Apex Court held that arbitrariness in decision making can manifest itself in different forms. Non-application of mind by the authority concerned while making the decision is one of them. An order passed by a public authority must disclose due and proper application of mind by the person making the order, which must be discernible from the order itself or the record contemporaneously maintained. Application of mind is best demonstrated by disclosure of mind by the authority making the order. This is possible only if reasons are recorded. Absence of reasons may render the order arbitrary and hence legally unsustainable.
WPC No. 4112/2007 Page 10 of 12
21. Again in the case of KRANTI ASSOCIATES PRIVATE LTD. & ANR. VS. MASOOD AHMED KHAN & ORS., reported in (2010) 9 SCC 496, the Apex Court examined the expression "speaking order". It was held that the face of an order passed by a quasi-judicial authority or even of an administrative authority affecting the rights of the parties must speak. The order must speak for itself.
22. Having noticed the legal position as above, we may now refer to the impugned notice dated 02.03.2007, which reads as under: -
"To M/s. Vishal Retail Pvt. Ltd.
AT Road, Ghy.
Sub: - Demand notice against imposition of penalty within the meaning of section 75 (12) (b) (v) of the AVAT Act, 2003.
You are hereby informed that after considering all the aspects a penalty of Rs.10,00,000.00 (Rupees ten lacs only) is being imposed upon you u/s 75 (12) (b) (v) of the AVAT Act/03 on the evaded tax amounting to Rs.10,09,712.00.
You are hereby directed to deposit the penalty amounting to Rs. 10,00,000.00 (Rupees ten lacs only) into the GOVT. account and furnished the receipted copy of the challan on or before 12.03.2007.
Failure to make compliance with the terms of this notice will entail auction of the seized goods and the dues will be realised from the sales proceeds thereof.
Superintendent of Taxes
Guwahati Unit-D "
23. As noticed above, it has been stated by respondent No. 2 in his affidavit that demand notice has been issued not under section 75 (12) (b) (v) of the VAT Act, but under section 90 thereof. A bare perusal of the impugned demand notice would indicate that no reasons have been assigned as to why the penalty of Rs.10,00,000.00 has been imposed on the petitioner. The order clearly reflects non-application of mind, firstly, either to the justification for WPC No. 4112/2007 Page 11 of 12 imposition of penalty or not and secondly, the quantum of the penalty.
Impugned demand notice is, therefore, clearly arbitrary and cannot be sustained in the eye of law. It is, accordingly set aside and quashed. Since penalty has been quashed, it goes without saying that the bakijai proceeding for recovery of the penalty cannot also survive.
24. Writ petition is allowed. No costs.
JUDGE CHIEF JUSTICE (ACTG.)
BIPLAB
WPC No. 4112/2007 Page 12 of 12