Gujarat High Court
Jyot Overseas P.Ltd vs State Of Gujarat....Opponent(S) on 8 June, 2017
Author: Akil Kureshi
Bench: Akil Kureshi, Biren Vaishnav
O/TAXAP/805/2012 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 805 of 2012
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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JYOT OVERSEAS P.LTD....Appellant(s)
Versus
STATE OF GUJARAT....Opponent(s)
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Appearance:
MR TANVISH BHATT, ADVOCATE FOR M/S WADIAGHANDY & CO,
ADVOCATE for the Appellant(s) No. 1
MR PRANAV TRIVEDI, ASST GOVERNMENT PLEADER for the Opponent(s)
No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
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O/TAXAP/805/2012 JUDGMENT
Date : 08/06/2017
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. This appeal is filed by the assessee to challenge the judgement of the Value Added Tax Tribunal ('the Tribunal' for short) dated 06.09.2012. At the time of admission of appeal, the following substantial questions of law were framed:
"(1) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that penalty could be imposed in the case of the appellant under section 34(7) of the VAT Act as well as under section 34(12) of the VAT Act?
(2) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in confirming the order of penalty under section 34(7) and 34(12) of the VAT Act in the case of the appellant without there being any mala fide intent of the appellant?
(3) Whether on the facts and in the circumstances of the case, the order of the Appellate Tribunal confirming the order of the authority below of imposition of penalty of the appellant is perverse and bad in law?"
2. Brief facts are as under:
2.1 The assessee is a dealer and purchaser of raw Isabgul.
The assessee would purchase such Isabgul seeds from local dealers who were commission agents in the State of Gujarat. Such purchased goods would be sent by the assessee by branch transfer to its processing unit at Abu Road. After processing, the refined Isabgul would be exported directly Page 2 of 10 HC-NIC Page 2 of 10 Created On Fri Aug 18 05:57:53 IST 2017 O/TAXAP/805/2012 JUDGMENT from Abu Road. The dispute pertains to the period between 10.08.2006 to 31.03.2007 during which the assessee did not pay the Value Added Tax at the relevant time. On a surprise visit by the authorities of the VAT department at the premises of the assessee, this modus according to the department was detected. The assessee volunteered to pay the entire tax with interest. The department thereafter instituted penalty proceedings. The Assistant Commissioner of Commercial Tax by his order dated 31.03.2011 imposed penalty of Rs. 78,54,958/- under Section 34(7) of the Value Added Tax Act and a matching penalty under Section 34(12) of the Act and thus levied a total penalty of Rs. 1,57,09,916/- on the assessee. It may be noted that both the penalties were imposed at a rate of 150% of the tax involved.
2.2 The assessee challenged the order of the Assistant Commissioner before the Tribunal. Before the Tribunal, the assessee contended that there was no malafide intention on the part of the assessee to avoid tax. In fact the assessee under a bonafide belief that no tax was payable, had not deposited the same with the government. To support such a contention, the assessee relied on various circumstances including a letter written by the assessee to the Commissioner of Sales Tax on 22.05.2006 requesting him to clarify the assessee's tax liability under the circumstances to which the assessee had received no reply. The assessee also pointed out that the tax was paid immediately on demand with interest without murmur. The assessee contended that the Value Added Tax Act was brought into effect shortly before the period of tax default, certain amendments were made in the relevant taxing provisions. Even the consultants were not Page 3 of 10 HC-NIC Page 3 of 10 Created On Fri Aug 18 05:57:53 IST 2017 O/TAXAP/805/2012 JUDGMENT clear about the tax liability under such circumstances and that the other dealers in the State were not paying taxes. The assessee also relied on a provisional assessment order dated 13.06.2007 for the period between 22.05.2006 to 31.03.2007 in which also the authority had not raised any tax demand. According to the assessee, these factors when seen cumulatively would demonstrate that it was a pure bona fide error in not paying the tax and the assessee had no mala fide intention of avoiding tax liability. The assessee also argued that had the product been exported from the State of Gujarat admittedly there would have been no tax liability. It was, therefore, contended that the authority committed a serious error in imposing penalty that too at the highest possible rate prescribed under the statute.
2.3 The Tribunal by the impugned judgement allowed the appeal in part. The Tribunal did not accept the assessee's contention that there was no intention on the part of the assessee to avoid tax. However, taking note of certain mitigating circumstances, the Tribunal was of the opinion that imposing penalty at the highest rate was not correct. The Tribunal, therefore, reduced the penalty to 20% of the amount of the tax involved. This judgement, the assessee has challenged in the present tax appeal.
3. First of the three questions framed refers to simultaneous penalties being imposed under sub-section 7 and sub-section 12 of Section 34 of the VAT Act. The second and third questions pertain to the correctness of the judgement of the Tribunal imposing penalty by reducing the same to 20% of the amount of tax involved. At the outset, Page 4 of 10 HC-NIC Page 4 of 10 Created On Fri Aug 18 05:57:53 IST 2017 O/TAXAP/805/2012 JUDGMENT learned advocate for the appellant did not press question no. 1 and the same is therefore disposed of without answering it. He, however, argued at length on questions no. 2 and 3. Taking us through the documents on record and in particular the judgement of the Tribunal under challenge, he submitted that there were strong grounds suggesting that non payment of tax was a pure bona fide error on the part of the assessee. The entire issue was in a flux. Major amendments were made in the law only recently. Other dealers who were purchasing Isabgul and selling it from within the State after processing, admittedly did not have any tax liability. The assessee bona fide believing himself at par with such dealers did not pay tax. The fact that the provisional order of assessment did not raise any demand of tax on such sales, would demonstrate that even the authorities were not clear on the tax liability. Counsel also relied on the letter dated 22.05.2006 written by the assessee to the Commissioner seeking clarification on the question of tax liability.
4. On the other hand, learned AGP Mr. Pranav Trivedi for the department opposed the appeal contending that the Tribunal has given detailed reasons, the assessee had intentionally avoided paying tax, the Tribunal has reduced penalty to 20% of the tax amount involved, no further interference is therefore called for.
5. We may summarize a few admitted facts. The assessee purchased Isabgul seeds from the dealers situated in Gujarat, sent the goods to its processing unit at Abu Road by branch transfer and ultimately exported the processed goods from there. The Gujarat Sales Tax Act 1969 was revised by Gujarat Page 5 of 10 HC-NIC Page 5 of 10 Created On Fri Aug 18 05:57:53 IST 2017 O/TAXAP/805/2012 JUDGMENT Value Added Tax Act with effect from 01.04.2006. This was thus the first order of operation of the new law. There also two amendments were made on 10.05.2006. Section 14B was introduced providing for the facility for composition of tax on agriculture produce. Simultaneously sub-section 4 was inserted in Section 9 on the same date providing that in case of a dealer or a commission agent who purchases taxable goods from a commission agent to whom permission for payment of lump sum tax is granted under Section 14B and the goods so purchased are not resold with the State then such dealer or the commission agent shall be liable to pay purchase tax on the turn over of such purchases at the prescribed rate. In other words, while purchasing goods from an agent who has availed of the facility of composition of tax, the purchasing dealer would not pay tax on sale of such product as long as the product is not sold within the State. Accordingly, if the assessee had sold the goods within the State or exported from the State, in either case there would have been no tax liability.
6. On 22.05.2006, the assessee had written to the Commissioner of Sales Tax pointing out that the Isabgul purchased by the assessee are sent to Abu Road for processing. The by-product such as Psyllium husk and cattle feed are sent back to Gujarat for the purpose of sale and the sale invoices for export and domestic sales are made from the registered office situated at Ahmedabad and thus the goods are sold from the Ahmedabad office. Under the circumstances, the assessee requested the Commissioner to advise about the tax liability. Obviously, the Commissioner not acting in any advisory capacity did not reply to such a Page 6 of 10 HC-NIC Page 6 of 10 Created On Fri Aug 18 05:57:53 IST 2017 O/TAXAP/805/2012 JUDGMENT letter. However, what happened in the meantime is that a provisional assessment was carried out in the case of the assessee for the period between 10.08.2006 to 31.03.2007. The order of provisional assessment was passed on 13.06.2007 by the concerned authority asking the assessee to pay tax at the rate of 4% on an amount of Rs. 4,75,487/- covered under the DEPB benefit. This order noted that the assessee had purchased Isabgul worth Rs. 16,54,29,848/- and had sent the goods outside the State under branch transfer and that such goods was eventually exported from a location outside the State.
7. From these factors, a few aspects emerge. First is that the entire VAT regime had come into effect only from 01.04.2006. Significant amendments were made in the Act on 10.05.2006 by introduction of Section 14(B) and sub-section 4 to Section 9 combined effect of which was that a purchasing dealer when purchases agricultural produce from a commission agent who had opted for lump sum payment, would pay no tax as long as the goods were sold within the State. All the dealers of Isabgul who like the assessee were purchasing the goods from local market and exporting after processing within the State, would therefore have no tax liability. Only difference between their cases and that of the assessee was that the assessee had a processing unit at Abu Road which was situated outside the State and instead of bringing the goods physically back to the State before exporting, the assessee by raising invoices from the registered office at Ahmedabad directly transported the goods from Abu Road for export. Had these goods been physically brought back within the State and then shown to have been sold even Page 7 of 10 HC-NIC Page 7 of 10 Created On Fri Aug 18 05:57:53 IST 2017 O/TAXAP/805/2012 JUDGMENT the department would not have raised any tax demand. Thus the statutory provisions for themselves were completely new and possible of counter interpretations. More importantly, the assessee had itself written a letter to the Commissioner seeking clarification on the possible tax liability. Though this letter did not contain very clearly certain crucial information, it did bring to the notice of the department that the assessee was sending the goods to Abu Road for processing, receiving only the by-products such as psyllium husk and cattle feed and exporting the goods by raising invoices from Ahmedabad. The department was not acting in an advisory capacity and therefore cannot be faulted for not replying to such a letter. Nevertheless, this letter did bring on record certain information which was relevant and this would mean that there were no clandestine transactions by the assessee.
8. Yet another important aspect of the matter is that the competent authority had carried out provisional assessment on 13.06.2007. This order though short is significant and contains important details such as the total turnover of the assessee, the fact that the Isabgul purchased was transferred to its branch at Abu Road and from where it was being exported. Despite such facts, the competent authority raised no demand of tax on sale of such goods, instead limited the demand to a DEPB benefit of some Rs. 4,75,000 and odd.
9. All these factors when seen cumulatively, would persuade us to accept the assessee's contention that there was no mala fide intention on the part of the assessee to avoid tax. If at all it was a bonafide error actuated by the facts and circumstances noted above. Even the Tribunal did not discard Page 8 of 10 HC-NIC Page 8 of 10 Created On Fri Aug 18 05:57:53 IST 2017 O/TAXAP/805/2012 JUDGMENT the assessee's contention about the recent amendments about possible confusion and the fact that the authority making provisional assessment also did not raise a tax demand. Despite these observations, the Tribunal sustained a portion of the penalty imposed by the Assistant Commissioner which in our opinion was passed on certain presumptions not supported by materials on record. For example, the Tribunal observed that since the assessee was having its processing unit at Abu Road and was exporting the goods from Abu Road, it may not be able to keep the sale prices at a competitive level with other dealers and therefore it might have stopped paying the tax. There was no material warranting such a presumption. Be that as it may. For the reasons stated above, in our opinion, the Tribunal committed an error in maintaining even a part of the penalty. It is well settled that it is not necessary to impose penalty simply because it is legal to do so. Sub-section 7 of Section 34 of the Act provides for a penalty in a case where the dealer in order to evade or avoid payment of tax commits certain defaults such as fails to furnish returns or furnishes incomplete or incorrect returns or avails of tax credit which he is not eligible to. Thus, the element of mens rea is of importance. It is only if the Commissioner is satisfied that the dealer in order to evade or avoid payment of tax has taken such steps that penalty under sub-section 7 of Section 34 can be imposed. Sub-section 12 of Section 34 though provides for penalty where the tax liability ultimately assessed exceeds a certain percentage of the tax paid by the assessee, it still gives discretion to the authority to impose penalty not exceeding one and one-half times the difference between the tax paid and the tax assessed. The legislature having set out an upper limit for imposition of tax Page 9 of 10 HC-NIC Page 9 of 10 Created On Fri Aug 18 05:57:53 IST 2017 O/TAXAP/805/2012 JUDGMENT without providing for any minimum mandatory tax, has left a wide discretion on the competent authority which discretion must be exercised taking into account relevant factors.
10. Under the circumstances, the order of the Tribunal is reversed. Questions no. 2 and 3 are answered by recording that in facts of the case the authority committed an error in imposing penalty on the assessee under sub-sections 7 and 12 of Section 34 and the Tribunal committed an error in confirming part of such penalty. Appeal is allowed. The order of the Tribunal is set aside.
(AKIL KURESHI, J.) (BIREN VAISHNAV, J.) divya Page 10 of 10 HC-NIC Page 10 of 10 Created On Fri Aug 18 05:57:53 IST 2017