By G. G. Goyal | Chartered Accountant
C. B. Thakar | Advocate
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Introduction Under the Maharashtra Value Added Tax Act, 2002, one of the distinguishing features is that the dealers, having turnover more than prescribed limit, are required to get VAT Audit report from a Chartered/ Cost Accountant. This report is in Form 704 and is required to be filed within the stipulated time. The normal time is 10 months from the end of the relevant financial year, though, in the past, extensions were given on administrative ground. In any case, if there is delay after the due date, penalty is provided u/s.61(2), for such delayed filing of report. The said section is reproduced below for ready reference.
“(2) If any dealer liable to get his accounts audited under subsection (1) fails to furnish a copy of such report within the time as aforesaid. The Commissioner may, after giving the dealer a reasonable opportunity of being heard, impose on him, in addition to any tax payable, a sum by way of penalty equal to one-tenth per cent, of the total sales.
Provided that, if the dealer fails to furnish a copy or such report within the period prescribed under sub-section (1), but files it within one month of the end of the said period, and the dealer proves to the satisfaction of the Commissioner that the delay was on account of factors beyond his control, then no penalty under this sub-section shall be imposed on him.”
Thus, the law provides for a steep penalty for delayed filing of VAT Audit Report. As per proviso delay up to one month, with reasonable cause, can be condoned.
Case of Nitco Paints Ltd. (42 VST 71) (Bom.)
One of the issues dealt with by the Bombay High Court in this case was that the authorities have discretion as to levy or not to levy penalty even if the delay is beyond one month, if there is reasonable cause. This gave relief to the dealer in-as-much as even a delay of more than one month can be condoned.
Tribunal judgment in case of Ankit International (VAT SA No. 161 of 2010)
In this case M.S.T. Tribunal was concerned with penalty u/s.61(2) for the year 2006-07. In the original order penalty was levied at Rs.83,013 calculated at 0.1% of the turnover as per limit given in section 61(2). In the first appeal the amount was confirmed. In second appeal Tribunal considered the facts of the case and reduced the penalty by 70% and confirmed the same at 30%.
The Sales Tax Department filed appeal before the Bombay High Court challenging the above order of the Tribunal on the ground that there is no authority with the Tribunal to reduce the amount. The argument of the Department was that there is discretion to levy or not to levy penalty depending upon the facts of the case, but if the authority decides to levy penalty, then there is no discretion about amount of the penalty. In other words, the argument was that once the authority decides to levy the penalty, then the amount is fixed, it should be calculated at 0.1% of the turnover of sales. The language used for determining the amount was relied upon along with judgment of the Supreme Court in case of Union of India v. Dharmendra Textile Processors, (18 VST 180) (SC).
Judgment of Bombay High Court in case of Ankit International (STA No. 9 of 2011, dated 15-9-2011)
The High Court has decided the issue about discretion of amount, vide judgment as above. The High Court considered the judgments cited by the Department. However, the High Court observed that there is difference in the language of the provision. In section 61(2), the words used are ‘may’. If the words used are ‘shall’ it will have different connotation. The High Court also considered the harsh effect of the above provision and further observed that two views are possible from the language of section 61(2). The High Court observed as under:
“13. Having therefore, considered the submission which has been urged on behalf of the appellant, we are of the view that there is no reason to accept the contention that the discretion which is conferred by section 61(2) does not extend also to the quantum of the penalty. Under the substantive part of s.s (2) of section 61 the State Legislature has conferred discretion on the Commissioner before he imposes a penalty on the dealer for failing to furnish a copy of the audited report within the prescribed period. The proviso to s.s (2) states that if the dealer fails to furnish a copy of the said report within the prescribed period, but files it within one month of the end of the period, and the dealer proves to the satisfaction of the Commissioner that the delay was on account of factors beyond his control, then no penalty under this sub-section shall be imposed upon him. Hence, in the circumstances set out that the proviso to s.s (2), no penalty can be imposed at all if the conditions therein are fulfilled. The proviso operates when (i) the dealer fails to furnish a copy of the report within the prescribed period, but files it within one month of the end of the period; (ii) the dealer proves to the satisfaction of the Commissioner that the delay was for reasons beyond his control. Where the proviso applies, no penalty can be imposed on the dealer at all. The proviso is an exception and does not control the substantive part of section 61(2). The substantive part of s.s (2) of section 61 also confers discretion upon the Commissioner which is not diluted by the proviso to s.s (2).
14. In any event, we are of the view that if two views in regard to the interpretation of section 61(2) are possible, the Court would be justified in adopting that construction which favours the assessee. (See decisions of the Supreme Court in The Commissioner of Income Tax v. Vegetable Product Ltd. 10 and Mauri Yeast India Pvt. Ltd. v. State of U.P.)”
Accordingly the High Court confirmed order of the Tribunal reducing penalty and held that the authorities have discretion regarding the amount penalty as were.
Conclusion
Any penal provision is for creating a deterrent effect. However, if the amounts determined are very high, it creates a difficult situation for the dealers. If in case of technical delays also the amount remains fixed and even when a dealer may not be liable to pay any tax amount, he will be lailable to pay such high amount of penalty for delay in submitting VAT Audit Report. This is not the expected result of section 61(2) of the MVAT Act. Therefore, the above judgment will give much desired relief to the dealer community and now quantum of penalty will depend upon the facts and gravity of the offence.
