By G. G. Goyal, Chartered Accountant
C. B. Thakar, Advocate
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VAT
Penal provisions : (Part-2)
(Part-1 published in the November issue of BCAJ)
Express penal provisions :
The express penal provisions are those which are specifically
so stated in the VAT Act. A brief summary of these provisions is as under :
Penalties — S. 29 :
S. 29 of the VAT Act provides for different types of
penalties. There are several sub-sections providing for levy of penalty. However
there are certain common provisions applicable to the above sub-sections. It
will be better if these common provisions are discussed first and then the
individual sub-sections can be discussed separately.
S. 29(11) :
This sub-section reads as under :
“(11) No order levying penalty under the foregoing
provisions of this Section shall be passed in respect of any period after
five years from the end of the year containing the said period :”
This sub-section lays down time limit, viz., 5 years
from the end of year, containing the period for which penalty is to be levied.
Thus, if penalty is to be levied for return period of February 2006, the time
limit will be March 2011.
A question will arise in cases where new actions are
initiated, like review, within their respective time limits. In such orders
penalty can be levied. It appears that even if such new action may be within the
time, the penalty can be levied in such proceedings only if it is within the
time limit of above 5 years.
S. 29(12) :
The Section reads as under :
“(12) No order imposing a penalty under any of the
foregoing sub-sections shall be made, —
(a) by a Sales Tax Officer or an Assistant Commissioner
where the penalty exceeds rupees five lakh except with the prior approval of
the Deputy Commissioner;
(b) by a Deputy Commissioner or a Senior Deputy
Commissioner, where the penalty exceeds rupees ten lakh except with the
prior approval of the Joint Commissioner :
Provided that nothing in this sub-section shall apply to
any penalty which may be imposed by an appellate authority.”
The Section is self-explanatory. The procedure for obtaining
approval is not given and whether the dealer will get hearing before such
approval is also not clear.
However the proviso makes it very clear that the appellate
authorities will not require any such permission.
The intention behind such a system of prior approval seems to
be to have some control over lower authorities. An incidental issue, which may
arise is whether the first appellate authority like the Deputy Commissioner or
Joint Commissioner (Appeals) will be able to give relief in case of appeal
relating to such penalty ? Since the penalty would be levied with approval of an
officer of equal rank, it is possible that such appellate authorities may drag
cold feet and may not tinker with the penalty order.
S. 29(13) :
The Section reads as under :
“(13) For the purposes of this Section, Commissioner
includes any appellate authority appointed or constituted under this Act.”
Thus the Section does away with the controversy
arising under the BST Act, 1959. The dispute lingered long under the BST Act, as
to whether Commissioner includes appellate authority or not. Now due to above
specific provision the confusion is clear and Commissioner will include
appellate authorities.
In other words, appellate authorities including the Tribunal
will get jurisdiction to levy penalty even while passing appeal orders.
One more common feature of penalty provisions u/s.29(3) to
u/s.29(9)(c) is that there is no discretion about the quantum. The penalty
amount/s have already been provided in the Section itself. However, there is
another view, according to which despite of fixed amount provided in the
Section, the authorities can levy lesser amount depending upon facts of the
case. It will be a matter of interpretation. The sales tax authorities may take
a view that the amount is fixed. Accordingly the issue before authorities will
be to decide whether to levy penalty or not. Once decided to levy, a fixed sum
may be levied.
It may be a matter of debate whether the penalties should be
of fixed amount or not ? The argument of the Department is that it will reduce
corruption as fixed amount is to be levied, there is no discretion. But dealers
fear that this will increase corruption at the stage of initiation of penalty.
S. 29(3) :
The levy S. 29(3) reads as under :
“(3) While or after passing any order under this Act, in
respect of any person or dealer, the Commissioner, on noticing or being
brought to his notice, that such person or dealer has concealed the
particulars or has knowingly furnished inaccurate particulars of any
transaction liable to tax or has concealed or has knowingly mis-classified any
transaction liable to tax or has knowingly claimed set-off in excess of what
is due to him, the Commissioner may, after giving the person or dealer a
reasonable opportunity of being heard, by order in writing, impose upon him,
in addition to any tax due from him, a penalty equal to the amount of tax
found due as a result of any of the aforesaid acts of commission or omission.”
The ingredients are clear. The concealment of transaction
liable to tax, knowingly misclassifying the turnover or knowingly claiming
excess set-off will be ground for levy of penalty under this Section. Words like
‘concealment’ and ‘knowingly’, sufficiently provide that the Department should
prove the mens rea before levying penalty.
The order levying this penalty can be made while passing an order or even after passing any order. The action can be taken on suo motu findings or on the findings brought to his notice. Who can bring to notice is not clarified and hence even an outsider can bring to the notice of officer and the penalty action can be initiated.
The Section envisages hearing opportunity and passing of written order for levying penalty.
The quantum of penalty will be equal to tax found payable because of the above acts of commission or omission.
S. 29(4):
The Section reads as under :
“(4) Where any person or dealer has knowingly issued or produced any document including a false bill, cash memorandum, voucher, declaration or ‘certificate by reason of which any transaction of sale or purchase effected by him or any other person or dealer is not liable to be taxed or is liable to be taxed at a reduced rate or incorrect set-off is liable to be claimed on such transaction, the Commissioner may, after giving the person or dealer a reasonable opportunity of being heard, by order in writing, impose on him in addition to any tax payable by him, a penalty equal to the amount of tax found due as a result of any of the afore-said acts of commission or omission.”
The ‘Section’ envisages levy of penalty equal to tax amount found due as a result of the acts of commission or omission given in the above Section. The acts are about issue or production of false bill, voucher, declarations, etc. by which the tax payable is avoided or resulting in excess set-off. The other ingredients of the Section are same as above i.e., the order should be after hearing opportunity and be in writing. The mens rea clause applies here also as the provision speaks of acts of commission and omission knowingly.
S. 29(5):
This Section is inserted from 20-6-2006 :
“(5) Where a dealer has sold any goods and the sale is exempt, fully or partly, from payment of tax by virtue of any provision contained in Ss.(3), Ss.(3A), Ss.(3B) or Ss.(5) of S. 8, and the purchaser fails to comply with the conditions or restrictions subject to which the exemption is granted, then the Commissioner may, after giving the said purchaser a reasonable opportunity of being heard, impose penalty on him equal to one and a half times the tax which would have become payable on the sale if the said exemption was not avail-able on the said sale.”
The Government is empowered to provide concessional rate of tax for particular class of dealers by issue of Notification ul s.8(3), u/’ s.8(3A), u/ s. 8(3B) and ul s.8(5). The class of dealers so specified can effect purchases at 4% even though otherwise the goods are liable @ 12.5%. The Government has issued such Notifications under above Sections and allowed concessional rate to organisations like electric power generating company, etc. Now this penalty is provided if the dealer purchases the goods by utilising concession provided ul s.8(5) and fails to comply with the conditions of such concessional rate. The quantum of penalty is one and half time of the concession availed. There is no levy of purchase tax, which used to be there under the BST Act in case of contravention. Under the MVAT Act the Government intends to compensate for loss of revenue due to unauthorised use of concession by levy of penalty at the above quantum. Of course, it being a penalty, the normal defence available to the dealer viz., absence of mens rea, etc. will remain applicable here also.
29(6) :
The Section reads as under:
“(6) Where, any person or dealer contravenes the provision of S. 86, so as to have the quantum of tax payable by him to be under-assessed, the Commissioner may, after giving the person or dealer a reasonable opportunity of being heard, by order in writing, impose on him, in addition to any tax payable by him a penalty equal to half the amount of tax which would have been under-assessed or one hundred rupees, whichever is more.”
The provisions of S. 29(6) apply when there is contravention of provisions of S. 86. S. 86 is about tax invoice and other bills, cash memorandum, etc. The quantum of penalty is linked with under-assessment because of non-compliance of invoice provisions and the same will be 50% of the said under-assessment. It is necessary to note that the words ‘knowingly’, etc. are missing here and hence it appears that the principles of mens rea will not apply here. However ultimately it being a penalty provision the mens rea indirectly creeps in as observed by the Supreme Court in case of Hindustan Steel Ltd. (25 STC 211).
29(7):
The Section reads as under :
“(7) Where, any person or dealer has failed without reasonable cause to comply with any notice in respect of any proceedings, the Commissioner may, after giving the person or dealer a reasonable opportunity of being heard, by order in writing, impose on him, in addition to any tax payable by him, a penalty equal to Rs.1000.”
It provides for levy of penalty for non-compliance of any notice, etc. without reasonable cause. The amount is Rs.1000. The penalty, in my opinion, applies, qua each proceedings and not multiple number of notices within one proceedings.
S. 29(8):
The Section reads as under :
“(8) Where, any person or dealer has failed without reasonable cause to file within the prescribed time, a return for any period as provided u/s.20, (…. ) the Commissioner may, after giving the person or dealer a reasonable opportunity of being heard, by order in writing, impose on him, in addition to any tax payable by him, a sum of rupees ten thousand by way of penalty. Such penalty shall be without prejudice to any other penalty, which may be imposed under this Act:
Provided that, if the return is filed before the initiation of the proceeding for levy of penalty, the penalty shall be levied at rupees five thousand and in any other case, the penalty shall be levied at rupees ten thousand.”
The Section is resembling to S. 36(4A), etc. under the BST Act, 1959. It speaks about levy of penalty if return is not filed within stipulated period. The penalty will be Rs.10000. However if return is not filed within permissible period, but it is filed before any action is initiated under the above S. 29(8), the penalty will be at Rs.5000.
Since a fixed sum of Rs.10000 and 5000 is prescribed, it appears that the penalty is contemplated for each act of default. However, depending upon the situation of filing, the penalty amount will vary i.e., it may be Rs.10000 or Rs.5000. Only if the dealer proves reasonable cause for default, the penalty may not be levied, else it will become a routine in each case.
S. 29(9)(c) :
The Section reads as under:
“(9)(c) Where a dealer has filed a return and such return is found to be not complete and self-consistent, then the Commissioner may, after giving the dealer a reasonable opportunity of being heard, impose on him, by order in writing, a penalty of rupees one thousand. The levy of penalty shall be without prejudice to any other penalty which may be imposed under this Act.”
The penalty under this Section gets attracted where the dealer fails to file complete and self-consistent return. The complete and self-consistent return is to be seen in light of S. 20(1)(b)and Rule 20 of the VAT Rules.
The above provisions provide for correcting return within one month of serving of defect memo and if one fails to carry out the said corrections, penalty u/s.29(9)(c) at Rs.1000will be attracted.
S. 29(10):
The Section reads as under:
“(10) Where a person or dealer has collected any sum by way of tax in contravention of the provisions of S. 60, –
a) he shall be liable to pay a penalty not exceeding two thousand rupees, and
b) in addition, any sum collected by the person or dealer in contravention of S. 60shall be for-feited to the State Government.
If the Commissioner, in the course of any proceeding under this Act or otherwise, has reasons to believe that any person has become liable to a penalty or forfeiture or both penalty and forfeiture of any sum under this sub-section, he may serve on such person a notice in the prescribed form requiring him on a date and at a place specified in the notice to attend and show cause why a penalty or forfeiture or both penalty and forfeiture of any sum as provided in this sub-section should not be imposed on him. The Commissioner shall thereupon hold an inquiry and shall make such order as he thinks fit. When any order of forfeiture is made, the Commissioner shall publish or cause to be published a notice thereof for the information of the persons concerned giving such details and in such manner as may be prescribed.”
The above penalty is about forfeiture of excess collection of tax. The Section provides for forfeiture as well as penalty for the same. This is the only Section where the penalty is provided as not exceeding Rs.2000, i.e., the authorities can levy penalty as per their discretion from Re.1 to Rs.2000.The other procedure of forfeiture is the same as it was under the BSTAct, 1959.The officer has to issue a notice for the purpose of forfeiture of tax. S. 60 provides the mode of determining the excess collection,hence reference is required to be made to the said Section for correctly knowing the scope of forfeiture. If for-feiture is made, the details of the same should be published in the format given in Rule 39.
