PENALTY- CONCEALMENT-INTERPRETATION

Introduction

Under any fiscal law, there are
provisions for levy of penalty. Penalties are normally related to tax quantum
found payable at the end of the proceeding. Normally, these provisions are made
to tackle deliberate attempts of the assessee to avoid tax payment. One of the
events to attract penalty is concealment by the concerned assessee. However,
such penalty is not expected to be levied when the dues arise under bona
fide belief and action. For example, there may be case where assessee shows
the transactions in his accounts and returns but claims the same as exempt on
its bona fide interpretation of provisions of law. Subsequently, such
interpretation may not be acceptable to the revenue department and dues may
arise. In such cases, levy of penalty cannot be justified. However, the issue
remains that, how to decide about bona fide mistake on part of the
assessee. There may be cases where the department will impose penalty inspite
of plea of bona fide mistake on part of assessee.

Recent
judgment

Recently, Hon’ble Rajasthan High
Court had an occasion to deal with such a situation in case of Commercial
Taxes Officer, Anti Evasion, Rajasthan, Circle-III, Jaipur. vs. I.C.I.C.I Bank
Ltd. (2018) 54 GSTR 389 (Raj).       

The facts, as
narrated by Hon’ble High court, are as under:-

“The brief facts noticed are that
the claim of the assessee is that the assessee is engaged in providing finance
to the prospective buyers of vehicle and if buyers after certain time fail to
pay the regular installment (EMI) as per agreement arrived at by and between
the assesse and the buyer (assessee) gets the right to repossess the vehicle
and get it transferred in its own name and thereafter either directly or
through agent, can dispose/auction the vehicle whether such transaction is
eligible to tax under Rajasthan Value Added Tax Act (RVAT) or not. It is
undisputed fact that all the three authorities, namely assessing officer,
Deputy Commissioner (A) as well as the Tax Board have upheld that the
transaction is eligible to tax under the RVAT Act, following the judgment of
the apex court in the case of Federal Bank Ltd vs. State of Kerala(2007) 6
VST 736 (SC). However, in so far as penalty u/s. 61 of the Act is concerned,
while the assessing officer imposed penalty which was upheld by the Deputy
Commissioner (A) but the Tax Board in the impugned order has held that there is
no case of imposition of penalty u/s. 61 of the Act and accordingly, deleted
the penalty in all the assessment years.”  

The argument of the revenue
department was that when the law was already laid by Supreme Court in case of Federal
Bank Ltd vs. State of Kerala(2007) 6 VST 736 (SC), there is no
justification for non-levy of penalty. In other words it was submitted that
after above judgment there is no debatable position and what was done by the
assessee bank is deliberate and therefore, the penalty required to be restored.

Hon’ble Rajasthan High Court
observed that the Tax Board has come to correct finding. Since all the
transactions were duly disclosed and it is the matter of interpretation,
whether VAT is leviable or not, the issue cannot be covered under penalty
clause. In this respect, Hon’ble High Court has relied upon the Supreme Court
judgment in case of Sree Krishna Electricals vs. State of Tamil Nadu
(2009) 23 VST 249 (SC).

In above judgment regarding similar
clause of penalty under Tamil Nadu Sales Tax law, Hon’ble Supreme Court has
observed as under:

“So far as the question of penalty
is concerned the items which were not included in the turnover were found
incorporated in the appellant’s accounts books. Where certain items which are
not included in the turnover are disclosed in the dealer’s own account books
and the assessing authorities includes these items in the dealers’ turnover,
disallowing the exemption. penalty cannot be imposed. The penalty levied stands
set aside.”  

Accordingly, following above ratio
of Supreme Court judgment, Hon’ble Rajasthan High court has justified removal
of penalty by Tax Board.

In relation to penalty matters, the
basic principle laid down by Hon’ble Supreme Court in the land mark judgment in
case of Hindustan Steel Limited, (25 STC 211), is also required
to be kept in mind. The relevant observations are as under:

“Under the Act penalty may be
imposed for failure to register as a dealer: section 9(1) r/w section 25(1)(a)
of the Act. But the liability to pay penalty does not arise merely upon proof
of default in registering as a dealer. 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 for failure to perform a statutory obligation is a matter of discretion
of the authority to be exercised judicially and on a consideration of all the
relevant circumstances. 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
Act or where the breach flows from a bona fide belief that the offender
is not liable to the act in the manner prescribed by the statute. Those in
charge of the affairs of the company in failing to register the company as a
dealer acted in the honest and genuine belief that the company was not a
dealer. Granting that they erred, no case for imposing penalty was made out.”

Conclusion