S. 29(8) about levy of
penalty was amended from 1-7-2009. The amended S. 29(8), from 1-7-2009, reads as
under :
“29. Imposition of penalty
in certain instances :
(8) Where, any person or
dealer has failed to file within the prescribed time, a return for any
period as provided in S. 20, the Commissioner shall impose on him, a sum of
rupees five thousand by way of penalty. Such penalty shall be without
prejudice to any other penalty which may be imposed under this Act.”
It appears that from
1-7-2009 the quantum of penalty is sought to be fixed and also to make it
mandatory. Simultaneously, by amendment in S. 85(2) (b-2) the above penalty
order is made non-appealable. The learned Commissioner of Sales Tax has issued
Circular No. 22T of 2009, dated 6-8-2009 in which the implications of the above
amendments are explained and amongst others it is mentioned as under :
“3.
Penalty for non-filing or late filing of
returns — S. 29(8) is substituted :
(e) Amended sub-section
provides mandatory penalty and is in addition to any other penalty provided
under the Act.
(f) The officer shall
not have any discretion whether to levy or not to levy the penalty as also
to decide the quantum of penalty.
(g) The penalty order
passed under this Section is made non-appeallable; therefore there shall be
no appeal against the levy of penalty. [S. 85(2) amended]
(h) Needless to state
that since the levy of penalty for non-filing or late filing of returns has
become mandatory; there is no need to issue the show-cause notice before the
levy of such a penalty.”
The above mandatory levy of
penalty, in all circumstances, without right of appeal and without hearing
opportunity was agitating the minds of traders/dealers. On the behest of Tax
Consultants Association, Sangli and Federation of Association of Maharashtra,
writ petitions in case of Sanjay Dresses and Ravindra Udyog were filed before
Hon. Bombay High Court. In both the writ petitions the following challenges were
made :
(1) The S. 29(8) is
ultra vires the Constitution. It does not allow discretion in the matter of
levy of penalty. There can be a number of instances where delay will be due
to circumstances beyond control of the dealer, like medical emergency,
computer failure and others. The penalty amount of Rs.5000 may also exceed
the tax amount payable in return, e.g. tax payable may be Rs.100 but penalty
would be Rs.5000. The penalty is not commensurate to the object to be
achieved. This will be confiscatory as well as amounting to levy of tax on
income rather the penalty.
(2) That the order is
not appealable was also challenged. The penalty, being discretionary, the
mechanism of appeal is necessary.
(3) The penalty cannot
be levied without hearing. It is against the principles of natural justice.
Even assuming that the penalty is mandatory, still it may be levied in case
where return is not due, or the return is filed but not noticed by the
Department, etc., if levied without hearing. Therefore the hearing is a
must.
(4) The penalty be
deleted/reduced on the facts of the case.
When the above writ
petitions came up for hearing, the High Court was of the opinion that since
penalty order is passed without hearing, it is bad in law. At this juncture the
learned advocate on behalf of the Department tried to argue that post-levy
remedy is available like rectification. However when the High Court pointed out
that the hearing is required before the penalty order is passed, the learned
advocate conceded that the hearing is necessary before levy of penalty u/s.29(8)
and requested to set aside the order and remand back the matter. It is at this
point the High Court passed the order (Sanjay Dresses W.P. 1705 of 2009, dated
6-8-2010 and Ravindra Udyog W.P. 1214 of 2010, dated 6-8-2010, one of which is
reproduced below). When pointed out to the High Court that there are other
challenges, the High Court has specifically stated in the order that even after
passing a speaking penalty order, if there is a grievance, the petitioner can
again file a writ petition. Thus the other challenges are kept open to be dealt
with in subsequent matter, which may take place later.
“In the High Court of
Judicature at Bombay
Civil Appellate Jurisdiction
— Writ Petition No. 1705 of 2010
M/s. Sanjay Dresses …
Petitioner
v.
The State of Maharashtra …
Respondent
C. B. Thakar for the
petitioner.
V. A. Sonpal, ‘A’ Panel
counsel for the respondent.
Coram : V. C. Daga and S. J.
Kathawalla, JJ.
Dated : 6th August 2010.
P.C. :
Perused petition.
Heard learned counsel for
the petitioner and Mr. Sonpal, learned counsel for the respondent.
2. Mr. Sonpal, during the course of hearing, urged that the impugned order levying penalty be set aside and the matter be remitted back for consideration afresh so as to enable the Department to comply with the requirement of principles of natural justice. He further submits that fresh notice will be issued to the petitioner indicating the grounds on which the Department proposes to levy penalty. That the petitioner would be given an opportunity to reply the same and after considering the reply and affording personal hearing to the petitioner a reasoned order would be passed dealing with all the contentions raised by the petitioner.
3. In the above view of the submission, learned counsel for the petitioner seeks permission to withdraw this petition reserving his right to challenge adverse order on the grounds as may be available in law including the grounds raised in this petition. All contentions of the parties on merits are kept open.
4. Petition stands disposed of as withdrawn in terms of this order with no order as to cots.
(S. J. Kathawalla, J.) (V. C. Daga, J.)”
Conclusion :
1) The other challenges like Constitutional validity, and non-appealability are still open issues before the High Court.
2)Since the Department itself has accepted that hearing is necessary before levy of penalty, the said principle will be required to be followed in case of other dealers also. The Department cannot take a stand that hearing is required to be given only to those who come before the High Court and not to others, though principle of giving hearing before levy of penalty u/s.29(8) is accepted. It will be an absurd contradiction and also discriminatory. If any other dealer approaches the High Court on the same ground, surely it will be difficult for the Department to save the situation in view of their own admission about giving hearing.
Follow-up action in case of penalty orders already passed:
Since 1st July 2009, a large number of penalty orders have already been passed without giving hearing. Such dealers can now file Form 307 (Rectification) and ask for cancellation of such orders, as bad in law. The Department will be required to cancel the same, give hearing and then pass reasoned orders, if required.
It may be noted that, in several cases, in the matters of levying penalty, the courts and tribunals have ruled that penalty cannot be levied if there is a genuine reason for the delay.
