The State of Tamil Nadu v. Tvl. The Indian Cements Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 18.06.2009C O R A M:THE HONOURABLE MR.JUSTICE F.M.IBRAHIM KALIFULLAandTHE HONOURABLE MR.JUSTICE B.RAJENDRANTAX CASE No.28 of 2009The State of Tamil Nadu represented by the Deputy Commissioner (CT),Chennai (Central) Division,Chennai – 600 006. .. Petitioner vs.Tvl. The Indian Cements Ltd.,827, Anna Salai,Chennai-600 001... RespondentTax Case Revision under Section 38 of the T.N.G.S.T. Act, 1959against the order of the Sales Tax Appellate Tribunal (Main Bench),Chennai, dated 22.07.2002 in TA.No.192 of 2000 relating to theassessment year 1981-82. against the order passed in Appeal 20/99dated 24.12.99 on the file of Deputy Commissioner (CT) Appeal,Chennai against the order passed in T/44710/81-82 dt.29.1.1999 on thefile of the Assistant Commissioner CT-I, Fast Track Assessment CircleII, PAPJM Buildings, Greams Road, Chennai. For Petitioner :Mr.Haja NazaruddinSpl.G.P. (Taxes) For Respondent:Mr.N.Inbarajan- - - - -O R D E R(Order of the Court was made by F.M.IBRAHIM KALIFULLA, J.)This Revision by the State arised on the following substantialquestion of law, viz.,"Whether in the facts and circumstances of thecase, the Tribunal is legally correct in havingdeleted the penalty levied under Section 12(5)(iii) ofthe Tamil Nadu General Sales Tax Act, 1959 based uponthe decision in 125 STC 505 while for the assessmentyear 1981-82 penalty is leviable under Section 12(5)(iii) of the Act for filing of incorrect andincomplete returns and therefore the said decisioncannot be applied to this case ? https://hcservices.ecourts.gov.in/hcservices/

2. The short facts which are required to be stated are that therespondent is a cement manufacturing company. The assessment relatesto the year 1981-82. This revision is confined to that part of theorder of the Tribunal in having setting aside the penalty imposed onthe respondent under Section 12 (5) (iii) of the Tamil Nadu GeneralSales Tax Act, 1959. The sale value of the cement bags manufacturedby the respondent was determined by the cement control order. It isnot in dispute that the said sale value is determined in the cementcontrol order by including the freight and packing charges.Nevertheless, the respondent in the course of its sale also charged afurther sum by way of freight and packing charges over and above theprice fixed in the cement control order. 3. While submitting its returns, the respondent disclosed suchfreight and packing charges in the total turnover and thereby thesame were not included in the taxable turnover. In support of itsclaim for its non-inclusion in the taxable turnover, the respondentplaces reliance upon the decision of this Court reported in (1982) 51STC 171 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State ofTamil Nadu). The said decision came to be reversed by the Hon'bleSupreme Court in the decision reported in (1993) 88 STC 151 (RamcoCement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu). 4. It is in the above stated circumstances, the impugned order ofassessment came to be made, wherein, apart from the imposition of taxon the freight and packing charges, penalty also came to be imposedon the respondent by invoking Section 12(5)(iii) of the Act. Theorder of assessment was also confirmed by the First AppellateAuthority viz., the Deputy Commissioner (CT), Chennai which was thesubject matter of challenge before the Sales Tax Appellate Tribunal,Chennai at the instance of the respondent.5. By the order impugned in this revision, the Tribunal whileconfirming the levy of tax, set aside the penalty imposed by holdingthat the respondent acted on a bonafide belief in the light of lawlaid down by this Court in the decision reported in (1982) 51 STC 171(Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu),which came to be reversed by the Hon'ble Supreme Court only in thedecision reported in (1993) 88 STC 151 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu).6. We heard Mr.Haja Nazaruddin, learned Special GovernmentPleader (Taxes) appearing for the appellant and Mr.N.Inbarajan,learned counsel appearing for the respondent.7. We are also convinced with the reasoning of the Tribunalwhile interfering with the levy of penalty. The imposition ofpenalty is prescribed under Section 12 (4) and (5) of the Act. While https://hcservices.ecourts.gov.in/hcservices/ under Section 12(4), the circumstances in which penalty can beimposed is stipulated, under Section 12(5) the power to impose thepenalty and the quantum of penalty that can be imposed is specified.Section 12(4) and (5) needs extraction which reads as under:"Section 12 (4): Notwithstanding anythingcontained in sub-section (1), (2) and (3), theassessing authority may, if it is satisfied that theaccounts maintained by a dealer are correct, assesssuch dealer on the basis of such accounts, if suchdealer has:-(i) failed to submit the prescribed return; or(ii) failed to submit the prescribed returnwithin such period as may be prescribed; or(iii) if the return submitted is found to beincorrect or incomplete.(5) The assessing authority may, in the order ofassessment or by a separate order, direct that thedealer shall in addition to the tax assessed undersub-section (4), pay by way of penalty, a sum(i) which, in the case referred to in clause (i)of sub-section (4), shall not be less than fifty percent but which shall not be more than one hundred andfifty per cent of the amount of tax payable;(ii) which, in the case referred to in clause(ii) of sub-section (4) shall be equal to two per centof the tax payable for every month or part thereofduring which the default in the submission of thereturn continued subject to a maximum of fifty percent of the tax; and(iii) which, in the case referred to in clause(iii) of sub-section (4), shall not be less than fiftyper cent but which shall not be more than one hundredand fifty per cent of the difference in tax payable onthe turnover disclosed in the return and thatdetermined by the assessing authority;Provided that no penalty under sub-sections (3)and (5) shall be imposed after a period of five yearsfrom the expiry of the year to which the assessmentrelates and unless the dealer affected has areasonable opportunity of showing cause against such https://hcservices.ecourts.gov.in/hcservices/ imposition."8. Under Section 12 (4) the circumstances which has warranted theimposition of penalty are:(i) non filing of the returns(ii) belated filing of the returns(iii) submission of incorrect or incomplete returns.In the case on hand, it is not in dispute that the respondentassessee submitted returns and the same was in time. It is also notin dispute that in the returns the respondent assessee disclosed inthe total turnover whatever freight charges and packing charges wereseparately collected over and above the sale price fixed in thecement control order. According to the assessee, such separatefreight and packing charges calculated by it would not fall withinthe taxable turnover and therefore the submission of its return waswell within the prescription of the Act and therefore does not callfor imposition of any penalty for any of the deficiencies mentionedin Section 12(4).9. In fact, when we consider the said submission in the light ofthe decision of this Court reported in (1982) 51 STC 171 (RamcoCement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu), itwill have to held that the stand of the petitioner was not withoutany substance. In the said decision, these very components viz.,freight charges and packing charges whether can be allowed as taxablecomponent was specifically dealt with and the Division Bench has heldas under at page 190:"The learned counsel for the department cited aBench decision of this Court in State of Tamil NaduVs. Chettinad Cement Corporation Ltd. (1976) 38 STC519 in support of his contention that freight couldnot be exempted from sale price for the purpose ofsales tax under the T.N.G.S.T. Act and the Rules madethereunder. We are afraid that this decision cannotbe accepted as a binding authority on the propositionof law that we are now called upon to decide. We arein agreement with the learned Judges when they saythat freight will have to be included in the totalturnover under the T.N.G.S.T. Act. However, byvirtue of the operation of rule 6(c) freight willhave to be excluded. No doubt, rule 6(c)(i) statesthat freight when specified and charged for by thedealer separately without including it in the priceof the goods sold has to be excluded. In these https://hcservices.ecourts.gov.in/hcservices/ cases, it is admitted that freight is shown by theassessee separately. However, since the definitionof "turnover" contained in section 2(r) takes in theaggregate amount for which goods are bought and sold,freight will have to be necessarily taken intoconsideration for ascertaining the "total turnover".Thereafter, to arrive at the "taxable turnover",freight will have to be again deducted under rule 6(c). We are therefore of the view that this decisiondoes not in any way help the learned counsel for thedepartment." (Emphasis added)That was also the case where the issue related to the price of cementbags as determined in the cement control order where freight andpacking charges were independently charged and collected from thecustomers.10. In fact the respondent assessee was fortified by thedeclaration of law made in the said decision. The respondentassessee in its return though declared freight charges and packingcharges in the total turnover, excluded the same for arriving at thetaxable turnover. The said decision as stated earlier came to besubsequently reversed by the Hon'ble Supreme Court in (1993) 88 STC151 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of TamilNadu) wherein the Hon'ble Supreme Court while reversing the saiddecision declared the legal position as under in page 164:"....In our view, this position has beencorrectly set out, applying the decision in the caseof Rai Bharat Das & Bros. (1988) 71 STC 277 (SC) inState of Tamil Nadu Vs. Vanniaerumal & Co. (1990) 76STC 203 (Mad.) (FB), Dalmia Cement (Bharat) Ltd. Vs.State of Tamil Nadu (1991) 81 STC 327 (Mad.) andDalmia Cement (Bharat) Ltd. Vs. State of Tamil Nadu(1991) 83 STC 442 (Mad.) We are, therefore, of theopinion that the packing charges and excise dutythereon cannot also be deducted in computing thetaxable turnover for the purposes of the Tamil NaduActs.We, therefore, hold-(i) that the freight charges should be includedin arriving at the taxable turnover for the purposeof CST and TNST; and(ii) that packing charges and excise dutythereon should also be included in arriving at thetaxable turnover for purpose of both CST and TNST."The said decision of the Hon'ble Supreme Court came to be rendered on20th October, 1992. https://hcservices.ecourts.gov.in/hcservices/

11. In this context, it will also be worthwhile to refer to thedecision reported in (2002) 125 STC 505 (Appollo SalinePharmaceuticals (P) Ltd. Vs. Commercial Tax Officer (FAC) and Others,wherein this Court while construing Section 12(4) of the Act hastaken the view that in the light of the specific expression viz.,"may" used in the said section, the levy of penalty beingdiscretionary, such discretion is required to be exercised havingregard to all the circumstances of the case including the bona fidesof the assessee. The Division Bench has held as under in paragraph 3and 9 :"3..... In so far as the assessments made undersection 12(1) between December 3, 1979 to May 27,1993, the levy of penalty being discretionary havingregard to the use of the word "may" in section 12(4),that discretion is required to be exercised havingregard to all the circumstances of the case includingthe bona fides of the assessee.* * * 9. The assessing authorities have not appliedtheir mind as to whether in respect of thoseassessments to which section 12(4) and 12(5) whichhave since been deleted, would apply, the assesseehad failed to disclose any bona fides for not havingpaid the tax earlier. It is the case of the assesseethat the law regarding the taxability of the turnoverrelating to the bottles was uncertain till this Courtresolved the matter finally in W.P.No.120 of 2000 onSeptember 14, 2001 (Appollo Saline Pharmaceuticals(P.) Limited Vs. Deputy Commercial Tax Officer). Theearlier judgments of this Court had taken the viewthat the bottles being a distinct commodity and nothaving been consumed in the manufacture of I.V.fluids, there was a separate sale of the bottles andtherefore, section 7-A providing for levy of purchasetax was not attracted."12. Useful reference can also be had from the decision reportedin (2000) 117 STC 457 (E.I.D. Parry (I) Ltd., Vs. AssistantCommissioner of Commercial Taxes and Another), wherein the Hon'bleSupreme Court while substituting the imposition of penalty underSection 12(5) of the Act held as under in paragraph 23:"23. But so far as levy of penalty isconcerned, we do not think that the sales taxauthorities were justified in levying it. Till thejudgment of the Madras High Court, on July 15, 1991,in Perambalur Sugar Mills Ltd. Vs. State of TamilNadu (1992) 86 STC 17, the correct position of lawwithin the State of Tamil Nadu was not free fromdoubt. Even thereafter, the Sales Tax Tribunal had https://hcservices.ecourts.gov.in/hcservices/ in subsequent orders held that transport subsidy wasnot includible in the taxable turnover. Such a viewwas held by the Tribunal till March 19, 1993. Itappears that on bona fide belief that planting andtransport subsidies were not includible in thetaxable turnover, the appellants had not includedthose amounts in their turnover and for that reasonnon-inclusion of these two items in the turnover donot seem to be intentional. Though we have now heldthat the appellants were not right in not includingthe amounts of planting subsidy and transportsubsidy in the taxable turnover, considering thefacts and circumstances of the case, it would not becorrect to say that they had acted deliberately indefiance of law or that their conduct was dishonestor they had acted in conscious disregard of theirobligation under the Sales Tax Act. The sales taxauthorities were, therefore, wrong in passing theorders of penalty and upholding the same. The HighCourt also, in our opinion, committed an error inupholding the orders of penalty. In the result,these appeals are partly allowed. The order of theHigh Court and the orders of the sales taxauthorities imposing and upholding levy of penaltyare set aside. Only to that extent the appellantssucceed and their appeals are allowed. The judgmentof the High Court in respect to the planting subsidyand transport subsidy is upheld. In the facts andcircumstances of the case, there shall be no orderas to costs." (Emphasis added)13. Reading of the above decision of this Court as well as thatof the Hon'ble Supreme Court and applying the principles set outtherein, to the facts of this case, it will have to be held that theconduct of the respondent assessee in not including the freightcharges and packing charges in the taxable turnover cannot be held tobe a deliberate or intentional act on its part with a view to defeatits tax liability. On the other hand, the submission of the returnof the respondent assessee during the relevant year was fullysupported by the Division Bench decision of this Court which held thefield till the year 1992 when it came to be reversed in the decisionof the Hon'ble Supreme Court in (1993) 88 STC 151 (Ramco CementDistribution Co.(P.) Ltd. Vs. The State of Tamil Nadu). As held inthe decision of this Court reported in (2002) 125 STC 505 (AppolloSaline Pharmaceuticals (P) Ltd. Vs. Commercial Tax Officer (FAC) andOthers, under Section 12 (4) specific expression used is "may" forthe purpose of levying of penalty. It is therefore imperative thatthe Assessing Authority while invoking the said provision shouldexercise its discretion and examine whether or not the conduct of the https://hcservices.ecourts.gov.in/hcservices/ assessee in not including the said items of freight charges andpacking charges in the taxable turnover was deliberate or intentionalwith a view to defeat its tax liability. The invocation of Section12(4) in such circumstances cannot be mechanically made and theAssessing Authority should apply its mind to the facts andcircumstances of each case and only when the Authority finds that theassessee with a view to evade the payment of tax deliberately andintentionally submitted incorrect or incomplete return then and thenonly the imposition of penalty as prescribed under Section 12(5) ofthe Act can be imposed.14. We are also fortified by our conclusion in the light of theproposition of law as laid down by the Hon'ble Supreme Court in thedecision reported in (2000) 117 STC 457 (E.I.D. Parry (I) Ltd., Vs.Assistant Commissioner of Commercial Taxes and Another) wherein theHon'ble Supreme Court in identical circumstances held that when aparty acted based on the law declared by the decisions of the HighCourt bona fide that certain components would not fall within thetaxable turnover and which decision came to be later reversed andthereby liability came to be fastened on a later date, the impositionof penalty would not be automatic.15. Having regard to our above conclusion, we are convinced thatthe order of the Tribunal in having set aside that part of the orderof the Assistant Commercial Tax Officer in having imposed penalty wasjustified and the same was perfectly in order. We therefore answerthe question of law against the appellant and in favour of theassessee. This revision petition fails and the same is dismissed. Sd/Asst.Registrar/true copy/Sub Asst.RegistrarkkTo 1. The Deputy Commissioner (CT), Chennai (Central) Division, Chennai – 600 006. 2. The Sales Tax Appellate Tribunal (Main Bench), Chennai. https://hcservices.ecourts.gov.in/hcservices/

3. The Assistant Commissioner CT-I Fast Track Assessment Circle II PAPJM Building, Greams Road, Chennai.1 cc To Special Government Pleader, Advocate, SR.245781 cc To Mr.N.Inbarajan, Advocate, SR.24326 TAX CASE No.28 of 2009MBS(CO)SRA(13/7/2009)