The State of Tamil Nadu v. Tvl. I.Q. Systems

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 15.4.2009CORAMTHE HONOURABLE MR. JUSTICE K. RAVIRAJA PANDIANANDTHE HONOURABLE MR. JUSTICE M.M. SUNDRESHTAX CASE (R) NO.2096 OF 2006 The State of Tamil Nadurep. by the Deputy Commissioner (CT)Chennai (North) DivisionGreams Road, Chennai – 600 006.... PetitionerVs.Tvl. I.Q. SystemsChennai-1... RespondentRevision filed against the order of the Tamil Nadu TaxationSpecial Tribunal, Chennai to revise the order of the Sales TaxAppellate Tribunal (Main Bench), Chennai passed in STA.No.60 of1999, dated 29.12.2000 arising out of the Appellate AssistantCommissioner (CT) I Chennai in Appeal No and year AP.1011/95 orderdated 31.8.98 arising out of the Commercial Tax Officer EsplanadeII Assessment Circle, Chennai in TNGST NO.032929/93-94 order dated15.6.95.For Petitioner : Mr. Haja Nazirudeen Special Government Pleader (T)

O R D E R(Order of the Court was made byK. Raviraja Pandian, J.)By framing the following Question of Law, the Revenue is onappeal against the order of the Appellate Tribunal deleting thepenalty imposed on the assessee under Section 12(3)(b) of the TamilNadu General Sales Tax Act, 1959. " Whether, in the facts and circumstances, the Tribunal isright in having deleted the penalty levied under Section12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959for the assessment year 1992-93 when this Hon'ble Court inthe case of P.S. Apparels vs. State of Tamil Nadu hasupheld levy of penalty in respect of REP license from theassessment year 1992-93 onwards ?" https://hcservices.ecourts.gov.in/hcservices/

The penalty was deleted by the Tribunal observing asfollows:-" For the same dealer and for the year 1995-96, the penaltylevied by the Assessing Officer has been deleted by this Bench in T.A.No.395/1998, dated 5.1.2000. The followingobservations are made by us in that order. The case of theassessees from the beginning is that they were under thebonafide impression and belief that they are not liable toinclude the sale amount of REP. licenses into the taxableturnover. The Hon'ble Supreme Court in the case of Hindustan Steel Ltd., vs. State of Orissa reported in 25STC 211, held that an order imposing penalty for failure tocarry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily beimposed unless the party obliged either acted deliberatelyin defiance of law or was guilty of conduct contumacious ordishonest or acted in conscious disregard of itsobligation. It further held that the penalty will not alsobe imposed merely because it is lawful to do so, and it isa matter of discretion of the authority to be exercisedjudicially and on a consideration of all the relevantcircumstances. Further, the Hon'ble High Court of Kerala, in the case of "Seven Seas Distillery Ltd., vs. AssistantCommissioner of Sales Tax (Assessment) II Special Circleand others" held that if an assessee does not include theparticular item in the taxable turnover under a bonafidebelief that he is not liable so to include it, it will notbe possible to condemn the return as a false returninviting imposition of penalty. Applying these principlesto the facts and circumstances of the case, it would bejust and proper to hold that the penalty imposed on theappellants is not warranted, since they have acted underonly a bonafide belief that they were not liable toinclude the sales turnover of REP licence. Under suchcircumstances, the appellants are entitled to the benefitof bonafides. "

It is the case in which the penalty has been levied on theground that the turnover in respect of sale of REP licence has notbeen offered for taxation. The issue as to whether the saleproceeds of REP licence are liable for taxation has been decidedultimately by this Court in the case of P.S.Apparels vs. DeputyCommercial Tax Officer, T.Nagar East Assessment Circle, Madrasreported in 94 STC 139. Till such time, there was a considerabledebate as to the possibility of levying sales tax on the turn oversale of REP licence. That is the reason, the Division Bench whileupholding the levy of tax on sales of REP licences, summarisedtheir conclusions as REP licenses/exim scrips are "goods" in https://hcservices.ecourts.gov.in/hcservices/ etymological sense and in common parlance as also within themeaning of Section 2(1) of the Tamil Nadu General Sales Tax Act,1959 and Section 2(d) of the Central Sales Tax Axt, 1956. Whilesummarising their conclusion in Clause 'e', the Division Bench hasheld that levy of penalty under Section 12 or 16 of the Tamil NaduGeneral Sales Tax Act, 1959, shall be available to the assessingauthorities in these categories of cases on and from assessmentyears 1992-93 onwards, and the authorities shall be at liberty todo so having regard to the facts and circumstances of each case onits own merits.

Now, taking advantage of this observation to the effectthat the levy of penalty under Section 12 would be available to theassessee on and from the year 1992-93 onwards, the learned SpecialGovernment Pleader contended that the deletion of penalty is notcorrect. We are not able to approve the contention of the learnedSpecial Government Pleader, as it is not an absolute propositionthat as and when any sale of REP licence is made and the amount hasnot been offered for taxation, in all those cases, the penaltyunder Section 12 or 16 must be imposed upon the assessee. Thesentences after the conclusion has to be given in its full effect. It provides that the authorities shall be at liberty to do so, having regard to the facts and circumstances of each case, on itsown merits.

Here in this case on merits, it was observed by the Assessing Officer that all along the assessee has consideredbonafide that the sale proceeds of REP licences cannot be regardedas turnover liable to tax, so as to offer the sales turn over fortaxation, which factum has also been accepted by the Tribunalitself in the earlier assessment order by following earlier order. Hence, we conclude that non-offering of the sale turnover of REPlicence is a bonafide act. We do not find any illegality orirregularity in the deletion of the penalty by the Tribunal and weare not able to approve the way in which the learned SpecialGovernment Pleader projected the summary of the conclusion for levyof penalty.