IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Commercial Tax Revision No. 27 of 2010 Commissioner, Commercial Tax, Uttarakhand, Dehradun. …Revisionist. Versus M/s Swasti Power Engineering Ltd. …Respondent. Mr. J.P. Joshi, Advocate for the revisionist. Coram: Hon’ble J.S. Khehar, C.J. Hon’ble Sudhanshu Dhulia, J. J.S. Khehar, C.J, (Oral) 1. The issue pertains to deposit of TDS. It is not a matter of dispute that TDS was factually deducted by the respondent. The aforesaid deduction was made during the months of February and March, 2006. The deposit thereof had to be made within one month. The said deposit was liable to be made by the respondent in the Government Treasury. The aforesaid deposit was eventually made on 16.5.2006. The Assessing Officer while examining the issue in hand, exercising the power vested in him under Section 35 (8) of the Uttarakhand Value Added Tax Act, 2005 (hereinafter referred to as the Act of 2005) imposed penalty equivalent to twice the amount of TDS payable. The instant issue determined by the Assessing Officer was assailed by the respondent before the Joint Commissioner (Appeal) II, Commercial Tax, Dehradun, Uttarakhand. The aforesaid appeal was, however, dismissed by the Appellate Authority on 4.10.2007. The order rendered by the Appellate Authority on 4.10.2007 was again assailed by the respondent before the Commercial Tax Tribunal, Uttarakhand. The Commercial Tax Tribunal, Uttarakhand by an order dated 7.9.2009 reduced the penalty inflicted upon the respondent from twice the amount of TDS required to be 2 deposited, to an amount equivalent to TDS required to be deposited. The order dated 7.9.2009 rendered by the Commercial Tax Tribunal, Uttarakhand has been assailed by the Commissioner of Commercial Tax, Uttarakhand before this Court. 2. We have heard the learned counsel for the revisionist. Learned counsel for the revisionist placed reliance on Section 35 of the Act of 2005. Section 35 of the Act of 2005 is being extracted hereunder:- “35. Recovery of Tax by way of Tax Deduction at Source— (1) Notwithstanding anything contained in sub- section (1) of Section 22, every person responsible for making payment to any dealer (hereinafter in this section referred to as the contractor) for discharge of any liability on account of valuable consideration payable for the transfer of property in goods (whether as goods or in any other form) in pursuance of a works contract, not being a building contract of such class or value as may be notified by the State Government in public interest in this behalf, shall, at the time of making such payment to the contractor, either in cash or in any other manner, deduct an amount equal to four percent of such sum towards part or, as the case may be, full satisfaction of the tax payable under this Act on account of such works contract: Provided that the Assessing Authority may, if satisfied that it is expedient in the public interest so to do and for reasons to be recorded in writing, order that I any case or class of cases no such deduction shall be made or, as the case may be, such deduction shall be made at a lesser rate, Provided further that where any deduction has been made by a contractor from the payment made to his sub-contractor in accordance with sub-section (3), the amount of such payment shall be deducted from the amount on which deduction is to be made under this sub-section. (2) Where under an agreement of transfer of right to use any goods for any purpose (whether or not for a specified period) the lessee to whom the right to use any goods is transferred, is- (a) a registered dealer, or (b) the Central Government or any State Government; or 3 (c) any local authority, any corporation or undertaking constituted by or under a Central Act or a State Act; or (d) any Co-operative society or any other society, club, firm or other association of persons or a company, whether incorporated or not, the person responsible for making such payment to the lessor (who is transferring the right to use any goods) for discharge of liabilities under such agreement, shall at the time of making such payment to the lessor, either in cash or by credit or any other manner, deduct an amount at the rate of four percent of such sum towards part or, as the case may be, full satisfaction of the tax payable under this Act on account of such transfer of right to use any goods: Provided that the Assessing Authority may, if satisfied that it is expedient in the public interest so to do and for reasons to be recorded in writing, order that in any case or class of cases no such deduction shall be made or, as the case may be, such deduction shall be made at a lesser rate: Provided further that where any deduction has been made by a contractor from the payment made to his sub-contractor in accordance with sub-section (3), the amount of such payment shall be deducted from the amount on which deduction is to be made under this sub-section. (3) Any contractor responsible for making any payment for discharge of any liability to any sub- contractor in pursuance of a contract with the sub- contractor for the transfer of property in goods (whether as goods or in any other form) involved in the execution of a works contract or for transfer of right to use any goods for any purpose, whether wholly or in part, of the work under-taken by the contractor, shall, at the time of such payment or discharge, in cash or by cheque or draft or by any other mode, deduct an amount equal to four percent of such payment or discharge, purporting to be a part of full amount of tax payable under this Act on such transfer from the bills or invoices raised by the sub-contractors as payable by the contractor: Provided that no deduction under this sub-section shall be made on the amount on which deduction has already been made under sub-section (1) or sub-section (2). (4) The amount deducted under sub-section (1) or sub-section (2) or sub-section (3) shall be deposited into the Government Treasury by the person 4 making such deduction before the expiry of the month following that in which deduction is made. (5) The person making such deductions under sub-section (1) or sub-section (2) or sub-section (3) shall, at the time of payment or discharge furnish to the person from whose bills or invoices such deduction is made, a certificate in such form and manner and within such period as may be prescribed. (6) The person responsible for making the payment to the contractor or sub-contractor shall submit such return of such payments at such intervals, within such period, and in such manner as may be prescribed, but the Assessing Authority may, in its discretion, for reasons to be recorded extend the date for the submission of the return by such person. (7) Any deduction made in accordance with the provisions of this section and credited in the Government Treasury shall be treated as payment of tax on behalf of the person from whose bills or invoices the deduction has been made, and credit shall be given to him for the amount so deducted on the production of the certificate referred to in sub- section (5), in the assessment made for the relevant assessment year. (8) If any such person as is referred to in sub- section (1) or in sub-section (2) or in sub-section (3), fails to make the deduction or after deducting fails to deposit the amount so deducted as required in sub-section (4), the Assessing Authority may, after giving such person an opportunity of being heard, by order in writing, direct that such person shall pay, by way of penalty, a sum not exceeding twice the amount deductible under this section but not so deducted and, if deducted, not so deposited into Government Treasury. (9) Without prejudice to the provisions of sub- section (8), if any such person fails to make the deduction or, after deducting, fails to deposit the amount so deducted, he shall be liable to pay simple interest at the rate of fifteen percent per annum on the amount deductible under this section but not so deducted and, if deducted, not so deposited from the date on which such amount was deductible to the date on which such amount is actually deposited. (10) Where the amount has not been deposited after deduction, such amount together with interest 5 referred to in sub-section (9) shall be a charge upon all the assets of the person concerned. (11) Payment by way of deduction in accordance with sub-section (1) or sub-section (2) or sub- section (3) shall be without prejudice to any other mode of recovery of tax due under this Act from the contractor or the sub-contractor, as the case may be. Explanation.—For the purpose of this section, “Assessing Authority” means the officer having jurisdiction over the place where the place of business or residence of the person is located. (12) Nothing contained in this section shall prevent the Assessing Authority from making an assessment of tax payable by the dealer in accordance with other provisions of the Act and notwithstanding anything contained in this section the dealer shall be liable to pay tax according to other relevant provisions of the Act.” Based on sub-section (8) of Section 35 of the Act of 2005, it is the submission of the learned counsel for the revisionist, that it was in the exercise of discretion vested in the Assessing Officer, that penalty was inflicted upon the respondent, which was equivalent to twice the amount of TDS liable to be deposited. The TDS, according to the learned counsel for the revisionist, was liable to be deposited within one month from the date of deduction of TDS, in terms of Section 35 (4) of the Act of 2005. This mandatory condition having been violated, the respondent, according to learned counsel, was liable to be imposed the penalty determined by the Assessing Officer. It is, therefore, the contention of the learned counsel for the revisionist that the Assessing Officer as well as the First Appellate Authority were fully justified in imposing a penalty on the respondent for delayed deposit of TDS at the hands of the respondent. 3. We have considered the aforesaid solitary contention advanced by the learned counsel for the revisionist. First and foremost, it needs to be noticed that 6 the imposition of penalty is discretionary. The competent Authority can impose penalty on account of violation of the mandatory provisions contained in Section 35 (4) of the Act. The penalty can extend upto twice the amount of TDS liable to be deposited. In exercising of its discretion, the Assessing Officer had imposed the maximum penalty permissible. The aforesaid penalty imposed by the Assessing Officer was reduced by half by the Commercial Tax Tribunal, Uttarakhand. The question to be determined is, whether it was mandatory for the Assessing Officer to inflict penalty equivalent to twice the amount of TDS liable to be deposited. 4. We have already noticed hereinabove that it was discretionary for the Assessing Officer to determine the quantum of penalty that could be imposed. The maximum penalty envisaged under Section 35 (4) of the Act of 2005 undoubtedly is twice the amount of TDS liable to be deposited. But then, the facts and circumstances of every case are liable to be taken into consideration, while determining the quantum of penalty, that ought to be imposed in a case. Insofar as the present controversy is concerned, the factual position was noticed by the Commercial Tax Tribunal, Uttarakhand in the impugned order dated 7.9.2009 to the following effect:- “On behalf of Dearer learned Advocate Sri B.S. Rawat appeared and it was stated by him that Appellant (Dealer) is a Registered Limited Company under the Indian Companies Act 1956, by whom the work of establishment of Power House for production and distribution of electricity in the State of Uttarakhand has been done. The construction work of Power House has been got executed through M/s. IVRCL Infrastructures & Projects Ltd. Srinagar, District Pauri Garhwal (Contractor). As per the provisions of section 35(1) of the State Act, the amount of deduction, made at source (TDS(VAT)] out of the payment made by the 7 Dealer to the Contractor, has been deposited in the Department through the Collection Agency i.e. Bank, as per provisions of section 35(4). But the Assessing Officer, for the minor delay, occurred in the transfer of the amount from the Bank to the Account of the Department, has imposed very big amount in the form of penalty U/s. 35(8). Whereas, for the said delay there have been sufficient reasons, which are beyond the control of the Dealer. On the date of payment, made by the Dealer to the Contractor, itself, Bank Drafts got prepared in the name and designation of the Assessing Officer, but due to the head office of the Dealer being situated at Hyderabad (Andhra Pradesh) and his business being new for the State of Uttarakhand, the Dealer was not aware of the fact that which Branches of which Banks are authorised for collection of tax. Drafts in favour of Assistant Commissioner, Commercial Tax, Rishikesh got prepared by the Dealer from the Andhra Bank, Hyderabad payable at the Haridwar Branch of Andhra Bank situated nearby Rishikesh. As such, much before the due date under the Act, the concerned Bank drafts got prepared on the very date of payment made to the Contractor which is evidence of the bonafide of the Dealer. The bank drafts of the aforesaid amount were presented by the Dealer in the S.B.I., Rishikesh, which were returned by the Bank for the reason that the drafts were of out of station Branch. An offer to the concerned Bank, of making deposit of collection charges separately, was also made by the Dealer. On the basis of the opinion of the Bank that in case the word “Rishikesh” is removed from the Payee’s Name “Assistant Commissioner, Commercial Tax, Rishikesh” in the bank draft, this bank draft can be deposited at Haridwar, these bank drafts were sent back by him to the Hyderabad and these drafts were sent back to him by the Bank, who issued said drafts, after removing the word “Rishikesh”. Again on submitting the bank drafts for collection to the State Bank of India, the Bank refused to accept on account of the drafts being of out station Branch. In this respect, the Dealer, having contacted the Assessing Officer sent these Bank drafts, as per his advice, to his head office at Hyderabad for the issuance of new Bank Draft; and the Bank has taken time in cancellation of these bank drafts and preparation of new drafts. On 24-4-2006, State Bank of India, Hyderabad has issued bank drafts in favour of Assistant 8 Commissioner, Commercial Tax payable at State Bank of India. In the mean time when the aforesaid Contractor made contact with the Dealer; on the pressure of the Assessing Officer of the Contractor, Assistant Commissioner, Commercial Tax, Srinagar for the deposit of this amount at Srinagar, aforesaid drafts were made available to the Contractor by the Dealer in Hyderabad itself on 24-4-2006, because the benefit of deduction of advance tax in the form of T.D.S. related to the Contractor is to be availed to the Contractor itself. The said Contractor, being registered within the jurisdiction of Assistant Commissioner, Commercial Tax, Srinagar, has deposited the aforementioned bank drafts in the S.B.I., Pauri on 28-4-2006 as per Rules, for which the challans of deposit amount have been issued by the State Bank of India, Pauri on 16-5-2006. As such due to the time taken by the Bank in collection, delay in transfer of aforementioned amount to the Govt. account has taken place. It was also stated that the interest of Rs. 14,016/- in respect of the period of delay has been deposited by the Dealer, whereas, on account of there being no malafide of the Dealer in respect of delay in deposit of the amount of T.D.S. in Government Treasury, as above, the penalty was not to be imposed. But despite logical reasons and because of reasons of the period of delay not being under the control of the Dealer also, imposition of maximum amount of penalty U/s 35(8) not being justified, the order, related to the confirmation of penalty order, of learned Appellate Officer is against the facts and is illegal.” The aforesaid factual position has not been disputed by the learned counsel for the appellants. 5. From the factual position noticed by the Commercial Tax Tribunal, it is apparent that the respondent assessee had made all efforts not to breach the mandatory provision of Section 35(4) of the Act of 2005. The respondent assessee in fact made efforts to deposit TDS on the very date, when the same was deducted. It is only that the draft prepared by the respondent was not encashable in the manner it was prepared. A series of further efforts were also made, but because of one or the other defect deposit could not be 9 made. In the aforesaid sequence of facts, it emerges that the respondent did not retain the amount in his own hands, he had prepared drafts of the amount payable, and had deposited the same with the revisionist. For the delayed deposit, the respondent tendered interest on account of delayed payment under Section 35 (9) of the Act of 2005. In the aforesaid view of the matter, we are satisfied that the maximum penalty imposable under Section 35(8) of the Act of 2005 was wholly unjustified. Reduction thereof at the hands of the Tribunal vide the impugned order dated 7.9.2009, in our view, was fully justified. 6. For the reasons recorded hereinabove, we find no merit in the instant Commercial Tax Revision and the same is accordingly dismissed. 7. Since the main Revision has been dismissed on merits, it is not necessary for us to pass a formal order on the application for condonation of delay. (Sudhanshu Dhulia, J.) (J.S. Khehar, C.J.) 22.4.2010 Rathour