IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CWP 22 of 2002 Date of Decision: 7.10.2009 M/s Surya Automobiles ..........Petitioner Versus State of Punjab and another. ..........Respondents CORAM: HON'BLE MR.JUSTICE M.M.KUMAR HON'BLE MR.JUSTICE JASWANT SINGH. Present: Mr.DS Brar,Advocate for the petitioner. Mr.Rajesh Garg,Addl.AG Punjab for respondents. 1. To be referred to the Reporter or not ? 2. Whether the judgement should be reported in the Digest ? M.M.KUMAR,J. The petitioner-M/s Surya Automobiles has approached this Court with a prayer for quashing the order dated 19.10.2001 (Annexure P/3) passed by the Excise and Taxation Officer-cum-Assessing Authority, Jalandhar and consequential demand raised by the order of the even date (Annexure P/4). As an interim measure, the petitioner has prayed for stay of operation of the recovery of the demand. When the matter came up for consideration at the motion stage before this Court, a Division bench of this Court had issued notice CWP 22 of 2002 2 of motion on 3.1.2002 and had stayed the recovery of penalty by adopting any coercive measure. Brief facts of the case necessary for the disposal of the instant petition are that the petitioner has been carrying out the business of automobiles at Jalandhar and is a registered dealer under the Punjab General Sales Tax Act,1948 ( for brevity PGST Act) and Central Sales Tax Act,1956 (for brevity CST Act). As a dealer it is required to file quarterly return and accordingly pay tax as per self assessment. The petitioner had filed quarterly return from 1.4.2001 to 30.6.2001. The petitioner also paid a sum of Rs.62,05,414/- through a bank draft as per return on 30.7.2001. As 31.7.2001 was a holiday, payment was credited to the account of the respondents on 1.8.2001. According to the petitioner there was hardly any delay but the Excise and Taxation Officer-cum-Assessing Authority, arbitrarily and out of vindictiveness imposed a penalty of Rs.60 lacs by invoking the provisions of Section 10(6) of the PGST Act for the delay caused in making the payment of tax on 1.8.2001. The period for making the payment within 20 days from the expiry of each quarter, in case the amount of tax is paid through cheque or bank draft, has been provided by Rule 20 of the Punjab General Sales Tax Rules,1949 (for brevity the Rules). However, the provision of imposing penalty has been made by sub-section (6) of Section 10 the PGST Act. According to the aforesaid provision if a dealer fails to pay the amount of tax due from him under the PGST Act in accordance with the return in the manner CWP 22 of 2002 3 provided by sub-section (4) or sub-section (5) of Section 10, then the Commissioner or the assessing authority may direct him to pay a penalty in addition to the tax due from him. The maximum limit fixed for imposition of penalty is 1½ times but it can also not be less than 10 percentum of the tax to which the assessee has been assessed or is likely to be assessed. The case of the petitioner is that in respect of quarter ending on 30.6.2001 payment by bank draft or cheque was required to be made within twenty days. He prepared the draft on 30.7.2001 and could deposit the same only on 1.8.2001 as 31.7.2001 was a holiday. It has been submitted by the petitioner that for a lapse of delayed payment by 12 days imposition of penalty of 60 lacs is highly arbitrary and is not warranted by law. In the written statement the stand taken is that earlier also the petitioner was saddled with penalty to the tune of Rs.8.50 lacs under Section 10(6) of the PGST Act because it had failed to deposit the voluntary tax for the quarter ending 31.3.2001 within the prescribed period inspite of granting extension on its request to deposit the tax on or before 29.5.2001. It has further been asserted that the petitioner has failed to deposit a sum of Rs.34,04,801/- which included interest amount of Rs.73,315/- on or before 29.5.2001 despite various extensions given and it was in those circumstances that a penalty of Rs.8.50 lacs was imposed and interest of Rs.68,098/- under Section 11-D of the Act was also charged (Annexure R/1). The department has insisted that on account of repeated defaults the enhanced amount of CWP 22 of 2002 4 penalty is justified, especially when the tax has been realised from the customers and which was unjustifiably kept by the petitioner. The department has also disputed the dates of issuance of notice under Section 10(6) which is required to be issued before imposition of penalty and has also urged that there is remedy of appeal under Section 20 of the PGST Act. The allegation of any vindictiveness and arbitrariness has been denied. Mr.D.S.Brar, learned counsel for the petitioner has argued that there is no justification for imposition of such a huge amount of penalty merely because there is a delay of bare 12 days in depositing the tax due. According to the learned counsel the petitioner has also deposited interest for the delay and therefore, the impugned order suffers from arbitrariness. Mr.Brar has also urged that there was nothing in the show cause notice issued on 12.10.2001 suggesting that on account of earlier default any enhanced punishment of penalty is liable to be inflicted. He has further submitted that the impugned order has been passed at the back of the petitioner despite their appearance through their counsel. In support, learned counsel has placed reliance on a Division Bench judgment of this Court rendered in the case of M/s Swani Motors Ltd. v State of Punjab, (1996) 8 PHT 321 (P&H) Mr.Rajesh Garg, learned counsel for the State has however, stated that the direction to pay the amount of penalty in addition to the amount of tax due from the petitioner emanates from sub-section (6) of CWP 22 of 2002 5 Section 10 on account of default committed by the petitioner by violating the provisions of Rule 20 of the rules. According to the learned State counsel the provisions of sub-section (6) of Section 10 are mandatory and minimum amount of penalty is 10% if the amount of tax has not been deposited in accordance with the provisions of sub- section (4), (5) and (6) of Section 10 of the Act. Having heard learned counsel for the parties, we are of the considered view that this petition deserves to be allowed partially. It may first be necessary to read Section 10(3), (4) (5) and (6) of the PGST Act which are as under:- “(3) The amount deducted under sub-section (1) or sub-section (2), shall be deposited into the Government Treasury by the person making such deduction in the manner prescribed. (4)Any deduction made in accordance with the provisions of this section and credited into the Government Treasury, shall be treated as payment of tax on behalf of the person from whose bills and invoices the deduction has been made and credit shall be given to him for the amount so deducted on the production of certificate prescribed in this regard, in the assessment for the relevant assessment year. (5) If any such person as is referred to in sub-section CWP 22 of 2002 6 (1) or sub-section (2) fails to make the deduction, or after deducting such amount fails to deposit the amount so deducted, the assessing authority may, after giving to 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 the Government Treasury. (6) Without prejudice to the provisions of sub- section(5), 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 eighteen per centum per annum on the amount deductable under this section but not so deducted, and, if deducted, not so deposited from the date on which such amount was deductable to the date on which such amount is actually deposited. ” A perusal of the aforesaid section makes it evident that a dealer has to furnish return by such date as may be prescribed and the tax has to be paid by him at the time of furnishing the return into the Government Treasury or the Reserve Bank of India or the District Excise and Taxation Office. The tax is also required to be deposited by CWP 22 of 2002 7 the dealer in the prescribed manner. Rule 20 of the 'Rules' further lays down that a receipt is required to be furnished alongwith the return and the prescribed period has also been laid down. Rule 20 of the rules reads thus:- “Rule 20. Every registered dealer shall furnish in Form S.T. VIII quarterly within a period of thirty days from the expiry of each quarter, if the amount of tax due as per returns is deposited in cash into the Government treasury, or, the Reserve Bank of India and within a period of twenty days from the expiry of each quarter, if the amount of tax due is paid through crossed cheque or bank draft, as the case may be, drawn on a local Scheduled Bank in favour of Assessing Authority at the District Excise and Taxation Office. Provided that a registered dealer dealing exclusively in goods liable to tax at the first stage of sale and who has paid tax on the purchase of such goods within the State of Punjab shall furnish returns in form ST VIII annually within thirty days of the expiry of each year. Provided further that a registered dealer CWP 22 of 2002 8 whose gross turnover does not exceed two lac rupees in a year shall furnish return in form ST VIII (in pink colour) annually within thirty days of the expiry of each year.” It is evident from the perusal of the aforesaid rule that a registered dealer is permitted to furnish the quarterly return within 30 days from the expiry of the relevant quarter where amount of tax is due as per return and the same is deposited in cash in the Government Treasury. In case the payment is made through cheque or a bank draft then the period prescribed for payment of tax due is 20 days. It has come on record that for the quarter from 1.4.2001 to 30.6.2001 the petitioner paid a sum of Rs.62,05,414/- through a bank draft as per return dated 30.7.2001, which was otherwise required to be paid within 20 days commencing w.e.f. 30.6.2001. The bank draft could be deposited on 1.8.2001 as 31.7.2001 was a holiday. There was a small delay of about 12 days which has met with huge penalty of Rs.60 lacs. The penalty has been imposed in pursuance of exercise of power vested by Section 10(6) of the PGST Act. The impugned order of penalty does not disclose any cogent reason for concluding that the penalty to the tune of Rs.60 lacs was warranted. The only reason given is that during the last quarter the petitioner had sought extension of time for making the payment of tax which was duly granted but the amount was not deposited within the extended time. Accordingly the petitioner was saddled with penalty to the tune of 25% of the amount CWP 22 of 2002 9 involved. The progressive rate of penalty to the extent of 100% has been justified on the aforesaid ground. The above noticed reason cannot be regarded as a valid reason because in the show cause notice there is no mention of any aggravated imposition of penalty. A perusal of the show cause notice (Annexure R/3) would bear a testimony to the aforesaid fact. It is well settled that until and unless the petitioner is granted an opportunity to meet the allegation projected in the show cause notice it cannot constitute a basis to justify an order on any additional ground for which no show cause was given. In that regard reliance may be placed on a judgment of Hon'ble the Supreme Court in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax (1954) 26 ITR 775 and C.Vasant Lal and Company v. Commissioner of Income Tax (1962) 45 ITR 206. Moreover, we find that the reliance of the petitioner on the Division Bench judgment of this Court is also meritorious where for a delay of 8 days it was held that imposition of huge penalty for a small mistake was not justified. The Division Bench held that ' the officer in that case had proceeded to levy interest under Section 11-D and penalty under Section 10(6) of the PGST Act opted to take action against the petitioner company without looking into the reason for delay for two quarters. The action appears to have been taken under Section 10(6) and 11-D of the Act without application of mind and without justifiable reasons. It is a case where power has been abused in a most arbitrary CWP 22 of 2002 10 manner. It was necessary for the officer before proceeding to levy interest and penalty to look into the reasons for delay of 7/8 days in depositing the tax........... An extreme technical view has been taken by the officer by levying interest and penalty in this case and has resulted in undue harassment. There was a substantial compliance of law inasmuch as tax had been deposited within 30 days for each quarter'. Accordingly, it was held that in a situation like the one in hand where two periods for depositing the amount of tax have been prescribed a bona fide default could be committed by the dealer and every default, howsoever, negligible need not result in realisation of interest or imposition of penalty. When the principles laid down by the Division Bench in M/s Swani Motors Ltd.'s case (supra) are applied to the facts of the present case it becomes evident that a delay of few days should not have resulted in imposition of penalty to the tune of Rs.60 lacs which is equivalent to the amount of tax due. Moreover, a perusal of the impugned order (Annexure P/3) would show that the assessing authority has adopted a vindictive attitude and retributive approach by imposing heavy penalty which is evident from the following portion of his order which reads as under:- “This particular dealer seems to have developed the habit of delaying the legitimate Govt. money without any reason. During the last quarter also he sought extension of time CWP 22 of 2002 11 for making the payment of tax which he was duly granted but he did not deposit the amount within the time granted to him. Hence, he had to be penalized by the then Assessing Authority mildly u/s 10(6) of the Punjab Gen. Sales Tax Act,1948 to the tune of 25% of the amount involved since it was his first default. Instead of improving his conduct this time, the situation has further gone worse. This time the dealer did not think it fit even to apply for extension of time for filing the return and tax. So this time I think it is imperative to give him slightly harsher dose of penalty to safeguard the Govt. revenue, so that in future no dealer likes to play with the Govt. money. Hence, I impose a penalty of Rs.6000000/- only as a penalty u/s 10(6) of the Punjab Gen.Sales Tax Act,1948. As far as interest is concerned, it comes to Rs.62054/- only at the rate of 1% for one month. Hence the total penalty and interest comes to 6062054/-.” The aforesaid approach smacks of arbitrariness and shows lack of balanced approach. Therefore, aforesaid reasoning does not CWP 22 of 2002 12 commend itself to us. For the aforementioned reasons the amount of penalty imposed by the impugned order is set aside. However, by keeping in view the delay we are of the view that ends of justice would be met if the penal interest imposed under Section 11-D is upheld. As a sequel to the above discussion, the impugned order dated 19.10.2001 and the demand raised on that basis is quashed to the extent of deleting the penalty imposed under Section 10(6) of the PGST Act.. However, imposition of penal interest under Section 11-D of the PGST Act is upheld. The petition stands disposed of in the above terms. (M.M.Kumar) Judge 7.10.2009 (Jaswant Singh) joshi Judge