VAT APPEAL No. 10 of 2007 ::1:: IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH VAT APPEAL No. 10 of 2007 Date of decision : August 25, 2008 M/S Dasu Ram Nautan Dass, ...... Appellant through Mr.K.L.Goyal, Advocate v. The State of Punjab & another, ...... Respondents through Ms. Sudeepti Sharma, A.A.G Punjab CORAM : HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY TEWARI *** 1. Whether Reporters of Local Newspapers may be allowed to see the judgment ? 2. To be referred to the Reporters or not ? 3. Whether the judgment should be reported in the Digest ? *** AJAY TEWARI, J The present appeal has been filed on the following question of law :- “2. Whether order of learned Tribunal upholding the levy of penalty under Section 56 of the Punjab VAT Act 2005 is sustainable in the eyes of law, when the assessee has not actually availed of the said benefit, no demand is due from assessee on that account and there can be no mens rea in the circumstances of the case ?” VAT APPEAL No. 10 of 2007 ::2:: By order dated 4.7.2006, whereby the Excise and Taxation Commissioner-cum-Designated Officer, Patiala imposed a penalty under Section 56 of the Punjab Value Added Tax, 2005 (for short “the Punjab VAT Act”), on the ground that the dealer (appellant) had availed wrong input tax credit and therefore, had to be penalised. By order dated 25.9.2006, the Deputy Excise and Taxation Commissioner (A), Patiala Division, Patiala dismissed the appeal, and by order dated 29.1.2007, the VAT Tribunal dismissed the second appeal. The appellant is a dealer, registered under the Punjab VAT Act, and was also a registered dealer under the Punjab General Sales Tax Act, 1948 (for short “the PGST Act”). On the coming into force of the Punjab VAT Act, all dealers like the appellant, who had any stock of goods on which tax had already been paid under Section 5(1) or 5(3) of the PGST Act, were entitled to claim input tax credit on such stock held on 1.4.2005 under Section 14 of the Punjab VAT Act. Admittedly, the appellant was entitled to a credit of Rs.55,368/- on account of tax paid stocks (under the PGST Act), which it held on the appointed day viz. 1.4.2005. The credit of this amount of Rs.55,368/- could be claimed in three instalments over the entire year. Apart from this, the appellant was entitled to input tax credit amounting to Rs.46,680/-(brought forward from previous year) and Rs.408296/- on non-capital goods against an amount of Rs.3,88,736/- due as output tax. Thus, on these accounts alone, the appellant was not liable to pay any tax, as the credit in its account was more than the tax payable. However, while filing return, the appellant claimed the aforementioned credit of Rs.55,368/- in one instalment in the second quarter. When this fact VAT APPEAL No. 10 of 2007 ::3:: came to the notice of respondent No.3, he passed the order of imposition of penalty and additional demand on 4.7.2006. As mentioned above, both appeals filed by the appellant were dismissed. Shri K.L.Goel, learned counsel for the appellant, has urged that claiming of the credit at one go could only be a mistake, since neither the appellant got any gain therefrom nor was there any loss occasioned to the revenue on this account, because, as mentioned above, even without taking this credit of Rs.55,368/- into account, the appellant was not liable to pay any tax. He further urged that the Tribunal had erred in holding as follows :- “..... That fact that more amount was standing to the credit of the firm on account of ITC, does not warrant as inference that there was no intention on the part of the appellant firm to claim excess amount....” A conspectus of all the facts, recorded above, makes it clear that even without availing the credit of Rs.55,368/-, the appellant was not liable to pay any tax. Thus, it cannot be said that by this action any profit or gain was caused to the appellant or any loss occasioned to the revenue. The Hon'ble Supreme Court in the case of Hindustan Steel Ltd vs The State of Orissa, (1970) 25 STC 211, held as follows :- “ Under the Act penalty may be imposed for failure to register as a dealer : section 9(1) read with section 25 (1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal VAT APPEAL No. 10 of 2007 ::4:: proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.” Similarly, in the case of The Cement Marketing Co. of India Ltd vs. The Assistant Commissioner of Sales Tax, Indore and others, (1980) 456 STC 197, the Hon'ble Supreme Court held as follows :- “...... What section 43 of the Madhya Pradesh General Sales Tax Act, 1958, requires is that the assessee should have filed a “false” return and a return cannot be said to VAT APPEAL No. 10 of 2007 ::5:: be “false” unless there is an element of deliberateness in it. It is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of the assessee and there is no reasonable explanation forthcoming from the assessee for such want of care, the court may, in a given case, infer deliberateness and the return may be liable to be branded as a false return. But where the assessee does not include a particular item in the taxable turn-over under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a “false” return inviting imposition of penalty. This view which is being taken by us is supported by the decision of this Court in Hindustan Steel Limited v State of Orissa, where it has been held that “even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.....”. It is elementary that section 43 of the Madhya Pradesh General Sales Act, 1958, providing for imposition of penalty is penal in character and unless the filing of an inaccurate return is accompanied by a guilty mind, the section cannot be invoked for imposing penalty. If the view canvassed on behalf of the revenue VAT APPEAL No. 10 of 2007 ::6:: were accepted, the result would be that even if the assessee raises a bona fide contention that a particular item is not liable to be included in the taxable turnover, he would have to show it as forming part of the taxable turnover in his return and pay tax upon it on pain of being held liable for penalty in case his contention is ultimately found by the Court to be not acceptable. That surely could never have been intended by the legislature.” Keeping the aforementioned binding dicta in mind, we hold that there was no element of deliberateness in claiming of the aforementioned credit of Rs.55,368/-. Consequently, the question of law, which arises in this case, is decided in favour of the appellant. The appeal is, therefore, allowed and the orders, dated 4.7.2006, 25.9.2006 and 29.1.2007 are set aside. In the result, the penalty imposed under Section 56 of the Punjab VAT Act and the additional demand are set aside. ( AJAY TEWARI ) JUDGE ( ADARSH KUMAR GOEL ) JUDGE August 25, 2008 'kk'