IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) THURSDAY, THE EIGHTEENTH DAY OF SEPTEMBER TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MRS JUSTICE T.MEENA KUMARI and THE HON'BLE MR JUSTICE RAMESH RANGANATHAN WRIT PETITION NO : 20348 of 2008 Between: M/s. Sree Rayalaseema Green Steloy Ltd. Survey No. 142A & 143-B-2, Aswathapuram Village, Kurnool - 518 218, A.P. Rep by its Chairman and Managing Director, Sri K. Madhusudhan ..... PETITIONER AND 1 The Appellate Deputy Commissioner (C.T) Kurnool, D.No. 53-254/D8, Near Bhashyam School, Sankalbagh, N.R. Pet, Kurnool. 2 The Assistant Commissioner (CT), Large Tax Payer Unit, behind Central Plaza, Near Ayyappa Swamy Temple, Kurnool - 518 002 . .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Aﬃdavit ﬁled herein the High Court will be pleased to issue an appropriate writ, order or direction more particularly one in the nature of Mandamus declaring the action of the First Respondent in rejecting the stay petition of the petitioner in Stay Petition No. 13/2008-2009 (KNL) in Appeal No. 51/2008-2009 (KNL) dated 22-8-2008, as illegal and unjustiﬁed and consequently grant stay of collection of the disputed penalty of Rs. 10,71,429/- for the Tax Period May, 2005 to September, 2007 under the A.P Value Added Tax Act, 2005, pending disposal of the petitioner's Appeal before the first Respondent and to pass such other orders as this court deems fit and proper circumstances of the case. Counsel for the Petitioner: MR.G.NARENDRA CHETTY Counsel for the Respondents: GP FOR COMMERCIAL TAX The Division Bench of this Court made the following order: THE HON'BLE MRS JUSTICE T.MEENA KUMARI A N D THE HON'BLE MR JUSTICE RAMESH RANGANATHAN WRIT PETITION NO : 20348 of 2008. The writ petition is ﬁled seeking a writ of mandamus to declare the action of the ﬁrst Respondent in rejecting the stay petition of the petitioner in Stay Petition No. 13/2008-2009 (KNL) in Appeal No. 51/2008-2009 (KNL) dated 22-8- 2008, as illegal and unjustiﬁed and consequently grant stay of collection of the disputed penalty of Rs. 10,71,429/- for the Tax Period May, 2005 to September, 2007 under the A.P Value Added Tax Act, 2005, pending disposal of the petitioner's Appeal before the ﬁrst Respondent and to pass such other orders as this court deems ﬁt and proper circumstances of the case. 2. Aggrieved by the stay rejection order passed by the ﬁrst in stay petition no. 13/2008-09 (KNL) in Appeal No. 51/2008-09 (KNL), dated 22-8- 2008 rejecting the stay application ﬁled by the petitioner seeking stay of collection of the disputed penalty of Rs.10,71,429-00 imposed by the second respondent for the tax period from May 2005 to September 2007 under section 53 of the AP Value Added Tax Act, 2005 pending disposal of the appeal before him. 3. It is stated that the petitioner is a registered dealer under the AP Value Added Tax Act 2005 and the petitioner is on the rolls of the second respondent. The petitioner is a manufacturer of Pig Iron Ingots, Alloy Ingots and Sponge Iron. It is stated that the petitioner purchased coal from within the State and consumed the same as raw material in the manufacture of sponge iron and also re-sold coal. As far as re-sale of coal purchased within the state is concerned, there is no tax liability on the petitioner in view of the proviso to Rule 20 (2). As regards, the coal which had gone into consumption process of manufacture of sponge iron, the petitioner is entitled to claim Input Tax Credit as raw material for the sponge iron. 4. It is stated that since March 2007, the petitioner started producing pig iron ingots and alloy ingots. Pig Iron being the common raw material and as all the sales of pig iron ingots have been sold locally in Andhra Pradesh, the petitioner is entitled to claim input tax credit corresponding to the manufacture of pig iron ingot in entirety without any restriction. As far as the Alloys Ingots is concerned, the petitioner had done taxable sales and also exempted transactions; namely, stock transfers and consignment sales. As far as input tax credit relatable to that product is concerned, the petitioner has to apply the formula A x B/C and proportionately restrict the input tax credit as speciﬁed in the Rule. The petitioner had made calculations strictly in accordance with the Rules without any deviations and ﬁled its returns and paid tax accordingly. However, the second respondent passed order of assessment of value added tax in Form VAT-305, dated 17-3-2008 disallowing the input tax credit on coal on the ground that the input tax credit claimed by the petitioner as per Rule 20 (6) is not accepted and restricted as per Rule 20 (8) and demanded that an amount of Rs.4,65,349-00 be paid by the petitioner within thirty days from the date of receipt of the said order. Further the assessment order passed by the second respondent is not correct. Rule 20 (10) (e) does not prevent the petitioner from claiming the beneﬁt under Rule 20 (6) and if the situation mentioned in Rule 20 (6) is satisﬁed, there is no bar for claiming the beneﬁt under the said rule. It is stated that the said rule cannot be understood to mean that if a dealer is claiming input tax credit completely in the initial months by making only taxable sales, he should not restrict his input tax credit in later months in case, he eﬀects both the taxable and consignment sales. It is stated that each tax period being independent, the petitioner is entitled to claim input tax credit depending upon the particular Rule, which is attracted for that particular month. Similarly Rule 20 (11) also has no application to the facts of the petitioner’s case, as the Deputy Commissioner has not imposed any condition or particular method of apportionment of input tax credit and in the absence of the same, the petitioner is bound by the Rules and even according to the second respondent, the petitioner has maintained separate records to show that specific inputs were meant for specific outputs. 5. It is further stated that passing of a single order of assessment for the period from May 2005 to September 2007 is not authorized under the provisions of the AP Value Added Tax Act, 2005 and the Rules made there under and the said order is without ju5risdiction and illegal on this ground also. It is also stated that the second respondent further imposed penalty under section 53 of the AP Value Added Tax Act 2005, imposing penalty of Rs.10,71,429-00 vide his ex-parte order dated 16-5-2008. Even assuming that the petitioner is not entitled to claim the input tax credit, it is not a case for levy of penalty, as the petitioner’s claim was bonaﬁde and the petitioner had no ‘mens rea’ or intention to evade payment of any tax. Aggrieved thereby the penalty order, the petitioner ﬁled the above appeal before the ﬁrst respondent and the same is pending. 6.The learned counsel for the petitioner relied upon a decision of the Apex Court in HINDUSTAN STEEL LIMIT5ED V/s. THE STATE OF ORISSA reported in 25 STC 211 (at 214) (SC) wherein it was held that the principles regarding levy of penalty is the result of quasi criminal proceeding and cannot be imposed as a matter of course unless there is mens rea. 7. It is submitted by the learned counsel for the petitioner that pending an appeal, the issuance of proceedings demanding to pay disputed penalty of Rs.10,71,429-00 for the tax period from May 2005 to September 2007 is contrary to law. 8. Heard the learned counsel for the petitioner and the learned Special Standing Counsel for Commercial Tax. 9. We have gone through the record, we feel that the interest of justice would have been met if stay was granted pending appeal, subject to the condition of the petitioner depositing 25% of the disputed penalty . Accordingly, the writ petition is disposed at the stage of admission directing the petitioner to deposit 25% of the disputed penalty within a period of eight weeks from today and in the meanwhile the respondents are directed not to take coercive steps for recovery of the same, pending appeal. The deposit of amount shall be without prejudice to the rights of the petitioner in appeal. If any amount has already been paid by the petitioner, the same shall be given credit. 10. The writ petition is accordingly disposed of at the stage of admission. No costs. JUSTICE T. MEENA KUMARI. JUSTICE RAMESH RANGANTHAN. 18-09-2008. NB : Furnish CC of the order tomorrow. // BY ORDER // I s L ..... REGISTRAR // TRUE COPY // SECTION OFFICER To 1.2CCs to 2.2CD copies Form-NIC-OGS/WP{RLD}