IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH VAT Appeal No.3 of 2008 Date of decision: 29.1.2008 M/s Chumber Textiles ......Appellant Versus The State of Punjab and another ......Respondents CORAM:- HON'BLE MR.JUSTICE SATISH KUMAR MITTAL HON'BLE MR.JUSTICE RAKESH KUMAR GARG * * * Present: Mr. Puneet Kansal, Advocate for the appellant. * * * Rakesh Kumar Garg, J . 1. The assessee has filed the present appeal under Section 68 of the Punjab Value Added Tax Act, 2005 against the order of the Tribunal in Appeal No.59 of 2007-08 (VAT) decided on 30.10.2007 (Annexure P-9) raising the following substantial questions of law:- “(i) Whether there is any mens rea on the part of the appellant to evade the payment of tax for which the penalty can be imposed u/s 56 and 60 of the Act? (ii) Whether penalty u/s 56 of the 2005 Act can be imposed only where the designated officer records his satisfaction that there is concealment on part of the assessee/dealer and such concealment is with an intention and/or in order to evade or avoid payment of tax? (iii) Whether issuing the show cause notice qua the penalty specified in the notice is required before such penalty can be imposed actually after inspection of records etc. by the Designated Officer as envisaged under Section 61 of the VAT Act read with Rule 50(1)(c ) of the VAT Rules 2005? (iv) Whether the notice to show cause under Rule 50 (1)(c ) would require specifying the provisions under which the penalty is proposed to be imposed as also the quantum of the penalty to be imposed? (v) Whether, on the facts and in circumstances of the case, tax can be claimed on account of a bonafide omission of a particular purchase being reflected in the quarterly returns when no purchase tax is payable under the VAT Act in respect of the said item? (vi) Whether, on the facts and in circumstances of the case, penalty can be imposed in respect of a bonafide omission in the quarterly returns filed by the assessee as prepared by his accountant when it was the first year of the new enactment coming into force and there being no mens rea to evade or avoid payment of tax on part of assessee? (vii) Whether, on the facts and in circumstances of the case, penalty can be imposed, on a harmonious reading of Rules 36 and 40 of Punjab VAT Rules 2005, for a bonafide omission of a particular entry in quarterly returns filed under Rule 36 before the filing of Annual Statement filed under Rule 40 of the said Rules? (viii) Whether the appellate authorities are required to deal and give a finding on each of the contentions raised on behalf of the appellant? (ix) Whether on the facts and in the circumstances of the case penalty upon the dealer can be imposed in view of the settled law of the Hon'ble Supreme Court as reported in 118 ITR 236 and 25 STC 211? (x) Whether the First Appellate Authority is, in the facts and circumstances of the case, under legal duty to satisfy himself regarding the disputed questions of facts in the impugned order by summoning the records of the case and other means? (xi) Whether penalty, in the facts and circumstances of the case, can be imposed for bonafide omission in quarterly returns when there is no such omission in the Annual Statement duly filed under Rule 40 of the VAT Rules 2005? 2. The appellant is a dealer registered under the provisions of Punjab Value Added Tax Act, 2005 (hereinafter referred to as the 'VAT Act, 2005') and is engaged in the business of purchase and sale of bed sheets, blankets etc. having its place of business at Moga, District Moga. The appellant filed his four quarterly returns under the VAT Act, 2005 during the year 2005-06. During the course of scrutiny of returns, it was noticed by the Designated Officer-cum-Excise and Taxation Officer, Moga that the dealer/assessee had made purchases of bed sheets and blankets etc. from outside the State of Punjab and after comparing the data of inter state purchases available in computer system of the department it was found that the dealer has omitted to reflect in returns, purchases worth Rs.4,85,024/-. 3. Accordingly, a notice was issued to the dealer for 13.9.2006 for verifying the facts. Sh. Chamkaur Singh, proprietor of the firm appeared on 14.9.2006 and was confronted with the facts of non-showing of ICC data in returns. He requested for an adjournment to reconcile the data and the case was adjourned to 29.9.2006. On 29.9.2006, the assessee was present with his counsel when they were asked to explain reasons for non-showing of inter state purchases worth Rs.4,85,024/- in their returns/accounts. However, they were unable to explain the same and therefore, it was brought to their notice that their action amounts to suppression of purchases made by the dealer/assessee and the same is liable for imposition of penalty/tax at the prevailing rate. The dealer/assessee who were unable to give any suitable explanation for the lapse on his part and action, requested for the adjournment. The case was adjourned to 6.10.2006. On the said date, the proprietor Sh. Chamkaur Singh along with his Advocate Sh. V.K. Bansal was present and when they were asked to explain the reasons for non-showing of the amount of purchases in their returns, they admitted that it was a lapse on their part and requested for taking a lenient view while imposing tax/penalty. 4. In view of the above admission of the assessee, he was assessed. The relevant part of the order of the Assessing Officer is reproduced hereinafter below:- “I have gone through the facts of the case. The dealer has failed to reflect the inter state purchases of goods worth Rs.4,85,024/- in his accounts books/returns for the year 2005- 06. The dealer has no satisfactory explanation in his defence and admitted his fault. From the foregoing discussions, it is clear that the dealer has suppressed his purchases worth Rs.4,85,024/- and resultantly sales have also been suupressed. Keeping in view the circumstances of the case, case is provisionally assessed as under:- Inter state purchases not shown in returns is treated as suppressed purchases Rs. 485024/- Tax @ 4% Rs. 19401/- Penalty u/s 56 of Pb.VAT Act Rs. 38802/- Penalty u/s 60 of Pb. VAT Act Rs. 2000/- Total Rs. 60203/- Total Due Rs. 60203/- Issue TDN and Challan form for Rs.60,203/- along with a copy of this order. Sd/- (Jagtar Singh) Designated Officer-cum- Excise & Taxation Officer, Moga.” 5. Aggrieved against the said order, the assessee-appellant filed an appeal before the Deputy Excise and Taxation Commissioner (Appeals) stating therein that the said purchases were not being reflected in quarterly returns on account of the bona fide omission and in any case the penalty imposed at the rate of 200% of tax is highly excessive and uncalled for. The appeal filed by the assessee was dismissed by the Deputy Excise and Taxation Commissioner (Appeals) vide his order dated 19.2.2007. The assessee further filed an appeal before the Tribunal. However, the Tribunal also dismissed the appeal vide its order dated 30.10.2007. 6. Mr. Puneet Kansal, Advocate appearing for the petitioner has vehemently argued that Section 56 of the VAT Act, 2005 envisages that penalty can be imposed upon a person only when the Designated Officer is satisfied that the concealment of any particulars in any return furnished by any person is with an intention or in order to evade or avoid payment of tax and the mere omission of any particulars in the return ipso facto does not envisage imposition of penalty. Thus, according to him, for imposition of penalty the pre conditions are that the omission must be in the nature of concealment and further such concealment should be with the intention or in order to evade or avoid of payment of tax. 7. The learned counsel has argued that there is no finding by the Assessing Officer that the omission of the purchases not being reflected in the quarterly returns are in the nature of concealment and that such concealments are being done with an intention or in order to evade or avoid the payment of tax. He has further argued that in any case the omission of non-reflection of the purchases in the quarterly returns was on account of bona fide omission on the part of the Accountant of the appellant-firm, that being the first year of the enactment of the VAT Act in the State of Punjab and further the bona fides are proved from the fact that the said purchases have been duly reflected in the account books of the firm. 8. Learned counsel has further argued that in the case in hand, the principle of natural justice have not been complied with as the appellant has not been given an opportunity to show cause notice for imposing penalty. In support of his contentions Mr. Puneet Kansal, Advocate has relied upon Hindustan Steel Ltd. V. The State of Orissa (1970) 25 STC 211. 9. We have heard learned counsel for the appellant and perused the record. 10. The Punjab Value Added Income Tax, 2005 came into force w.e.f. 1.4.2005. The said Act has been enacted to provide for the levy and collection of value added tax and turnover tax on the sales or purchases of goods and for matters connected therewith and incidental thereto, and for the repeal of the Punjab General Sales Tax, 1948 further rules have been framed under the Act. The provisions for incidence and levy of tax have been provided in Chapter II of the said Act. Chapter V of the said Act provides a procedure and administration of tax i.e. for submission of the returns and payment of the tax. Under Chapter IX a provision has been made for establishment of a Check Post or Information Collector Centre at such place or places, as may be specified in the notification issued by the Government with a view to prevent or check avoidance or evasion of tax under the VAT Act and as per the provisions of Section 51 of the Act. The owner or person-in-charge of a goods vehicle is under an obligation to give necessary information regarding the goods being brought in the State of Punjab. Chapter X of the Act provides for penalties to be imposed for failure to pay tax and also for imposition of penalty for evasion of tax. 11. The relevant provisions of the Punjab VAT Act, 2005 are reproduced hereinafter below:- “6. Incidence of tax-(1) Every person, except a casual trader and one dealing exclusively in goods declared tax free under section 16, whose gross turnover during the year immediately preceding the commencement of this Act or during any year subsequent thereto, exceeded the taxable quantum, as provided in clause (a) of sub-section (3), shall be liable to pay tax under this Act by way of VAT on the taxable turnover. (2)Every person, except a casual trader and one dealing exclusively in goods declared tax free under section 16, whose gross turnover during the year immediately preceding the commencement of this Act or during any year subsequent thereto, exceeded the taxable quantum, as provided in clause (b) on sub- section (3), shall be liable to pay tax under this Act by way of TOT on the taxable turnover. (3) For the purpose of this section, the expression “taxable quantum” means,- (a) for registration as a taxable person for VAT,- (i) in relation to any person, who imports taxable goods for sale or use in manufacturing or processing any goods in the State, rupee one; (ii) in relation to a person, who receives goods on consignment/branch transfer basis from within or outside the State on which no tax has been paid under this Act, rupee one; (iii) in relation to a person, liable to pay purchase tax under section 19, rupee one; (iv) in relation to a person, who is a manufacturer, rupee one lac; (v) in relation to voluntary registration, rupees five lac; and (vi) in relation to any other person, rupees *[fifty lac.] (b) for registration as a registered person for TOT,- in relation to a person other than those specified in clause (a) whose turnover during the preceding year is more than rupees five lac, but below rupees *[fifty lac.] (4) Every person, who has become liable to pay tax under this Act, either by way of VAT or TOT, shall continue to be so liable, until the expiry of three consecutive years during each of which his gross turnover does not exceed the taxable quantum and such further period after the date of such expiry, as may be specified by notification by the State Government and on the expiry of such specified period, his liability to pay tax, shall cease. (5) Every person whose liability to pay tax has ceased under sub-section (4), shall again be liable to pay tax under this Act from the date on which his gross turnover again exceeds the taxable quantum. (6) Every casual trader shall be liable to pay tax under this Act by way of VAT on the taxable turnover including sales through agent within the State. 7. Liability of person registered under the Central Sales Tax Act, 1956.- The person registered under the Central Sales Tax Act, 1956 (Central Act No.74 of 1956), shall be liable to pay VAT under this Act on any sale made by him within the State, irrespective of the fact that he is not liable to pay tax under section 6 of this Act. However, the provisions of this section shall not apply in case of a person, who deals exclusively in goods declared tax free under section 16. 26. Returns.- (1) Every taxable person shall make self-assessment of tax and shall file return for a period, within such time and in such form as may be prescribed. (2) Every registered person shall make self- assessment of tax and shall file return for a period, within such time and in such form as may be prescribed. (3) Every person shall, in such manner, as may be prescribed, pay into a Government Treasury or any bank authorised to transact Government business or at the District Excise and Taxation Office, the full amount of tax due from him as per provisions of this Act and shall furnish along with the returns, receipt from such Treasury or Bank or District Excise and Taxation Office, as the case may be, showing the payment of such amount: Provided that no payment of such amount shall be accepted at the District Excise and Taxation Office, except through a bank draft or crossed cheque drawn on a local Scheduled Bank in favour of the designated officer. (4) If any person referred to in sub-sections (1) and (2), discovers any bona fide error or omission in any return furnished by him, he may rectify such error or omission in the return, due to be filed immediately following the detection of such error or omission. If such rectification results in a higher amount of tax to be due than the original return, it shall be accompanied by a receipt for payment of the additional amount of tax, payable along with the interest at the rate specified under this Act for the period of delay, in the manner prescribed in sub-section (3). No such rectification shall, however, be allowed after the end of the financial year immediately following the year to which the rectification relates or issue of a notice for audit or assessment, whichever is earlier. Where such rectification results in excess amount of tax having been paid than due, such excess tax shall be refundable on application as per provisions of this Act and the Rules framed thereunder. No adjustment shall, however, be allowed for such excess payment. (5)In addition to any return under sub-sections (1) and (2), the Commissioner or the designated officer may, require a taxable person or a registered person to furnish such further information alongwith the returns or at any other time, as may be deemed necessary. (6) Notwithstanding anything contained in this section, the Commissioner or the designated officer, as the case may be, may by notice, direct a person other than a taxable person or a registered person, to file returns at such intervals and in such form and containing such information, as may be required. (7) Every taxable person or registered person, as the case may be, shall file an annual statement in such form and in such manner, as may be prescribed. (8) A taxable person or a registered person, whose registration is cancelled under section 24, shall file such final return, as may be prescribed, within thirty days from the date of cancellation by the Commissioner or the designated officer, as the case may be. 51.Establishment of information collection centres or check-posts and inspection of goods in transit.-(1) If, with a view to prevent or check avoidance or evasion of tax under this Act, the State Government considers it necessary so to do, it may, by notification, direct for the establishment of a check-post or, information collection centre or both at such place or places, as may be specified in the notification. (2) The owner or person-in-charge of a goods vehicle shall carry with him a goods vehicle record, goods receipt, a trip sheet or a log-book, as the case may be, and a sale invoice or bill or cash memo, or delivery challan containing such particulars, as may be prescribed, in respect of such goods meant for the purpose of business, as are being carried in the goods vehicle and produce a copy each of the aforesaid documents to an officer-in-charge of a check- post or information collection centre, or any other officer not below the rank of an Excise and Taxation Officer checking the vehicle at any place: Provided that a person selling goods from within or outside the State in the course of inter- State trade or commerce, shall also furnish or cause to be furnished a declaration with such particulars, as may be prescribed: Provided further that a taxable person, who sells or dispatches any goods from within the State to a place outside the State or imports or brings any goods or otherwise receives goods from outside the State, shall furnish particulars of the goods in a specified form obtained from the designated officer, duly filled in and signed. (3) At every check-post or information collection centre or at any other place when so required by an officer referred to in sub-section (2), the driver or any other person-in-charge of the goods vehicle shall stop the vehicle and keep it stationary, as long as may reasonably be necessary, and allow the officer-in-charge of the check-post or the information collection centre or the aforesaid officer to check the contents in the vehicle by breaking open the package or packages, if necessary, and inspect all records relating to the goods carried, which are in the possession of the driver or any other person, as may be required by the aforesaid officer, and if considered necessary, such officer may also search the goods vehicle and the driver or other person-in-charge of the vehicle or of the goods. (4) The owner or person-in-charge of a goods vehicle entering the limits or leaving the limits of the State, shall stop at the nearest check-post or information collection centre, as the case may be, and shall furnish in triplicate a declaration mentioned in sub-section (2) alongwith the documents in respect of the goods carried in such vehicle before the officer- in-charge of the check-post or information collection centre. The officer-in-charge shall return a copy of the declaration duly verified by him to the owner or person-in-charge of the goods vehicle to enable him to produce the same at the time of subsequent checking, if any: Provided that where a goods vehicle bound for any place outside the State passes through the State, the owner or person-in-charge of such vehicle shall furnish, in duplicate, to the officer-in- charge of the check-post or information collection centre, a declaration in respect of his entry into the State in the prescribed form and obtain from him a copy thereof duly verified. The owner or person-in-charge of the goods vehicle, shall deliver within forty-eight hours the aforesaid copy to the officer-in-charge of the check-post or information collection centre at the point of its exit from the State, failing which, he shall be liable to pay a penalty to be imposed by an order, made by the officer-in-charge of the check-post or information collection centre equal to fifty per cent of the value of the goods involved: Provided further that where the goods carried by such vehicle are, after their entry into the State, transported outside the State by any other vehicle or conveyance, the burden of proving that the goods have actually moved out of the State, shall lie on the owner or person-in- charge of the vehicle: Provided further that no penalty shall be imposed unless the person concerned has been given an opportunity of being heard. (5) At every station of transport of goods, bus stand or place of loading or unloading of goods, when so required by the Commissioner or the designated officer, the driver or the owner of the goods vehicle or the employee of transport company or goods booking agency, shall produce for examination, transport receipts and all other documents and accounts books concerning the goods carried, transported, loaded, unloaded, consigned or received for transport, maintained by him in the prescribed manner. The Commissioner or the designated officer shall, for the purpose of examining that such transport receipts or other documents or account books are in respect of the goods carried, transported, loaded, unloaded or consigned or received for transport, have the powers to break open any package or package of such goods. (6) (a) If the officer-in-charge of the check-post or information collection centre or any other officer as mentioned in sub-section (2), has reasons to suspect that the goods under transport are meant for trade and are not covered by proper and genuine documents as mentioned in sub- section (2) or sub-section (4), or that the person transporting the goods is attempting to evade payment of tax, he may, for reasons to be recorded in writing and after hearing the person concerned, order detention of the goods alongwith the vehicle for a period not exceeding seventy-two hours. Such goods shall be released on furnishing of security or executing a bond with sureties in the prescribed form and manner by the consignor or the consignee, if registered under this Act to the satisfaction of the officer on duty and in case the consignor or the consignee is not registered under this Act, then on furnishing of a security in the form of cash or bank guarantee or crossed bank draft, which shall be equal to the amount of penalty leviable rounded upto the nearest hundred. (b) If the owner or the person-in-charge of the goods has not submitted the documents as mentioned sub-sections (2) and (4) at the nearest check-post or information collection centre, in the State, as the case may be, on his entry into or before exit from the State, such goods shall be detained alongwith the vehicle for a period not exceeding seventy-two hours subject to orders under clause (c ) of sub-section (7). (7)(a) The officer detaining the goods under sub- section (6), shall record the statement, if any, given by the consignor or consignee of the goods or his representative or the driver or other person-in-charge of the goods vehicle and shall require him to prove the genuineness of the transaction before him in his officer within the period of seventy-two hours of the detention. The said officer shall, immediately thereafter, submit the proceedings alongwith the concerned records to the designated officer for