Men-rea on the part of the assessee is an essential pre-requisite condition for imposition of penalty under Section 54(1)(2) of the U.P. VAT Act, 2008 – Allahabad High court
In a recent judgment, the Hon’ble Allahabad High Court has held that men-rea on the part of the assessee is an essential pre-requisite condition for imposition of penalty under Section 54(1)(2) of the U.P. VAT Act, 2008
ABCAUS Case Law Citation:
ABCAUS 3914 (2024) (03) HC
Important Case Laws relied upon by parties:
M/s Moti Lal Jawahar Lal vs The Commissioner of Sales Tax, U.P., Lucknow, 2003 NTN (Vol.23) 590
The Commissioner, Sales Tax, U.P., Lucknow vs S/s Shanti Swarup Raj Kumar Katra Naj, Moradabad, STI 1998
The Commissioner of Sales Tax, Uttar Pradesh vs Sanjiv Fabrics, 2010 (9) SCC 630
S.S. Flabours vs State of U.P. and another, 2016 (61) NTN DX 100
Nathulal vs State of Madhya Pradesh
Union of India & Ors Vs Dharamendra Textile Processors & ors
The present revision petition was filed by the revisionist/ assessee against the order of the tribunal confirming the imposition of penalty under Section 54(1)(2) of the U.P. VAT Act, 2008 (the Act, 2008).
A survey took place on the premises of the revisionist. The stock was allegedly noted by the surveyors on the basis of presumption. The stock was found to be recorded more in the books of accounts of the revisionist vis a vis the physical stock.
An assessment order was passed by UP VAT Authorities against the revisionist under the provisions of Section 28(2) of the U.P. V.A.T. Act, 2008 demanding the tax.
Being aggrieved, the revisionist filed a first appeal. The appellate authority, reduced the disputed demand. Still being aggrieved, the revisionist filed an appeal before the Tribunal and at the same time the Department also filed an appeal. Both the appeals were clubbed together and were decided vide common judgement and order whereby the appeal of the revisionist was partly allowed while the appeal of the department was dismissed.
Before the Tribunal, the assessee contended that the judgement and order passed by the Tribunal attained finality as it was not challenged by the revisionist rather the revisionist acquiesced to the said order and has paid the amount determined by the tribunal.
It was contended that during pendency of the aforesaid proceedings, a notice under Section 54(1)(2) of the Act, 2008, was issued to the revisionist. The revisionist filed his reply. Later, an order was passed imposing penalty on the revisionist.
Both the first appellate authority and the tribunal dismissed the appeal against the penalty imposed.
Before the High Court, The argument of the revisionist was that a perusal of serial no. 2 of the table, as provided in Section 54(1) of the Act, 2008, would indicate that in order to attract the penalty, a finding has to be specifically recorded that the dealer has concealed the particulars of his turnover or has deliberately furnished inaccurate particulars of such turnover or has submitted a false tax return or has evaded payment of tax which he is liable to pay under the Act and only after such a finding has been recorded by the competent authority can the penalty be imposed.
The contention was that a the impugned penalty order had no finding of the revisionist having deliberately concealed the particulars of his turnover or having deliberately furnished inaccurate particulars or having deliberately evaded payment of tax has been indicated and consequently the competent authority patently erred in imposing the penalty which aspect has not been considered by the appellate authority as well as by the Tribunal while dismissing second appeal filed by the revisionist
In this regard the revisionist placed reliance on the various judgements of the High Court in which it has been held the said provisions to be akin to Section 54 of the Act, 2008 and has thereafter held that in order to impose penalty, specific finding of concealment or furnishing of wrong particulars of return has to be made and in absence thereto, the order of imposition of penalty cannot be said to be legally sustainable in the eyes of law meaning thereby that mens-rea is a necessary ingredient for imposition of penalty.
The Hon’ble High Court opined that the object of Section 54 of the Act, 2008 is to impose penalty if any dealer or person has committed wrong described in column (2) of the table. So far as serial no. 2 of the table is concerned the same reads that where a dealer has concealed the particulars of his turnover or has deliberately furnished inaccurate particulars of such turnover or has submitted a false tax return under the Act or has evaded payment of tax which he is liable to pay under the Act then three times the amount of tax concealed or avoided is to be imposed as a penalty.
The Hon’ble High Court further observed that from the language of the Section it is clear that, so far as the present controversy is concerned, the dealer would be liable to pay penalty for evasion of tax. ‘Evasion of tax’ is a willful attempt to defeat or circumvent tax law as defined in Blacks Law Dictionary. The penalty is based on the assessment order under Section 28(2) of the Act, 2008. In turn the assessment order is based on “best judgement assessment” which has been held by the Hon’ble Supreme Court to be on well grounded estimate or reasonable guess based.
The Hon’ble High Court also observed that the revisionist had already paid the tax as assessed after modification by the learned Tribunal. At no stage was there any finding of any willful evasion of tax by the revisionist or a finding of there being any deliberate attempt on the part of the revisionist in avoiding the payment of tax. It is for the authorities to specifically prove the evasion of payment of tax on the part of the revisionist where the evasion has been defined as a willful attempt i.e. the authorities would have to prove a willful attempt on the part of the revisionist to evade tax. In absence thereto the order imposing penalty on the revisionist based on the assessment order passed under Section 28(2) of 2008 cannot be said to fall within the ambit of any of the eventualities as provided under Section 54(1)(2) of the Act 2008 more particularly it cannot be considered to be an evasion of payment of tax by the dealer / revisionist so as to attract the penalty as has been imposed on the revisionist.
In view of the above, the Hon’ble High Court answered the question of law framed as under:
(i) Whether the men-rea on the part of the assessee is an essential pre-requisite condition for imposition of penalty under Section 54(1)(2) of the U.P. VAT Act, 2008?
Yes
(ii) Whether penalty under Section 54(1)(2) of the Act can be imposed where the assessment is made on the basis of Best Judgement Assessment?
No
Accordingly, the revision was allowed. The judgement and order passed by Commercial Tax Tribunal, Lucknow was set aside.
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