State of Gujarat and Anr. Vs Saw Pipes Ltd. (Supreme Court)
The highest court of the country in this case was considering the levy of penalty and interest under the provisions of Gujarat Sales tax Act 1969 when the high court gave relief by setting aside interest and penalty in relation to tax paid on execution of works contract of coating of coal tar and enamel coating on pipes whereas the AO held it to be taxable under a different entry. While conceding the liability to pay tax at higher rate before the High court, the respondent assessee pleaded bonafide belief based on expert opinion, to be absolved of interest and penalty.
Under the circumstances, on strict interpretation of Section 45 and Section 47 of the Act, 1969, the only conclusion would be that the penalty and interest leviable under Section 45 and 47(4A) of the Act, 1969 are statutory and mandatory and there is no discretion vested in the Commissioner/Assessing Officer to levy or not to levy the penalty and interest other than as mentioned in Section 45(6) and Section 47 of the Act, 1969.
It is required to be noted that the learned Tribunal specifically found that there was nothing on record to prove that there was in fact a bonafide belief of the respondent herein, that it would be required to pay tax at 2% only. As observed hereinabove and on plain reading of Section 45 and Section 47 of the Act, 1969 and as observed hereinabove, on the eventualities occurring under subsection (5) of Section 45, there shall be levied penalty mentioned in subsection (6) of Section 45 and the liability to pay the interest is incurred as mentioned in Section 47(4A). The impugned judgment and order passed by the High Court on the grounds that the amount of tax has already been paid by the assessee – dealer; that the assessee – dealer was under the bonafide belief that it was liable to pay the tax at the rate of 2%, is unsustainable.
The Supreme Court while considering the language of the statute, the element mens rea and decisions rendered in relation to levy of penalty particularly Hindustan Steels Ltd Vs State of Orissa, Dharmendra Textiles and other cases, held that the language of the statute was very clear in this case and there was no option with the commissioner but to impose the penalty which was mandatory.
This judgement will have repercussions under all the laws including income-tax, GST and other laws while dealing with imposition of penalty.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 04.08.2016 passed by the High Court of Gujarat at Ahmedabad in Tax Appeal No. 1283/2006, by which, the Division Bench of the High Court has set aside the penalty and interest levied under subsection (6) of Section 45 of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as the Act, 1969), the State of Gujarat has preferred the present appeal.
2. The respondent company assessee is engaged in the business of executing indivisible works of undertaking contract of coal tar and enamel coating on pipes. The respondent assessee had opted for payment of lumpsum tax as provided under Section 55A of the Gujarat Sales Tax Act, 1969. The respondent assessee deposited tax at the rate of 2% on sales involved in the execution of works contract of coating of pipes by treating the same as civil works contract as prescribed in Entry1 of the notification dated 18.10.1993 issued by the Government of Gujarat. The Assessing Officer (AO) vide order dated 30.03.2005 for assessment year (AY) 200203 held that the contract of coating of pipes is not a civil works contract and therefore, the composition amount is payable not at the rate of 2% as deposited by the respondent but it falls under Residuary Entry8 to the notification dated 18.10.1993. The AO raised the total demand as under: –
