Case Law Details
State of Tamil Nadu Vs Tvl. M. P. Natarajan and Company (Madras High Court)
The Madras High Court dismissed the State’s appeal challenging the concurrent findings of the Appellate Authority and the Tribunal, which had deleted the penalty imposed on the assessee under Section 16(2) of the Tamil Nadu General Sales Tax Act. The Department contended that, during an Enforcement Wing inspection for the Assessment Year 2001-02, interstate purchases had been wrongly accounted for as second sales to avoid tax, resulting in tax and penalty of ₹35,98,171. The Appellate Authority, relying on the Madras High Court’s decision in Tvl. Apollo Saline Pharmaceuticals Pvt. Ltd. v. Commercial Tax Officer, held that the penalty was not sustainable and deleted it.
The Tribunal affirmed this finding, observing that there was no tax evasion or intentional manipulation of first sales as second sales to claim exemption. It also noted that the assessee had filed a revised return, which was accepted by the Assessing Officer. The High Court held that both the Appellate Authority and the Tribunal, being fact-finding forums, had concluded that there was no suppression of turnover or mala fide intention. Since the entire turnover had been disclosed and the classification was based on a bona fide belief, the deletion of penalty was justified, and the State’s appeal was dismissed.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
An Appeal by the State being aggrieved by the concurrent findings of the Appellate Authority as well as the Tribunal, wherein, the assessment order being reversed in respect of the alleged wrong return converting interstate purchases into second sales to avoid tax.
2. The contention of the Department is that, for the Assessment Year 2001-02, the wrong accounting in respect of interstate purchases under second sales came to light during the inspection conducted by the Enforcement Wing between 17.06.2003 and 20.06.2003 and therefore, tax with penalty was levied on the assessee under Section 16(2) to the tune of Rs.35,98,171/-. Being aggrieved, the assessee preferred an Appeal before the Assistant Commissioner (CT). The Appellate Authority, considering the judgment of the Madras High Court in Tvl. Apollo Saline Pharmaceuticals Pvt. Ltv. v. Commercial Tax Officer reported in 2001 SCC OnLine Mad 1205, regarding imposition of penalty, held that the penalty levied by the Assessing Officer disallowing the claim of exemption stands deleted. The said finding of the Appellate Authority was confirmed by the State Appellate Tribunal by order dated 13.09.2010 in S.T.A.No.258 of 2005. The Tribunal has positively held that there is no evasion of tax or manipulation of first sale as second sale to claim exemption with intention. The assessee has submitted the revised return and Assessing Officer has accepted the total turnover reported.
3. At the time of admitting this Appeal by the State, this Court has framed the following substantial question of law for consideration :
“Whether the Tribunal was justified in upholding the order of the Appellate Assistant Commissioner deleting the penalty imposed under Section 16(2) of the Tamil Nadu General Sales Tax Act ?”
4. The Appellate Authority has relied upon the judgment rendered by the Division Bench of the Madras High Court in Tvl. Apollo Saline Pharmaceuticals Pvt. Ltd. v. Commercial Tax Officer reported in 2001 SCC OnLine Mad 1205, wherein, it has been observed that, when the entire turnover being disclosed but part of it not been regarded as taxable turnover by reason of bona fide belief that the assessee has entertained, then levy of penalty is wholly unwarranted. In this case, the Appellate Authority and the Tribunal, which are fact finding forum, had held that the assessee has not suppressed the turnover with any mala fide intention to attract penalty.
5. In such circumstances, we find the deletion of penalty imposed on the assessee is justifiable. Hence, the Appeal by the State stands dismissed. No costs.
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