Case Law Details
National Alumini Vs Dy. Commissioner (Orissa High Court)
It is seen under Section 43 (2) of the OVAT Act the levy of penalty in the event of turnover escaping assessment, or under assessement, is not automatic. The AO has to be satisfied that escapement or under assessment of tax “is without reasonable cause”. Further upon arriving at such conclusion,, the AO “may direct the dealer to pay, by way of penalty, a sum equal to twice the amount of tax additionally assessed under the Section.” The word ‘may’, in this context gives the AO a discretion, which is unavailable to him under Section 42 (5) of the OVAT Act.
The Court, therefore, finds merit in the contention of the learned counsel for the Petitioner that the observation in the judgment dated 9th October 2012, on the aspect of penalty under Section 42 (5) of the OVAT Act was not warranted. All that was required to be observed was that since the question had been rendered academic in view of the finding on issue No.1, the imposition of penalty under Section 43 (2) of the OVAT Act, was not automatic and that there is a discretion in the AO in this regard upon finding that there has been an escapement or under assessment of tax.
In that view of the matter, the judgment dated 9th October 2012, passed by this Court in W.P.(C) Nos.1597 and 1686 of 2012 is reviewed to the extent of recalling the observation, that the imposition of penalty would be automatic under Section 42 (5) of the OVAT Act, when in fact the provision that is relevant to the context, is Section 43 (2) of the OVAT Act. The Court clarifies that even this question would relevant only if the Department succeeds in the appeal in the Supreme Court, and it is held that the NALCO is liable to pay tax. As a corollary, if the judgment of this Court on question No.1 is affirmed, the question of any penalty being levied on NALCO would not arise.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
Heard Mr. Ch. S. Mishra, learned counsel for the Petitioner and Mr. Sunil Mishra, learned counsel for the Opposite Party-Commercial Tax Department.
2. Since the issue involved in all the aforementioned review petitions is similar, they are taken up together and disposed of by this common order.
3. These petitions have been filed by the original Petitioner i.e. National Aluminum Company Limited (NALCO) seeking review of a judgment dated 9th October 2012, passed by this Court in W.P.(C) Nos.1597 and 1686 of 2012 to a limited extent as will be explained hereafter.
4. Two questions, which arose for consideration in the aforementioned writ petitions before this Court and have been formulated in paragraph 15 of the judgment, read thus:
“(i) Whether coal, alum, caustic soda, and other consumables used for generation of electricity is to be treated as an input as defined under Section 2(25) of the OVAT Act and the tax which has been paid on purchase of coal, alum, caustic soda and other consumables etc. can be claimed as input tax credit under Section 2(2 7) of the OVAT Act against the tax payable on sale of finished product i.e. aluminum, aluminum ingots and sheets etc.
(ii) Whether imposition of penalty under Section 43(2) of the OVA T Act can only be levied if the escapement is without any reasonable cause?
5. As far as question No.1 is concerned, it was answered in favour of NALCO by holding thus:
“….coal, alum, caustic soda and other consumables purchased from market on payment of tax and used for generation of electrical energy in the Captive Thermal Plant of the petitioner which is used in the process of manufacture of finished product viz. aluminum, aluminum ingots and sheets etc. taxable under the OVAT Act are input as defined under Section 2(25) of the OVAT Act and the tax which has been paid on such purchases can be claimed as input tax credit under Section 2(27) of the OVAT Act against the tax payable on sale of finished products i.e. aluminum, aluminum ingots and sheets etc. Hence, the demand raised in the assessment orders dated 31.10.2011 passed under Annexure-1 in both the writ petitions disallowing the input tax credit in respect of tax paid on coal, alum, soda, and other consumables used for generation of electrical energy is quashed.”
6. While considering the second question viz., whether imposition of penalty under Section 43(2) of the Orissa Value Added Tax Act, 2004 (OVAT Act) can only be levied if the escapement is “without any reasonable cause”, an observation was made in paragraph 36 of the judgment that “penalty is not independent of the tax assessed. If the tax is assessed, imposition of penalty under Section 42(5) is warranted”.
7. On this aspect, in the further discussion in the judgment, in paragraph-38, it is stated that in appeal, if the amount of tax assessment under Section 43 of the OVAT Act is reduced, the quantum of penalty will also be reduced automatically.
8. Again in paragraph 39 of the judgment, it is observed as under:
“….once the Assessing Officer comes to the conclusion that the dealer is indulged in fraudulent activities and assesses him under Section 43 of the OVAT Act, there is no need for the Assessing Officer to make further investigation to find out whether the escapement is without reasonable cause for the purpose of imposition of penalty under Section 43(2) of the OVAT Act.”
9. The grievance of the NALCO is to the limited extent of the manner in which the second question has been dealt with by this Court in the aforementioned judgment. Mr. Mishra, learned counsel for the NALCO points out that this Court has in the above judgment while placing reliance on the decision of the Supreme Court in Union of India v. Dharamendra Textile Processors and others (2008) Volume-18 VST 180 (SC), not considered the subsequent decision of the Supreme Court in Union of India v. Rajasthan Spinning and Weaving Mills 2009 (Vol.238) ELT Page-3, both of which were in the context of Section 11 AC of the Central Excise Act, 1944. The wording of the said provision was not on par with the wording of Section 43 (2) of the OVAT Act. The further grievance is that there was no occasion for the Court to have made any observations as regards the imposition of penalty under Section 42 (5) of the OVAT Act as the said provision was in the context of audit assessment and differently worded from Section 43(2) of the OVAT Act.
10. Mr. Sunil Mishra, learned counsel appearing for the Opposite Party-Commercial Tax Department, first points out that against the above judgment, in so far as question No.1 is concerned, the Department is in appeal before the Supreme Court. He does not dispute the fact that Section 43(2) of the OVAT Act is worded differently from Section 42(5) of the OVAT Act and further that in the context of the present case what was relevant was Section 43(2) of the OVAT Act.
11. The Court notes that under Section 42 (5) of the OVAT Act the penalty levied is “equal to twice the amount of tax assessed” under Section 42(3) or 42(4) pursuant to an audit assessment. There is no discretion with the Assessment Officer (AO) to reduce this amount of penalty. On the other hand, Section 43(2) of the OVAT Act is under the heading “Turnover escaping assessment”, and is differently worded. It reads thus:
“43 (2) If the assessing authority is satisfied that the escapement or under assessment of tax on account of any reason(s) mentioned in sub-section (1) above is without any reasonable cause, he may direct the dealer to pay, by way of penalty, a sum equal to twice the amount of tax additionally assessed under this section.”
12. It is seen under Section 43 (2) of the OVAT Act the levy of penalty in the event of turnover escaping assessment, or under assessement, is not automatic. The AO has to be satisfied that escapement or under assessment of tax “is without reasonable cause”. Further upon arriving at such conclusion,, the AO “may direct the dealer to pay, by way of penalty, a sum equal to twice the amount of tax additionally assessed under the Section.” The word ‘may’, in this context gives the AO a discretion, which is unavailable to him under Section 42 (5) of the OVAT Act.
13. The Court, therefore, finds merit in the contention of the learned counsel for the Petitioner that the observation in the judgment dated 9th October 2012, on the aspect of penalty under Section 42 (5) of the OVAT Act was not warranted. All that was required to be observed was that since the question had been rendered academic in view of the finding on issue No.1, the imposition of penalty under Section 43 (2) of the OVAT Act, was not automatic and that there is a discretion in the AO in this regard upon finding that there has been an escapement or under assessment of tax.
14. In that view of the matter, the judgment dated 9th October 2012, passed by this Court in W.P.(C) Nos.1597 and 1686 of 2012 is reviewed to the extent of recalling the observation, that the imposition of penalty would be automatic under Section 42 (5) of the OVAT Act, when in fact the provision that is relevant to the context, is Section 43 (2) of the OVAT Act. The Court clarifies that even this question would relevant only if the Department succeeds in the appeal in the Supreme Court, and it is held that the NALCO is liable to pay tax. As a corollary, if the judgment of this Court on question No.1 is affirmed, the question of any penalty being levied on NALCO would not arise.
15. The review petitions are allowed to the above extent.
16. An urgent certified copy of this order be issued as per rules.
