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[2011] 45 VST 9 (Pat)

[IN THE PATNA HIGH COURT]
Food Corporation of India
V.
Commissioner of Commercial Taxes, Bihar, Patna
REKHA MANHARLAL DOSHIT , C.J. AND JYOTI SARAN , J.
February 1 2011
HF Assessee, including dealer (Registered or Unregistered)
SALES TAXPENALTYDELAY IN PAYMENT OF TAXGENERAL PRINCIPLESRETURNS FILED AND
TAX IN TERMS THEREOF PAID WITHIN PRESCRIBED PERIODADDITIONAL TAX FOUND
OUTSTANDING ON BASIS OF INTERNAL AUDIT DEPOSITED PRIOR TO ASSESSMENT
PROCEEDINGSNO FINDING THAT DELAY IN DEPOSIT OF TAX ATTRIBUTABLE TO DELIBERATE,
WILFUL OR CONTUMACIOUS CONDUCTPENALTY NOT JUSTIFIEDBIHAR FINANCE ACT (5 OF
1981), S. 16(9).
The imposition of penalty under a penal provision of any statute is not automatic and cannot be made in a
mechanical manner. Though the power is discretionary it is to be exercised diligently and with utmost caution,
in an appropriate proceeding initiated in this regard. The onus discharged by the statutory authority in such
proceedings, is quasi judicial in nature. Neither the existence of a penal provision nor the power vested in the
statutory authority to impose the same in any manner mandates that it is necessary to do so. The
petitioner-corporation was a registered dealer under the Bihar Finance Act, 1981. After the filing of the statutory
returns and abstract statements by the petitioner for the period 1999-2000 the audit referred to certain errors
and omissions in the deposit of tax by the petitioner, which report was received by the petitioner after the last
date for filing revised returns in terms of the provisions contained in section 16(4) of the 1981 Act. In the
circumstances no revised returns could be filed by the petitioner, which however deposited the additional tax in
terms of the audit report, and filed a revised statement much prior to the exercise undertaken by the statutory
authority under the 1981 Act for verification of accounts for the purpose of assessment. The assessing officer
imposed penalty under section 16(9) of the 1981 Act on the grounds that no extension of time had been
demanded by the petitioner for the delayed payment of tax prior to the prescribed date ; that the difference of
tax had not been deposited by the petitioner at the time of submission of annual returns, the revised returns
had not been filed and that the difference of tax amount had been deposited on own volition by the petitioner;
and that the deposit of tax upon establishment of the liability was not sufficient to avoid penalty. The petitioner
appealed before the Joint Commissioner who dismissed it. The Tribunal upheld the order of penalty. The
petitioner applied for a reference but the Tribunal refused to refer a question of law. A prayer for review was
also rejected. The corporation filed an application to the court to direct a reference and an appeal against the
order on the review petition:
Held, that admittedly the returns were filed by the petitioner and the tax in terms of the returns was paid within
the prescribed period. The additional tax found to be outstanding on the basis of the internal audit of the
petitioner was deposited by the petitioner subsequently but much prior to the assessment proceedings. Even
before the assessing officer took up the assessment proceedings for the period in question, the petitioner had
deposited the entire admitted amount of tax. There was no finding in the order of the assessing authority that
the delay in deposit of the tax by the petitioner was attributable to any deliberate, wilful or contumacious
conduct of the petitioner. The reasons attributed by the assessing authority for imposition of penalty did not
satisfy the pre-requisites to the imposition of penalty as envisaged under the provisions of section 16(9) of the
Act of 1981. The proceedings for imposition of penalty and the order passed thereunder, were unwarranted
and unsustainable. The orders passed by the Tribunal, the Joint Commissioner and the Assistant
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Commissioner relating to the imposition of penalty under section 16(9) of the Bihar Finance Act, 1981 were
liable to be quashed and set aside.
Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 (SC) relied on.
Tax Cases No. 1 of 2008, Misc. Appeal No. 131 of 2008 decided on February 1 2011
J .N. Sahay and S. K.P. Sinha for the petitioner
Piyush Lal, A.C. to A.A.G.-1, for the respondent
Cases referred to :
Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 relied on
Associated Cement Co. Ltd. v. Commercial Tax Officer [1981] 48 STC 466 referred
Birla Cement Works v. State of Rajasthan [1994] 94 STC 422 referred
Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax [1980] 45 STC 197
referred
Commissioner of Sales Tax v. Anoop Wines [1988] 71 STC 262 referred
Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 referred
Indian Oil Corporation Ltd. v. State of Bihar [2004] 138 STC 29 referred
J.K. Synthetics Ltd. v. Commercial Taxes Officer [1994] 94 STC 422 referred
--------------------------------------------------
JUDGMENT
1
The judgment of the court was delivered by
JYOTI SARAN J.Tax Case No. 01 of 2008 has been filed by the petitioner
under section 48(2)(b) of the Bihar Finance Act, 1981, being aggrieved by
the order dated September 29, 2008 passed in Rev. Case No. REF-PT-01/
2005 by the Commercial Taxes Tribunal, Bihar, Patna, by which the prayer
made by the petitioner for reference of the questions of law framed by it, to
this court, arising from the judgment of the Tribunal rendered in Rev. Case
No. PT-22 of 2004 dated October 6, 2004, has been rejected.
Misc. Appeal No. 131 of 2008 filed under section 79(2)(i) of the Bihar
Value Added Tax Act, 2005 is directed against the order dated November 1,
2007 passed by the Commercial Taxes Tribunal, Bihar, Patna, in Review
Case No. PT-29 of 2004 whereby the prayer for review of the order passed
by the Tribunal in the aforestated revision case has been refused.
With the consent of the parties both these matters have been taken up
and have been heard analogous by us with the view to its final disposal.
1
Oral.
Page No: 11
As the issues are common hence for the sake of convenience we shall be
referring to the pleading set out in the Tax Case No. 1 of 2008.
The petitioner is a corporation established under section 3 of the Food
Corporation Act, 1964 (Act 37 of 1964) with the avowed object and purpose
of purchase and distribution of foodgrains in the States for making it available
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to the citizens at fair prices.
The petitioner is a registered dealer under the Bihar Finance Act, 1981
(hereinafter referred to as, "the Act of 1981") which stood repealed and
replaced by the Bihar Value Added Tax Act, 2005 (hereinafter referred to as,
"the Act of 2005"). The petitioner under the provisions of section 19 of the
Act of 2005 continues to be a registered dealer under the said Act.
The brief facts giving rise to the present set of cases is that the petitioner
is the biggest dealer of foodgrains in the State having its office and
godowns spread over the State and in the period concerned over the then
unified State of Bihar which was inclusive of the present State of
Jharkhand. The taxes were paid monthly by the petitioner on the basis of
the monthly abstract statement, quarterly returns and the annual returns
prepared and filed on the basis of the statement received from the local
office. After the filing of the statutory returns and abstract statements by
the petitioner for the period 1999-2000 the audit referred to certain errors
and omissions in the deposit of tax by the petitioner, which report of the
audit was received by the petitioner after July 31, 2000 (incorrectly
mentioned as July 31, 2008 in the petition) the last date for filing revised
returns in terms of the provisions contained in section 16(4) of the Act of
1981. In the circumstances no revised returns could be filed by the peti-
tioner, who however deposited the additional tax in terms of the audit
report. The tax so deposited was much prior to the exercise undertaken by
the statutory authority under the Act of 1981 for verification of accounts for
the purpose of assessment. Even a revised statement of sale had been filed
before the said exercise. The said fact is also manifest from the order of
assessment dated October 28, 2002, passed by the Assistant Commis-
sioner, Commercial Taxes, Special Circle, Patna placed at annexure 1 of the
tax case. The assessing officer even while admitting that the entire tax
stood paid by the petitioner, has proceeded to impose penalty in purported
exercise of power vested under section 16(9) of the Act of 1981, while
rejecting the submissions of the petitioner in support of delayed payment
of tax, inter alia, on the following grounds:
(a) No extension of time had been demanded by the petitioner for the
delayed payment of tax prior to the prescribed date.
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(b) The difference of tax had not been deposited by the petitioner at
the time of submission of annual returns, the revised returns had not been
filed and that the difference of tax amount had been deposited on own
volition by the petitioner.
(c) The deposit of the tax upon establishment of the liability and the
non-submission of the revised returns cannot provide succour to the peti-
tioner from penalty.
The assessment order-cum-order of penalty was put to challenge in
appeal by the petitioner before the Joint-Commissioner, Commercial Tax,
Central Division, Patna giving rise to Appeal Case No. ST-SL -104/2002-03
which was rejected vide order dated December 20, 2003. The revision
preferred by the petitioner challenging the orders of statutory authorities
giving rise to Rev. Case No. PT-22 of 2004 before the Commercial Taxes
Tribunal, Bihar, Patna, resulted in partial relief to the petitioner. The
Tribunal in its judgment and order dated October 6, 2004 placed at annex-
ure 3 while remitting the matter to the assessing authority on the issue of
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enhancement of gross turnover, upheld the order of penalty. The attempt
of the petitioner to seek reference on the question of law framed by it was
negated by the Tribunal vide order dated September 29, 2008 passed in
Ref- PT-1/2005 giving rise to the present case. The prayer for review having
been rejected under the order dated November 1, 2007 passed in Review
Case No. PT-29 of 2004 by the Commercial Taxes Tribunal, Bihar, Patna
has given rise to Misc. Appeal No. 131 of 2008.
As the issue raised in the matters before us strike to the very root of the
action of the authorities in imposing penalty, we deem it appropriate to
consider and dispose of the matter on merits rather than to relegate the
matter to the Tribunal, directing reference on the issues raised by the peti-
tioner.
Mr. J.N. Sahay, learned counsel appearing on behalf of the petitioner,
raised a very short point in support of the issue raised. He submits that the
case in hand did not warrant any proceeding in purported exercise of
power vested in the authorities under section 16(9) of the Act of 1981. It
was submitted that the pre-requisites to the imposition of penalty as envis-
aged under section 16(9) of the Act do not stand satisfied in the case of the
petitioner inasmuch as the tax due, was deposited by the petitioner much
prior to the assessment proceedings. It was submitted that the circum-
stances warranting the initiation of proceedings for imposition of penalty
as set out in section 16(9) do not cover the case in hand. He submits that
there was no tax due as per the returns filed by the petitioner and since its
depots are spread all over the State and during relevant period stood
Page No: 13
spread over the territory which presently forms the State of Jharkhand, no
sooner did the petitioner gather knowledge of pending tax amount on the
basis of the internal audit report, it immediately deposited the same
without any delay. It was submitted that since the report of the audit was
received much after the expiry of the last date for filing revised returns
which for the relevant period would fall on July 31, 2000, there was no
occasion for the petitioner to file any revised returns or a revised annual
returns. It is submitted that under the provisions of the Act of 1981 there is
no provision under which the petitioner could have sought filing of a
delayed revised returns. The learned counsel submits that as the amount of
tax in question stood deposited much prior to the date of assessment
proceeding for the period in question, there was no occasion for the assess-
ing authority to impose the penalty more so, where the assessing authority
himself has noticed the deposit of tax by the petitioner. The learned counsel
in support of his submission referred to a Constitution Bench judgment of
the Supreme Court rendered in the case of J.K. Synthetics Ltd. v.
Commercial Taxes Officer [1994] 94 STC 422 (SC). The Constitution Bench
while overruling the majority view in the case of Associated Cement Co.
Ltd. v. Commercial Tax Officer, Kota reported in [1981] 48 STC 466 (SC)
and affirming the minority view of Justice Bhagwati (as his Lordships then
was), held that the minority view laid down the correct law. The learned
counsel referred to the following paragraph of the judgment which was a
reproduction of the minority view of Justice Bhagwati:
"Bhagwati, J. after referring to sections 3, 7, 10, 11 and 11B of the
Act, points out that section 7(2) speaks of 'full amount of tax due on
the basis of the return' and adds (page 488 in 48 STC):
". . . We must look at the return actually filed by the assessee in
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order to see what is the full amount of tax due on the basis of such
return. It is not the assessed tax nor is it the tax due on the basis of a
return which ought to have been filed by the assessee but it is the tax
due according to the return actually filed that is payable under
sub-section (2) of section 7. This provision is really in the nature of
self-assessment and what it requires is that whatever be the amount
of tax due on the basis of self-assessment must be paid up along with
the filing of the return which constitutes self-assessment. I fail to see
how the plain words of sub-section (2) of section 7 can be tortured to
mean full amount of tax due on the basis of return which ought to
have been filed but which has not been filed."
The learned counsel also referred to a judgment of the Supreme Court
rendered in the case of Commissioner of Sales Tax, U.P., Lucknow v.
Page No: 14
Anoop Wines [1988] 71 STC 262 (SC) in support of his submission that the
proposition that a wrong mention of a section/provision would not
invalidate a duly constituted proceedings, does not apply to penal proceed-
ings and since the case of the petitioner did not fall within the parameters
set out under section 16(9) of the Act of 1981 hence the order of penalty as
affirmed by the appellate authority and the Tribunal cannot be sustained
and is fit to be set aside.
The learned counsel for the petitioner submits that it is in these
circumstances that the petitioner had sought a reference from the Tribunal
which was refused, giving rise to the present case.
Mr. Piyush Lal, learned A.C. to A.A.G.-1 appearing on behalf of the
State and its authorities supports the impugned action and the order
passed thereunder. The learned counsel submits that wrong filing of the
monthly abstract statement of sales would not facilitate the petitioner to
escape the liability of penalty as enshrined under section 16(9) of the Act.
The learned counsel submits that admittedly tax was found due and was
deposited belatedly and which sole factor was sufficient to invite penalty
under section 16(9) of the Act of 1981. The learned counsel referring to the
provisions underlying section 16(9) of the Act of 1981 submits that the
provision envisages the cases of the present kind in which admittedly the
taxes were found due even after the prescribed date fixed for deposit of the
same, thus entailing penalty. He submits that the assessing authority as
also the Tribunal have gone into the details of the explanation advanced on
behalf of the petitioner in support of the belated deposit of the tax due and
not having found the same convincing, have upheld the imposition of
penalty which requires no interference by this court. The learned counsel
submits that the very admission by the petitioner that the deposit of tax
was after the date prescribed under the Act of 1981 and the Rules framed
thereunder, is sufficient to uphold the order of penalty as affirmed by the
superior statutory authorities under the Act.
We have heard learned counsel for the petitioner and the State at length
and have perused the materials available on the records of the proceedings.
It is an admitted fact that the returns as well as tax in terms of the said
returns were filed by the petitioner within the prescribed period. It is also
an admitted position that additional tax was found to be outstanding on
the basis of the internal audit of the petitioner. It is also admitted that the
said tax was deposited by the petitioner subsequently but much prior to the
assessment proceedings. The entire issue raised in the present proceedings
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is whether the deposit of the outstanding tax by the petitioner beyond the
prescribed period but prior to the assessment proceedings would entail
Page No: 15
imposition of penalty in terms of the provisions set out under section 16(9)
of the Act of 1981 which runs as follows:
"16. (9) If any registered dealer fails to make payment of the tax
under sub-section (5) within the due date mentioned in the said sub-
section or within the extended date under the proviso to clause (iii) of
the said sub-section or of any extra amount of tax due from him
according to return or revised return as mentioned in sub-sections (6)
and (7) or if a dealer to whom permission to file an annual return has
been given under the third proviso to sub-section (1) of this section
fails to make payment of the tax in the manner prescribed, the
prescribed authority shall after allowing such a dealer an opportunity
of being heard in the manner prescribed, impose a penalty which may
extend to five percentum but not less than two and half percentum of
the amount of tax for each of the first three months or part thereof
following the due date or the extended date and to ten percentum but
not less than five percentum for each subsequent month or part
thereof."
The imposition of penalty under a penal provision of any statute is not
automatic and cannot be made in a mechanical manner. Though the power
is discretionary but is to be exercised diligently and with utmost caution, in
an appropriate proceeding initiated in this regard. The onus discharged by
the statutory authority in such proceedings, is quasi-judicial in nature and
not as one espousing the cause of revenue. Neither the existence of a penal
provision nor the power vested in the statutory authority to impose the
same in any manner mandates that it is necessary to do so.
These principles oft-repeated in judicial decisions, yet continue to evade
the minds of the statutory authorities discharging such functions. We can
do no better than to reproduce an extract of the judgment of the Supreme
Court rendered in the case of Hindustan Steel Ltd. v. State of Orissa
reported in [1970] 25 STC 211 (SC) at page 214.
"Under the Act penalty may be imposed for failure to register as a
dealer: section 9(1) read with section 25(1)(a) of the Act. But the
liability to pay penalty does not arise merely upon proof of default in
registering as a dealer. An order imposing penalty for failure to carry
out a statutory obligation is the result of a quasi-criminal proceeding,
and penalty will not ordinarily be imposed unless the party obliged
either acted deliberately in defiance of law or was guilty of conduct
contumacious or dishonest, or acted in conscious disregard of its obli-
gation. Penalty will not also be imposed merely because it is lawful to
do so. Whether penalty should be imposed for failure to perform a
Page No: 16
statutory obligation is a matter of discretion of the authority to be
exercised judicially and on a consideration of all the relevant circum-
stances. Even if a minimumpenalty is prescribed, the authority
competent to impose the penalty will be justified in refusing to
impose penalty, when there is a technical or venial breach of the
provisions of the Act or where the breach flows from a bona fide
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belief that the offender is not liable to act in the manner prescribed by
the statute. . ."
The scope, intent and the applicability of section 16(9) of the Act of 1981
came up for consideration before this court in a case of another public
sector corporation, namely, the Indian Oil Corporation Ltd. reported in
[2004] 138 STC 29 (Patna); [2003] 3 PLJR 561, [2007] 4 PLJR 175 and
[2007] 4 PLJR 328. In each of the situations the said corporation had
deposited the tax belatedly as in the case of the present petitioner and thus
subjected to proceedings under section 16(9) of the Act of 1981. This court
in the judgment in Indian Oil Corporation Ltd. reported in [2004] 138 STC
29 (Patna); [2003] 3 PLJR 561 considering the circumstances in the back-
drop of the statutory provisions of section 16(9) held as follows (page 45 in
138 STC):
"21. The facts have already been stated above. Whether it can be
said that the petitioner has acted dishonestly, deliberately and in
conscious disregard to the statutory requirement? The glaring facts
clearly show that there was a prolonged litigation. The petitioner
bona fide believed that it was liable to pay tax from the date of the
judgment of the apex court when the Act was held to be valid piece of
legislation. It made a request to that effect. It also immediately
applied for registration and the authorities having considered the
matter granted registration and, thereafter, it filed the returns and
deposited the admitted tax for three assessment years. Even when
there was a controversy about the applicability of the Act, the peti-
tioner had deposited the ad hoc amount of admitted tax before the
judgment of the apex court and also paid the admitted tax for
subsequent period. In such a situation, I am of the considered view
that the petitioner in a good faith acted bona fide. . . In such a
situation, it was not a case where the penalty should have been
imposed upon the petitioner. . ."
We are, further, tempted to refer to the following paragraphs of the
judgment of this court reported in [2007] 4 PLJR 175:
"6 Dr. Debi Pal appearing on behalf of the petitioner laid great
stress on the point that the delay in payment of the small fraction of
Page No: 17
the tax amount was wholly unintentional. The learned counsel
submitted that having regard to the complexity of the accounts, it
might not have been even possible for the Revenue authorities to
detect the omission and the shortage in the amount of tax paid by the
petitioner but as soon as the error was discovered in the petitioner's
regional office, it was corrected voluntarily and the balance amount,
being a small fraction of the total tax liability for the assessment
period in question, was also paid on the same day the corrected
return was filed. He submitted that under these facts and circum-
stances the imposition of penalty was wholly unjustified and untenable
in law. In support of the submission, he relied upon the Supreme
Court decisions in (i) Hindustan Steel Ltd. v. State of Orissa [1970] 25
STC 211 and (ii) Cement Marketing Co. of India Ltd. v. Assistant
Commissioner of Sales Tax, Indore [1980] 45 STC 197 (SC). He also
relied upon a Bench decision of this court in an earlier case by the
same petitioner Indian Oil Corporation Ltd. reported in [2004] 138
STC 29 (Patna); [2003] 3 PLJR 561 (paragraphs 19 to 21).
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12. Dr. Debi Pal further contended that in the facts of the case the
provisions of section 16(9) of the Act had no application and the
impugned penalty was not sustainable in law. Dr. Pal submitted that
any penalty under sub-section (9) of section 16 of the Act was leviable
on non-payment of tax or any extra amount of tax according to return
or revised return submitted by the dealer. He further submitted that
whatever taxes were payable according to the return or the revised
return(s) submitted by the petitioner were actually paid on the same
day the return(s) were filed and hence, there was nothing to attract
the provisions of section 16(9) of the Act. In support of the submission,
he relied upon a decision of the Supreme Court in J.K. Synthetics
Ltd. v. Commercial Taxes Officer and Birla Cement Works v. State of
Rajasthan [1994] 94 STC 422 (SC).
15. On hearing Dr. Pal for the petitioner and the learned Advo-
cate-General on behalf of the State and on a careful consideration of
the materials on record, I find substance in both the submissions
made on behalf of the petitioner and I am of the considered view that,
in the facts and circumstances of the case, the impugned order of
penalty is unsustainable. The imposition of penalty against the peti-
tioner by the Revenue authorities for the assessment period 1998-99
is accordingly set aside."
Page No: 18
It is an admitted position that even before the assessing officer could do
the assessment proceeding for the period in question, the petitioner had
deposited the entire admitted amount of tax. There is no finding in the
order of the assessing authority that the delay in deposit of the tax by the
petitioner could be attributable to any deliberate, wilful or contumacious
conduct of the petitioner. A mere delay in deposit of tax in given circum-
stances cannot be an item of suspicion that it was backed by a deliberate
intention of the assessee to avoid tax. The accompanying circumstances
governing the present case do not in the least comes within such category
of cases. The reasons attributed by the assessing authority for imposition of
penalty as also noted in this judgment, do not satisfy the pre-requisites to
the imposition of penalty as envisaged under the provisions of section
16(9) of the Act of 1981 and/or in the judgment of this court and the
Supreme Court on the issue.
Regard being had to the circumstances and the judgments of the
Supreme Court as well as of this court on the issue, as taken note of, lead
us to an irresistible conclusion that the proceeding for imposition of
penalty and the order passed thereunder, was wholly unwarranted and
unsustainable.
For the reasons and observations aforesaid, the judgment and the order
passed by the Commercial Taxes Tribunal, Bihar, Patna, in Revision Case
No. REF-PT-1/2005 dated September 29, 2008 together with the judgment
and order dated October 6, 2004 passed in Revision Case No. PT 22 of
2004, the order of the Joint Commissioner, Commercial Taxes, Appeal
dated December 20, 2003 passed in Appeal Case No. ST-SL-104/02-03 and
the order of the Assistant Commissioner, Commercial Taxes, Special Circle,
Patna, dated October 28, 2002 in so far as it relates to the imposition of
penalty under section 16(9) of the Bihar Finance Act, 1981 is quashed and
set aside. Any deposit made by the petitioner in pursuance of the order(s)
aforesaid shall be refunded and/or adjusted towards the current/future
liability of the petitioner.
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The tax case and the miscellaneous appeal stands disposed of accord-
ingly but in the circumstances, without any order as to costs.
Page No: 19
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