Important point
The levy of penalty under Section 18A of the Karnataka Sales Tax Act by means of an order in revision proceedings under Section 22A of the Act is reasonable, just and proper.

Headnote:Karnataka Sales Tax Act, 1957—Sections 12(3), 18A and 22A—Determination of tax—Levy of penalty—Revision on ground of non levy of penalty—Appellant is a dealer engaged in the activity of hulling paddy—He is also a trader in rice, paddy husk and rice bran—Assistant Commissioner passed an order of assessment under Section 12(3) of the Act for the assessment years 1987-88 and 1988-89—Proceedings initiated under Section 22A of the Act proposing to levy penalty under Section 18A of the Act—Revisional Authority confirmed the proposals made in notices issued under Section 22A of the Act and modified the set off granted by the Assessing Authority—Appeals—High Court held that determination of tax under Section 12(3) of the Act took within its ambit levy of penalty under Section 18A of the Act and if the Assessing Authority had not considered the levy of such penalty, order under Section 12(3) was amenable as such to revisional jurisdiction—Whether levy of penalty by means of an order in revision proceedings is reasonable, just and proper—(Yes)—Order passed by the High Court is justified.
       Held : It must be noted that there is a difference between exercise of revisional powers over orders passed by lower authority and exercise of revisional powers in the assessment proceeding itself. A revision of an order may be confined to what the order contains or dealt with. But when the assessment proceedings themselves are before the revisional authority it can go beyond the order of the assessing authority and pass such orders as the assessing authority could or should have passed. The special provision available under Section 22A(4) of the Karnataka Sales Tax Act enables the Commissioner/Additional Commissioner not only to revise the order but also to reassess and pass orders on a point not decided, or dealt with in the order of assessment. (Paras 21 and 22)
       We have also perused the assessment proceedings. It has been concluded in the said proceedings that the assessee had filed an incorrect return and therefore, the amount of tax payable by the assessee concerned was determined. The said determination has not been questioned and, therefore, has become final. The Assessing Authority had not considered the question of the excess sales tax illegally collected by the assessee and therefore, the assessee had not been dealt with in respect of its said violation of Section 18 of the Act. On a departmental statutory review of the assessment order, the Revising Authority having come to the conclusion that the assessment order was erroneous and prejudicial to the interest of the State decided to initiate suo motu revision proceedings under Section 22A of the Act. It would be seen that the revisional proceedings were commenced, on the sole ground relating to levy of penalty and the said aspect of the matter was specifically put to the assessee by means of Annexure R-1, notice. Hence, in any view of the matter, the revisional proceedings whether treated as a part of the assessment proceedings the matter had been initiated and disposed of solely on the question of levy of penalty. At the time of hearing, no procedural or substantive error in the passing of the impugned order of the Revising Authority has been brought to light. The requirements of law relating to the passing of an order under Section 18A read with Section 22A of the Act have been duly complied with and no legal prejudice has been shown to be caused to the assessee-appellant. The quantum of penalty levied being a discretionary matter, it is not normally liable to be questioned or reviewed. (Paras 23 to 25)
       The non-levy of penalty is itself an illegality caused by a failure to exercise the jurisdiction by the Assessing Authority and therefore, prejudicial to the interests of the Revenue. Hence, in our opinion, the levy of penalty by means of an order in revision proceedings is reasonable, just and proper and therefore, not liable to be faulted. The order passed by the Division Bench of the High Court of Karnataka is perfectly justified and is in order. (Paras 26 and 27)

Judgment

Dr. AR. Lakshmanan, J.—These appeals were filed against the order dated 15.11.1999 in S.T.A.Nos. 31 and 32 of 1996 on the file of the High Court of Karnataka vide which, the High Court dismissed the appeal filed by the appellant herein.

2. The appellant is a dealer registered under the provisions of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as ‘the Act’) engaged in the activity of hulling paddy and is also a trader in rice, paddy husk and rice bran. The Assistant Commissioner of Commercial Taxes, Bellary passed an order of assessment under Section 12(3) of the Act vide order dated 12.07.1990 for the assessment years 1987-88 and 1988-89.

3. The Additional Commissioner of Commercial Taxes, Devangere Zone, Devangere issued notices dated 16.02.1994 and 21.03.1994 under Section 22A of the Act proposing to revise the order of assessment dated 12.07.1990 passed by the Assessing Authority on the ground that the assessment order was erroneous and prejudicial to the interest of the Revenue. In the notices, the Revisional Authority had made observations to the effect that the books of accounts have not been properly maintained. In response to the notices, the appellant filed reply on 04.04.1994 denying the observations made by the Revisional Authority and had requested the said Authority to drop the proceedings initiated under Section 22A of the Act. The Revisional Authority on 08.04.1994 issued a further notice under Section 22A(1) of the Act making the same proposal as made in the earlier notices and further proposed to levy penalty under Section 18A of the Act. The Revisional Authority confirmed the proposals made in the notices issued under Section 22A of the Act vide order dated 02.06.1994 and modified the set-off granted by the Assessing Authority.

4. The appellant feeling aggrieved by the revisional orders preferred two appeals in the High Court of Karnataka. The High Court dismissed the appeals by its order dated 15.11.1999. The High Court took the view that the determination of tax contemplated under Section 12(3) of the Act took within its ambit the levy of penalty under Section 18A of the Act and if the Assessing Authority while passing such an order had not considered the levy of such penalty, the order under Section 12(3) was amenable as such to the jurisdiction under Section 22A of the Act.

5. Feeling aggrieved, the appellant filed S.L.P. (Civil) Nos. 5464 and 5465 of 2000 before this Court. Leave was granted by this Court on 10.04.2000.

6. We heard Mr. Dhruv Mehta, learned counsel appearing for the appellant and Mr. Sanjay R. Hegde, learned counsel appearing for the respondent-State.

7. Mr. Dhruv Mehta, learned counsel appearing for the appellant, made the following submissions :

(1) The proceedings for quantification of tax under Section 12(3) of the Act and the levy of penalty under Section 18A of the Act are distinct and separate proceedings requiring separate procedures to be followed. In support of the above proposition, he relied upon the following judgments :

(a) Additional C.I.T. Vs. J.K.D’s Costa, 1982 (133) ITR 7

(b) CIT Vs. Nihal Chand Rekyan, 2000 (242) ITR 45

(2) It was submitted that unless there is a specific and separate order under Section 18A of the Act, no revisional order under Section 22A can be passed on the ground of the alleged non-levy of penalty and such an order cannot direct the levy of penalty under Section 18A of the Act. He relied on the following judgments in support of the above proposition :

(a) Khemchand Rajkumar Vs. State of Tamil Nadu, 1974(33) STC 78

(b) Shetkari Sahakari Sakhar Karkhana Ltd. Vs. State of Maharashtra, 1996(102) STC 157.

(3) Learned counsel further submitted that all the above decisions have taken the view that where the Assessing Authority has failed to pass a statutory order in regard to penalty, the Revisional Authority cannot itself assume the power and pass the original order.

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2005 Supreme(SC) 520

Important pointThe levy of penalty under Section 18A of the Karnataka Sales Tax Act by means of an order in revision proceedings under Section 22A of the Act is reasonable, just and proper.

Cases Referred (3)

Important point
The levy of penalty under Section 18A of the Karnataka Sales Tax Act by means of an order in revision proceedings under Section 22A of the Act is reasonable, just and proper.