IMPORTANT POINT
The moment it is found that a dealer is to be deemed to have failed to pay tax, penalty is automatic – There is no question of considering any mens rea on part of assessee/dealer.

JUDGMENT :

M.R. Shah, J.

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 sub-section (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 lump-sum 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 Entry-1 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) 2002-03 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 Entry-8 to the notification dated 18.10.1993. The AO raised the total demand as under:

2.1 The assessee preferred a first appeal before the First Appellate Authority i.e., Joint Sales Tax Commissioner. By order dated 30.07.2005, the First Appellate Authority dismissed the said appeal. The assessee approached the Gujarat Value Added Tax Tribunal by filing Second Appeal No. 820/2005. The learned Tribunal vide order dated 29.09.2006 dismissed the appeal and confirmed the orders passed by the AO as well as the First Appellate Authority and thereby confirmed the aforesaid demand of difference in tax as well as the levy of interest under Section 47 (4A) and penalty under Section 45(6) of the Act, 1969. The assessee preferred a further appeal before the High Court being Tax Appeal No. 1283/2006. Before the High Court, the learned Senior Advocate appearing on behalf of the assessee fairly conceded that looking to the fact that the authority has passed the assessment order on the basis of material available with it, they were required to pay the tax on the basis of 12% and that has been paid by the assessee since the opinion of the expert was turned out, however, the respondent – assessee restricted the appeal to the extent of challenging the levy of penalty and interest only by submitting that the assessee was under a bonafide belief that the works contract of the assessee would fall under Entry-1 requiring payment of tax at the rate of 2% only. Reliance was placed on the decision of the High Court in the case of Brooke Bond India Limited v. State of Gujarat; 1998 JX (Guj) 128 and it was prayed that the imposition of penalty and interest not be upheld. By the impugned judgment and order, the High Court has set aside the penalty and interest on the ground that the assessee was under the bonafide opinion and following the advice, paid the tax at 2% and that thereafter, when the enhanced tax as imposed has already been paid by the assessee, the penalty and interest is not required to be paid by the assessee. The High Court allowed the appeal to the aforesaid extent, deleting the penalty and interest levied under Section 45(6) and Section 47(4A) of the Act, 1969.

2.2 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court whereby the penalty and interest has been set aside, the State has preferred the present appeal.

3. Ms. Aastha Mehta, learned counsel has app