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High Court of Judicature at Madras
THE HONOURABLE CHIEF JUSTICE DR. ANAND & THE HONOURABLE MR. JUSTICE KANAKARAJ
Bhavani Mills Limited - Appellant
Versus
State of Tamil Nadu - Respondents
Tax Case (Revision) No. 1297 of 1982
Decided On : 03 October 1991
SALES TAX - PENALTY - ENHANCEMENT OF PENALTY - JURISDICTION OF TRIBUNAL - SCOPE OF SECTION 36(3) OF THE TAMIL NADU GENERAL SALES TAX ACT, 1959 - LEVY OF PENALTY UNDER SECTION 12(5)(III) OF THE ACT - DISCLOSURE OF TURNOVER AND PAYMENT OF TAX BEFORE FINAL ASSESSMENT - WHETHER PENALTY LEVIABLE.
Fact of the Case:
The petitioners, dealers in cotton and cotton yarn, were found to have collected surcharge on cotton yarn and hosiery yarn, which were exempted from such levy. A penalty of Rs. 26,492 was proposed under section 22(2) of the Tamil Nadu General Sales Tax Act, 1959 (the Act). Additionally, a penalty of Rs. 5,559 was levied under section 12(5) of the Act for omitting to report a turnover of Rs. 4,76,793.04. The petitioners challenged the penalties before the Tribunal, which upheld the penalty under section 12(5)(iii) but deleted the penalty under section 22(2) subject to certain conditions.
Finding of the Court:
The court held that the Tribunal had jurisdiction to entertain the enhancement petition filed by the Revenue seeking restoration of the penalty under section 22(2) of the Act. The court interpreted the word "enhance" in section 36(3) of the Act broadly, holding that it included the power to impose a penalty that was not imposed by the appellate authority. The court also held that the penalty under section 12(5)(iii) of the Act could not be levied since the petitioners had disclosed the omitted turnover and paid the tax before the final assessment was made.
Issues: 1. Whether the Tribunal had jurisdiction to entertain the enhancement petition filed by the Revenue seeking restoration of the penalty under section 22(2) of the Act? 2. Whether the penalty under section 12(5)(iii) of the Act could be levied when the petitioners had disclosed the omitted turnover and paid the tax before the final assessment was made?
Ratio Decidendi: 1. The court interpreted the word "enhance" in section 36(3) of the Act broadly, holding that it included the power to impose a penalty that was not imposed by the appellate authority. The court relied on several precedents to support its interpretation, including T. V. Sundaram Iyengar & Sons (P.) Ltd. v. State of Madras, State of Tamil Nadu v. Kutty Flush Doors & Furniture Co. (P.) Ltd., and State of Tamil Nadu v. Rallis India Limited. 2. The court held that the penalty under section 12(5)(iii) of the Act could not be levied since the petitioners had disclosed the omitted turnover and paid the tax before the final assessment was made. The court relied on the judgments in Kalyani Agencies v. State of Tamil Nadu and State of Tamil Nadu v. P. S. Srinivasa Iyengar & Sons, which held that if an assessee discloses the correct taxable turnover before the final assessment, there is no case for levy of penalty.
Final Decision: The revision petition was allowed in part. The penalty of Rs. 5,559 imposed for the suppression of the turnover of Rs. 4,76,793.04 was deleted. The penalty under section 22(2) of the Act, to the extent of Rs. 20,492, was upheld.
KANAKARAJ, J.
The petitioners are dealers in cotton and cotton yarn. They had reported a total and taxable turnover of Rs. 4, 11, 55, 025.83 and Rs. 1, 90, 96, 778.10 respectively for the assessment year 1979-80. On verification of the account among other things it was found that the assessees had collected surcharge on cotton yarn and hosiery yarn (declared goods) amounting to Rs. 17, 661.29. The cotton yarn and hosiery yarn were exempted from levy of surcharge. It was therefore found that the collection of surcharge was contrary to law and a penalty of Rs. 26, 492 at 1 1/2 times the surcharge collections was proposed to be levied. The second escaped omission, with which we are concerned, related to a turnover of Rs. 4, 76.793.04 being the sales of cotton yarn, cotton, staple fibre and certain sundry sales.
It was proposed by a notice served on the assessees on December 23, 1980 to levy a penalty under section22(2) of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act") to the tune of Rs. 26, 492 and a penalty of Rs. 5, 559 at the rate of 50 per cent of the tax due on the suppressed turnover of Rs. 4, 76, 793.04. The explanation of the assessees regarding the penalty under section22(2) of the Act was that they had remitted the collections to the department and that they would refund the surcharge to the consumers provided the department refunded the amount to the assessees. On the question of the penalty levied under section12(5) of the Act to the tune of Rs. 5, 559 the assessees admitted the omission to report the turnover of Rs. 4, 76, 793.04 in their returns and contended that there were certain bona fide disputes about the supplies made by the assessees and the same were regularised and sale invoice raised only on March 30, 1980. Both the explanations were rejected by the assessing authority and the penalties were imposed as proposed in the notice. On appeal, the Deputy Commissioner (CT) cancelled the penalty under section22(2) of the Act on the ground that the collections had been paid over to the Government. The appellate authority however, confirmed the penalty levied under section12(5) of the Act. On further appeal to the Tamil Nadu Sales Tax Appellate Tribunal, an enhancement petition was filed by the Revenue seeking restoration of penalty under section22(2) of the Act. The Tribunal found only the minimum penalty of 50 per cent of the tax had been levied under section 12(5)(iii) of the Act and found that there was no cause for interfering with the same. So far as the enhancement petition relating to the levy of penalty under section22(2) of the Act, is concerned, the Tribunal referred to the undertaking of the assessees to refund the amount to the customers provided the department refunded the same to the assessees. Accordingly the Tribunal directed the department to refund the amount to the assessees, so that the assessees would in turn refund the same to the customers and provide proof of such refund. If no such proof was produced the department was permitted to impose penalty under section22(2) of the Act. The assessees are in revision before us.
2. Mr. N. Inbarajan, learned counsel for the petitioners, questioned the jurisdiction of the Tribunal to entertain and allow the enhancement petition. There was nothing to be enhanced inasmuch the appellate authority had deleted the entire penalty. The argument is apparently based on the judgment of this Court in State of Tamil Nadu v. Jakthi Veliyeetakam 1977 (6) CTR 496, 1977 (40) STC 466 . It is necessary to notice the facts of the said case in detail to understand the ratio laid down by the court. In that case the assessing officer had levied penalty under section12(3) of the Act. On appeal, the penalty was set aside in toto. The assessees had filed a second appeal before the Tribunal questioning the turnover. In that appeal Revenue filed a petition
"to restore the penalty levied by the assessing officer and cancelled by the Appel
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