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1991 Supreme(Mad) 761
High Court of Judicature at Madras
THE HONOURABLE CHIEF JUSTICE DR. ANAND & THE HONOURABLE MR. JUSTICE KANAKARAJ
State of Tamil Nadu - Appellant
Versus
Indian Silk Traders - Respondents
Tax Case (Revision) No. 1008 of 1984
Decided On : 09 October 1991
Penalty under section 12(5) of the Tamil Nadu General Sales Tax Act, 1959 can be levied only if the assessment is made on the basis of the books of account rejecting the return submitted by the assessee as incorrect and incomplete. However, the bona fides of the assessee have to be gone into before imposing penalty.
Headnote:
{'KEYWORD': 'TAMIL NADU GENERAL SALES TAX ACT, 1959', 'SUBJECT': 'Levy of penalty under section 12(5) of the Tamil Nadu General Sales Tax Act, 1959', 'ACT SECTION LIST': ['12(2)', '12(3)', '12(4)', '12(5)']}
Fact of the Case:
The assessee, a readymade garments dealer, filed returns declaring a total and taxable turnover of Rs. 3, 04, 295 and Rs. 78, 935 respectively, claiming exemption on a turnover of Rs. 2, 25, 360. Upon verification of accounts, the assessing authority found two defects: (1) purchase of hosiery goods under a brand name for a sum of Rs. 35, 124.29 from outside the State of Tamil Nadu, had not been separately accounted for, and (2) a sum of Rs. 68, 091 was found to relate to inter-State purchase of readymade goods and had been wrongly included in the total purchase of readymade goods. The assessing authority proposed to reject the returns and accounts as incorrect and incomplete and determine the turnover under section 12(2) of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act") to the best of his judgment. He also proposed to levy a penalty of Rs. 1, 478 for the failure to declare the taxable turnover at 5%. On appeal, the appellate authority and the Tribunal upheld the assessment and penalty, holding that the assessee had not acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. The Revenue filed a revision petition before the High Court.
Finding of the Court:
The High Court held that section 12(4) and 12(5) of the Act apply to cases where the assessment is made on the basis of the books of account rejecting the return submitted by the assessee as incorrect and incomplete. However, the court found that there was confusion in the facts on the relevant question whether the assessment was made on the basis of the books of accounts or de hors the books of accounts. Therefore, the court remanded the case back to the assessing authority to render a finding on this aspect and pass fresh orders accordingly.
Issues: 1. Whether penalty can be levied under section 12(5) of the Tamil Nadu General Sales Tax Act, 1959, without a finding of deliberate concealment or wilful suppression? 2. Whether a bona fide belief that a particular turnover is exempt or assessable at a particular rate can attract penalty under section 12(5) of the Act?
Ratio Decidendi: 1. The court held that the words "incorrect and incomplete" used in section 12(4) and 12(5) of the Act do not imply deliberateness, suppression, or wilfulness in making a return. However, the court clarified that the assessing authority must consider exceptional cases where an assessee bona fide believes that he is not liable to include a turnover in the return or whether a particular turnover attracts duty under one or other of the entries in the First Schedule to the Act or whether the item is taxable as a multi-point item. 2. The court held that a bona fide belief that a particular turnover is exempt or assessable at a particular rate does not attract penalty under section 12(5) of the Act.
Final Decision: The High Court accepted the revision petition and remitted the matter back to the assessing authority to render a finding on whether the assessment was based on the books of accounts or de hors the books of accounts and pass fresh orders accordingly.
KANAKARAJ, J.
The respondents/assessees are carrying on business in readymade garments. For the assessment year 1979-80 they filed returns declaring a total and taxable turnover of Rs. 3, 04, 295 and Rs. 78, 935 respectively claiming exemption on a turnover of Rs. 2, 25, 360. Their accounts were called for and checked. The assessing authority found two defects on verification of accounts. (1) Purchase of hosiery goods under a brand name for a sum of Rs. 35, 124.29 from outside the State of Tamil Nadu, had not been separately accounted for. The relative first sales turnover in respect of the said goods was arrived at as Rs. 42, 990 taxable at 5 per cent. (2) A sum of Rs. 68, 091 was found to relate to inter-State purchase of readymade goods and the same had been wrongly included in the total purchase of readymade goods. The sales turnover on this account was worked out as Rs. 83, 341 taxable at 2 per cent. The assessing authority proceeds to say that it was proposed to "reject the returns and accounts as incorrect and incomplete" and to determine the turnover under section 12(2) of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act") to the best of his judgment. In particular he referred to the fact that sales of readymade garments had been wrongly shown as second sales. It is also pointed out that they had not separately shown the taxable turnover of Rs. 42, 990. The difference in tax as determined by the assessing authority worked out to Rs. 1, 290. It was therefore proposed to levy a penalty of Rs. 1, 478.
"being 50 per cent of the tax due on the turnover not declared in the return and also for the failure to declare the taxable turnover at 5 per cent" *
. However, while dealing with the objections of the assessee the assessing authority says that section12(4) and 12(5) of the Act was substituted by the Tamil Nadu Act 47 of 1979 with effect from December 3, 1979. He concludes by saying that the return submitted by the assessee was found to be incorrect and incomplete as per section 12(4)(iii) of the Act and therefore the penalty under section 12(5)(iii) of the Act was attracted. He, therefore, confirmed the levy of penalty at 50 per cent of the tax due on the turnover not declared correctly in the return and also for the failure to declare the taxable turnover at 5 per cent.
2. On appeal, the appellate authority renders a finding which is as follows :
"It is equally patent that they have disclosed the transactions in the accounts, but failed to file a revised return in form A1 for the turnover of Rs. 5, 49, 653. It is only at the stage of check of accounts, the assessing officer has reduced their liability to tax at different rate out of the purchase of goods from out of the State." *
He therefore held that the assessment had been made under section 12(4)(iii) and the penalty under section 12(5)(iii) was justified. On further appeal, the Tribunal says that the assessees had returned a total and taxable turnover of Rs. 3, 04, 295 and Rs. 78, 935 respectively. But the books of accounts showed a total and taxable turnover of Rs. 5, 49, 653 and Rs. 1, 62, 276 and that the assessing officer found the book total turnover as correct. Proceeding further the Tribunal observes that action under section12(5) of the Act could be justified only if a deliberate concealment in the return is found out. The Tribunal observes as follows :
"Having regard to the facts and circumstances of the case, we find in the instant case that the appellants had not acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation and as such the penalty is not called for under section12(5) of the Act." *
The Revenue is in revision before us.
3. Elaborate arguments have been advanced on the scope of section12(4) and 12(5) of the Act. While it is the contention of the Revenue that deliberate concealment or wilful suppression is not necessary for the pu
