UPVAT | Intention To Evade Tax Essential For Imposition Of Penalty U/S 54(1)(2): Allahabad High Court

The Allahabad High Court has held that intention to evade tax is essential condition for imposing penalty under Section 54(1)(2) of the Uttar Pradesh Value Added Tax Act, 2008.

Section 54(1) of the Uttar Pradesh Value Added Tax Act, 2008 provides for circumstances under which penalties can be imposed on an assesee. It is provided that where an assessing authority is satisfied that an assesee has committed any wrong mentioned therein, penalty can be imposed after giving due opportunity of hearing to such assesee.

Section 54(1)(2) provides for imposition of penalty in case the dealer has concealed particular of his turnover or has deliberately furnished inaccurate particulars of such turnover; or has submitted a false tax return under the Act or evades payment of tax which he is liable to pay under the Act. In such case, penalty is three times the tax evaded.

“Once the sine qua non to imposition of penalty is evasion of payment of tax and for evasion there has to be a willful act consequently the Court will have to examine as to whether there has been willful act on the part of the revisionist in evasion of tax,” held Justice Abdul Moin.

The Court held that penalty under Section 54(1)(2) cannot be imposed in cases where best judgment assessment has been made under Section 28(2) of the UPVAT Act as best judgment assessment is deemed to be made based on material available before the Assessing Authority.

Factual Background

After survey of revisionist's premises, an assessment order was passed under Section 28(2) of the UPVAT Act where the disputed demand was Rs. 12,44,653/-. The first Appellate Authority reduced the demand to Rs 6,22,778/-. Cross appeals were filed before the Tribunal where appeal filed by the revisionist was partly allowed reducing the tax liability to Rs 2,46,250/-. The appeal filed the Department was dismissed. This order of the Tribunal attained finality and the amount was deposited by the revisionist.

During pendency of the aforesaid proceedings, a notice under Section 54(1)(2) of the Act, 2008 was issued to the revisionist. Subsequently, an order was passed requiring the revisionist to pay Rs 18,65,625/- against the assessed tax of Rs 6,21,875/-. Appeal and thereafter, second appeal filed by the revisionist were dismissed.

Counsel for petitioner argued that for imposition of penalty under Section 54(1)(2) of the UPVAT Act, there has to be a specific finding regarding intention to evade tax. It was argued that in absence of any finding on mens rea to penalty can be imposed on the revisionist.

High Court Verdict

The Court observed that the assessment order under Section 28(2) of the UPVAT Act is passed may be passed if the assessing authority is satisfied about the correctness of the books of accounts and other records mentioned in Section 28(1) of the Act examined by it. In case the authority believes that such records are not creditable then the authority may proceed to make best judgment assessment of the turnover and the taxes to be paid.

The Court observed that the Assessing Authority had made best judgment assessment of the turnover of the revisionist based on which tax liability had been finalized and on that tax liability penalty was imposed under Section 54(1)(2) of the UPVAT Act.

The Court relied on various decisions of the Supreme Court wherein it has been held that best judgment assessment must be based on well-grounded estimates rather than pure surmises. Such assessment should be on a “reasonable guess based upon the material available before the assessing authority.” Accordingly, the Court observed that order passed under Section 28(2) of the Act by the Assessing Authority was based on material available to it.

The Court relied on Black Law Dictionary's meaning of “tax evasion” to hold that tax evasion is wilful attempt to defeat or circumvent the tax law in order to illegally reduce ones tax liability.

Emphasising on the word “wilful”, the Court held that order of the Assessing Authority under Section 28(2) of the UPVAT Act was based on cogent material does not indicate wilful attempt to defeat or circumvent the tax law to reduce the tax liability. The Court held that intention to evade tax is a must for imposition of penalty.

The Court held that there was no finding regarding willful attempt of the revisionist at evading tax. It was observed that the revisionist had discharged its tax liability as held by the Tribunal in best judgment assessment proceedings. The Court held that it was specifically upon the authorities to prove that there was intention to evade tax on part of the revisionist.

“In absence thereto the order imposing penalty on the revisionist based on the assessment order passed under Section 28(2) of 2008 cannot be said to fall within the ambit of any of the eventualities as provided under Section 54(1)(2) of the Act 2008 more particularly it cannot be considered to be an evasion of payment of tax by the dealer / revisionist so as to attract the penalty as has been imposed on the revisionist.”

Accordingly, the revision filed by the assesee was allowed.

Case Title: Durga Steel Rolling Mills Thru. Partner Amit Arora v. Commissioner Of Commercial Taxes UP Lucknow 2024 LiveLaw (AB) 228 [SALES/TRADE TAX REVISION No. - 40 of 2021]

Case citation: 2024 LiveLaw (AB) 228

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