Assessment Made To Best Of Judgment Of Authority Would Not Be Sufficient For Imposition Of Penalty: Madras High Court

The Madras High Court has held that the assessment made to the best of the authority's judgement would not be sufficient for the imposition of penalty, as the degree of proof required for the imposition of penalty is much higher than that required for the purpose of framing a best judgement assessment.

The single bench of Justice Anita Sumanth has observed that the petitioner has admittedly remitted the difference in tax along with interest even at the time of inspection. The imposition of a penalty under Section 27(3) of the Tamil Nadu VAT Act was automatic and erroneous in law.

The petitioner/assessee is an authorised sales and service centre for Chevrolet cars in Vellore and a registered dealer under the provisions of the TNVAT Act.

In respect of the assessment years 2013-14, 2014-15, and 2015-16, assessments were framed based upon an inspection by the officials of the Enforcement Wing in the premises of the petitioner in February 2016. The officials noticed at the time of inspection that there were lacunae in the monthly returns filed by the petitioner. Specifically, two defects were pointed out. The first related to the difference in sales turnover as per invoices, and the second related to the difference in consideration on sales of old vehicles.

The petitioner had sold old vehicles for a profit but had not remitted the difference in respect of the profit. The defects were forwarded by the enforcement officials to the assessing authority, which issued a show cause notice prior to assessment. After detailing the allegations relating to the escapement of tax, the authority proposed to impose a penalty under Section 27(3) of the Tamil Nadu Value Added Tax Act, indicating that it "may be levied."

The petitioner contended that the authority had proceeded solely on the basis of the proposals by the enforcement officials, which included a proposal to levy a penalty as well. The show cause notice does not satisfy the ingredients of Section 27(3), which states that the assessing authority must be "satisfied that the escape from the assessment is due to wilful non-disclosure of assessable turnover by the dealer." The satisfaction of the officer is thus not confined to the aspect of non-disclosure alone but also that the non-disclosure was willful.

The court, while allowing the appeal, held that there was no finding recorded by the assessing authority specific to the position that the escapement of turnover was as a result of wilful non-disclosure or suppression by the assessee concerned. It would vitiate the levying of a penalty.

Case Title: N/s.Sayar Cars Versus The Appellate Deputy Commissioner (CT)

Citation: 2022 LiveLaw (Mad) 457

Case No: W.P.Nos.30251, 30256 and 30258 of 2019 and WMP.Nos.30228, 30232 and 30235 of 2019

Date: 14.10.2022

Counsel For Petitioner: Advocate P.Rajkumar

Counsel For Respondent: Government Advocate K.Vasanthamala

Click Here To Read Order