Penalty Leviable Under S. 45 of the Gujarat Sales Tax Act, 1969 Is Statutory And Mandatory; Commissioner/AO Has No Discretion: Supreme Court

The Supreme Court has ruled that the penalty and interest leviable under Sections 45(6) and 47(4A) of the Gujarat Sales Tax Act, 1969, respectively, are statutory and mandatory in nature and there is no discretion vested in the Commissioner/Assessing Officer to levy or not to levy the penalty and interest other than as prescribed.

The bench of justices M.R. Shah and B.V. Nagarathna held that the moment it is found that a dealer is to be deemed to have failed to pay the tax to the extent mentioned in Section 45 (5), the penalty under Section 45(6) is automatic and there is no discretion with the Assessing Officer either to levy or not to levy the penalty and/or to levy any penalty lesser than what is mentioned in the said provision. The court thus remarked that there is no question of considering any mens rea on the part of the assessee/dealer.

The top court quashed the judgment of the Gujarat High Court who had set aside the levy of penalty and interest on the grounds that the assessee was under a bonafide opinion as to its tax liability and the amount of enhanced tax imposed by the Assessing Officer had already been paid by the assessee. The Apex Court held that none of the said grounds would justify deletion of the penalty and interest leviable/payable under Section 45(6) and Section 47(4A) of the Act.

The respondent company /assessee, M/s Saw Pipes Ltd, is engaged in the business of executing works contract of coal tar and enamel coating on pipes. It opted for payment of lumpsum tax as provided under Section 55A of the Gujarat Sales Tax Act, 1969 and deposited tax at the rate of 2% on sales, 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) passed an order holding that the contract of coating of pipes is not a civil works contract and therefore, the composition amount was not payable at the rate of 2%, as deposited by the assessee, and that it fell under the Residuary Entry-8 of the said notification.

The AO levied penalty and interest against the respondent assessee under the provisions of Section 45(6) and Section 47(4A) of the Gujarat Sales Tax Act, which was confirmed by the Income Tax Appellate Tribunal (ITAT) in appeal.

In an appeal filed by the assessee, the Gujarat High Court set aside the levy of penalty and interest on the ground that the enhanced tax imposed by the AO had already been paid by the assessee and that the assessee was under a bonafide belief that it was liable to pay the tax at the rate of 2% and not 12%.

Challenging the order of the High Court, the revenue department filed an appeal before the Supreme Court.

The revenue department averred that the phrase used in Section 45 (6) of the Act is “shall be levied”. Further, even for interest the same language is employed in Section 47(4A) of the Act. Thus, it pleaded that the assessee was statutorily liable to pay the penalty and interest and, therefore, the High Court had committed a serious error in deleting the penalty and interest on the aforesaid grounds.

The Apex Court reckoned that the High Court had set aside the levy of penalty and interest on the ground that there was no mens rea on the part of the assessee in not paying the tax at the applicable rate of 12%.

The Supreme Court observed that as per Section 45 (5) of the Act, where the amount of tax assessed for any period under Sections 41 or 50 or reassessed for any period under Section 45 of the Act exceeds the amount of tax already paid by the dealer in respect of such period by more than 25%, the dealer shall be deemed to have failed to pay the tax to the extent of the difference between the amount so assessed or reassessed and the amount paid.

Further, under Section 45(6), if the dealer is deemed to have failed to pay the tax to the extent mentioned in Section 45(5), a penalty shall be levied on such a dealer not exceeding 1.5 times the difference of tax specified in the said provision.

While noting that the phrase used is “shall be levied”, the court concluded that the penalty leviable under Section 45 (6) is a statutory penalty and there is no discretion vested with the Commissioner as to whether to levy the penalty leviable under Section 45 (6) or not.

The Apex Court further held that the language used in Section 45 is precise, plain and unambiguous. Further, the intention of the legislature is very clear and unambiguous that the moment any eventuality as mentioned in Section 45(5) occurs, the penalty shall be leviable as mentioned in Section 45 (6). It reckoned that no other word like mens rea and/or satisfaction of the assessing officer and/or other language is used in Section 45 (6) like in Section 11AC of the Central Excise Act, 1944.

While reiterating that it is a well settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous, the court remarked, “Under the circumstances, on strict interpretation of Section 45 and Section 47 of the Act, 1969, the only conclusion would be that the penalty and interest leviable under Section 45 and 47(4A) of the Act, 1969 are statutory and mandatory and there is no discretion vested in the Commissioner/Assessing Officer to levy or not to levy the penalty and interest other than as mentioned in Section 45(6) and Section 47 of the Act, 1969. It is needless to observe that such an interpretation has been made having regard to the tenor of Sections 45 and 47 of the Act, 1969 and the language used therein.”

The court thus allowed the appeal and set aside the judgment and order of the High Court, while restoring the order of the AO.

Case Title: State of Gujarat and Anr. vs M/s Saw Pipes Ltd

Citation : 2023 LiveLaw (SC) 319

Counsel for the Appellant: Ms. Aastha Mehta with Ms. Deepanwita Priyanka,

Counsel for the Respondent: V. Lakshmikumaran

Gujarat Sales Tax Act, 1969- Penalty and interest leviable under Sections 45(6) and 47(4A) , respectively, are statutory and mandatory in nature and there is no discretion vested in the Commissioner/Assessing Officer to levy or not to levy the penalty and interest other than as prescribed.

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