Allowed

Toyota Industries Engine India Pvt. Ltd. v. the Additional Commissioner

Karnataka HC5 Mar 2021STA/22/2017

Case brief

AI extract

What is this about?

Appellant appealed a revision order imposing penalty. The court held penalty under Section 72(2) VATA 2003 is not automatic. Quayshing the revision order and restoring the First Appellate Authority’s decision allowing appeal.

What did the court decide?

Impugned order dated 31.03.2017 quashed; order dated 27.11.2012 by First Appellate Authority restored.

Toyota Industries Engine India Pvt. Ltd. Vs the… — GST and Indirect Tax | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 5^TH DAY OF MARCH 2021

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PRESENT

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THE HON'BLE MR. JUSTICE ALOK ARADHE

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AND

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THE HON'BLE MR. JUSTICE ASHOK S. KINAGI

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S.T.A. NO.22 OF 2017

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BETWEEN:

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TOYOTA INDUSTRIES ENGINE INDIA PVT. LTD. (FORMERLY KNOWN AS KIRLOSKAR TOYODA TEXTILE MACHINERY PVT. LTD.) PLOT NO.9, PHASE-II, JIGANI INDUSTRIAL AREA, JIGANI, BENGALURU -560 105. REPRESENTED HEREIN BY ITS DIRECTOR MR.PARAMESHWARAN BALAKRISHNAN

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...APPELLANT

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(BY SRI. T. SURYANARAYANA, ADVOCATE FOR SRI. V VINAY GIRI, ADVOCATE)

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AND:

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THE ADDITIONAL COMMISSIONER

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OF COMMERCIAL TAXES (ZONE)-II, BENGALURU 6^TH FLOOR, VTK-1,

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VANIJYA THERIGE KARYALAYA,

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GANDHI NAGAR,

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BENG ALURU - 560 009.

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THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES (AUDIT-4.1) BENGALURU, VANIJYA THERIGE KARYALAYA, KORAMANGALA, BENGALURU-560 047.

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…..RESPONDENTS

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(BY SRI. JEEVAN J NEERALGI, AGA)

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THIS STA IS FILED UNDER SECTION 66(1) OF THE KARNATAKA VALUE ADDED TAX AC 2003 AGAINST THE ORDER DATED 31.03.2017 PASSED IN ORDER NO.ADCOM/ ZONE-II/APP-4/KVAT/SMR/CR-06/2016-17 ON THE FILE OF THE ADDL. COMMISSIONER OF COMMERCIAL TAXES BENGALURU, SETTING ASIDE THE APPEAL ORDER DATED 27.11.2012 VIDE Nos.VAT AP:2006 TO 2041/2009-10 AND VAT.VP.618 TO 637/2010-11 AND RESTORING THE LEVY OF PENALTY UNDER SEC.72(2) FOR THE TAX PERIODS APRIL 2005 TO NOVEMBER 2006 AS PER THE ORDERS DATED 10.06.2010.

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THIS STA COMING ON FOR HEARING THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

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JUDGMENT

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This appeal under Section 66(1) of the

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Karnataka Value Added Tax Act, 2003 (hereinafter

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referred to as 'the Act') has been filed by the appellant against the order dated 31.03.2017 passed by the

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Additional Commissioner of Commercial Taxes under Section 64(1) of the Karnataka Value Added Tax Act, 2003, reviving the order dated 27.11.2012 passed by the Joint Commissioner of Commercial Taxes (hereinafter referred to as the 'First Appellate Authority') by which the appeal preferred by the appellant was allowed against levy of penalty under Section 72(2) of the Act.

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Facts leading to filing of this appeal, briefly stated, are that the appellant is engaged in the business of manufacture and supply of auto parts. Some of the products manufactured by the appellant was aluminum castings which was supplied to its sister concern namely Toyota Kirloskar Auto Parts Pvt. Ltd.. It is the case of the appellant that it was under a bona fide impression that the aforesaid aluminum castings are classifiable as 'non-ferrous castings' under Entry 66 of the Third Schedule to the Act and

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are chargeable at the rate of 4%. However, the stand of the Revenue was that the aluminum castings would fall under unscheduled goods and are liable to be taxed at the rate of 12.5%. The appellant in order to buy peace and with a view to avoid litigation and in view of the fact that the sale of aluminum castings to Toyota Kirloskar Auto Parts Pvt., is revenue neutral as the aforesaid company was Export Oriented Unit entitled for refund of input tax, remitted entire differential tax together with interest.

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However, the Assistant Commissioner of

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Commercial Taxes, by an order dated 12.03.2007, levied penalty under Section 72(2) of the Act. The appellant assailed the validity of the order passed by the Assistant Commissioner before the First Appellate Authority. The Appellate Authority, by an order dated 03.10.2007, quashed the order passed by the adjudicating Authority and remitted the matter for

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fresh consideration. Thereafter, the adjudicating Authority passed an order on 10.06.2010 by which penalty was imposed under Section 72(2) of the Act again. The appellant, thereupon, again filed an appeal before the First Appellate Authority, who, by an order dated 27.11.2012, quashed the order by which penalty was levied and allowed the appeal. The Additional Commissioner of Commercial Taxes initiated proceedings under Section 64 of the Act proposing to revise the aforesaid order dated 27.11.2012 passed by the First Appellate Authority. Despite detailed and elaborate objections filed by the appellant, the Additional Commissioner of Commercial Taxes passed an order dated 31.03.2017, by which the order of the First Appellate Authority was set aside and the order of the adjudicating Authority regarding levy of penalty under Section 72(2) of the Act, was

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confirmed. In the aforesaid factual background, this appeal has been filed.

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Learned counsel for the appellant submitted that the First Appellate Authority after detailed examination of the facts and circumstances found that there is a scope for ambiguity in classification of 'aluminum castings' as 'non-ferrous castings' and held that the 'aluminum castings' may be classified under Entry 66 as 'non-ferrous castings' and are liable to be taxed at the rate of 4% only. The First Appellate Authority also found that there was a scope for ambiguity in classification and in any event the transaction was revenue neutral and therefore there could not be any mala fide intention on the part of the appellant. It is further pointed out that the First Appellate Authority by placing reliance on the decision of HINDUSTAN STEEL LIMITED VS. STATE OF ORISSA

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[1969 (2) SCC 627] , by a well-being order, allowed

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the appeal and set aside the levy of penalty under Section 72(2) of the Act. It is further submitted that a Bench of this Court in NEW TAJ MAHAL CAFE PRIVATE

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LIMITED VS. STATE OF KARNATAKA [2009 (66) Kar.L.J. 321 (HC)] has held that mens rea is not an essential factor for levy of penalty and set aside the order passed by the First Appellate Authority. It is further submitted that the aforesaid decision is no longer good law in view of the decision of the Division Bench of this Court in FOSROC CHEMICALS (INDIA) PRIVATE LIMITED VS. STATE OF KARNATAKA [2014 (80) KAR.L.J. 497 (HC)(DB)] . It is also urged that the sine qua non for exercising revisional powers under Section 64 of the Act is that the order of the Authority should not just be erroneous but also be prejudicial to the interest of the Revenue. In the instant case, the order of the First Appellate Authority has been passed on the basis of meticulous appreciation of the

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evidence on record and it cannot be termed as erroneous and the tax is revenue neutral. It is further submitted that the levy of penalty under Section 72(2) of the Act is neither automatic nor mandatory. In support of the aforesaid submissions, reliance has been placed on ELECTRO OPTICS (P) LTD. VS. STATE OF

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TAMIL NADU [(2016) 89 VST 156 (SC)] and the decision of the Division Bench of this Court in FOSROC

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CHEMICALS (INDIA) PRIVATE LIMITED (supra).

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On the other hand, learned counsel for the respondent submits that levy of penalty under Section 72(2) of the Act is automatic and opportunity is given to show-cause in writing, only with regard to the rate of penalty. It is further submitted that in the facts and circumstances of the case, the Additional Commissioner of Commercial Taxes has rightly revoked the jurisdiction under Section 66 of the Act

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and has rightly revived the order which does not call

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for any interference by this Court in this appeal.

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We have considered the submissions made

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on both sides and have perused the record. Section 72(2) of the Act is reproduced below for the facility of reference:

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" 72. Penalties relating to returns and assessment -

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(2) A dealer who for any prescribed tax period furnishes particulars for preparation of a return or furnishes a return which understates his liability to tax or overstates his entitlement to a tax credit by more than five per cent of his actual liability to tax, or his actual tax credit, as the case may be shall after being given the opportunity of showing cause in writing against the imposition of a penalty, be liable to a penalty equal to ten per cent of the amount of such tax under or overstated."

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Thus, from perusal of Section 72(2) of the

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Act, it is evident that when dealer has filed the returns in the prescribed form and he understates his liability to tax or overstates his entitlement to a tax credit by more than 5% of the actual liability to pay tax, he is liable to pay penalty equal to 10% of the amount of such tax under or overstated. However, the provision requires that before levy of penalty, the dealer has to

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be given an opportunity to show-cause in writing against the imposition of penalty. It is only after consideration of the cause shown by the dealer, the penalty can be imposed. Thus, it is axiomatic that the imposition of penalty under Section 72(2) of the Act is not automatic and a discretion has been conferred on the assessing Authority either to impose penalty or not to impose penalty and the rate of such penalty is statutorily provided. Therefore, it is graphically clear

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that the discretion is with the matter of imposition of penalty and not with regard to the rate of penalty.

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The Supreme Court in ELECTRO OPTICS (P) LTD. (supra) after referring to the decision of the

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Supreme Court in HINDUSTAN STEEL LIMITED (supra) has held that though the statute permit imposition of penalty, but the authority has the judicial discretion to consider whether the penalty should be imposed for

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failure to perform a statutory obligation. It has further held that in such a situation, discretion has to be exercised judicially after consideration of all the relevant circumstances. It is further held that even if a minimum penalty is prescribed, the Authority may be justified in refusing to impose any penalty in some peculiar situation, such as, where the breach flows from a bona fide belief that the offender is not liable

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to act in the manner prescribed by the statute.

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In view of the aforesaid pronouncement of law, it is evident that the levy of penalty under Section 72(2) of the Act is neither automatic nor mandatory.

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We may now advert to the facts of the case. The First Appellate Authority, after detailed examination of the material available on record, has found that there is a scope for ambiguity in classification of 'aluminum castings' as 'non-ferrous castings' and according to the Authority, the 'aluminum castings' may be classified under Entry 66 as 'non-ferrous castings' and are liable to tax only at the rate of 4%. The First Appellate Authority has also found that there was a scope for ambiguity and in any case, the transactions were revenue neutral and therefore no mala fide intention would be attributed to the dealer. The First Appellate Authority has placed reliance on HINDUSTAN STEEL LIMITED (supra) and has

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set aside the order imposing penalty under Section 72(2) of the Act. It is pertinent to note that NEW TAJ MAHAL CAFE PRIVATE LIMITED (supra) is

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distinguishable because the issue in the aforesaid decision is that the absence of mens rea is not material for levy of penalty in fiscal statutes. The aforesaid decision is not an authority for the proposition that levy of penalty under Section 72(2) of the Act is either automatic or mandatory. The decision rendered in NEW TAJ MAHAL CAFE PRIVATE LIMITED (supra) is no longer a good law in view of the subsequent decision of the Supreme Court in FOSROC CHEMICALS (INDIA) PRIVATE LIMITED (supra). It is

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relevant to mention here that the sine qua non that the condition precedent for exercising powers under Section 64 of the Act is that the order of the Authority should be prejudicial in the interest of the Revenue. In the aforesaid case, both the aforesaid conditions

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are not fulfilled as the order passed by the First Appellate Authority is well considered which is passed with meticulous appreciation of the material available on record. Therefore, the condition precedent for invoking the powers under Section 64 of the Act, is not fulfilled.

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In view of the above discussion, the impugned order passed by the Joint Commissioner of Commercial Taxes dated 31.03.2017, is hereby quashed and the order passed by the First Appellate Authority, is hereby restored. In the result, the appeal is allowed.

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SD/JUDGE

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SD/JUDGE

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Toyota Industries Engine India Pvt. Ltd. v. the Additional Commissioner

Case brief

What is this about?

What did the court decide?

Toyota Industries Engine India Pvt. Ltd. v. the Additional Commissioner

Case brief

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