Allowed

M/S Simran Medical Agencies v. Ut of Chandigarh

Punjab & Haryana HC28 Aug 2024VATAP/61/2014

Case brief

AI extract

What is this about?

VAT Tribunal appeals against check-post penalties imposed under Section 51(7)(b) of the Punjab VAT Act 2005 on medicines imported into Chandigarh from Himachal Pradesh on grounds of alleged undervaluation versus MRP. The High Court answered both substantial questions of law in favour of the appellants and quashed the penalty orders.

What did the court decide?

Impugned orders dated 16.12.2013 in both appeals quashed and set aside; appeals allowed; pending applications disposed of; no costs.

M/S Simran Medical Agencies Vs Ut of Chandigarh — GST and Indirect Tax | Punjab & Haryana HC (2024)

¶1

VATAP No. 61 of 2014

¶2

- 1-

¶3

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

¶4

Reserved on : 01.08.2024 Date of Decision : 28.08.2024

¶5

1. VATAP No. 61 of 2014 (O&M)

¶6

M/s S i mran Medical Agencies … Appellant Versus The U n ion Territory of Chandigarh and another …Respondents

¶7

VATAP No. 89 of 2014 (O&M)

¶8

Cap T a b Biotech … Appellant Versus The U n ion Territory of Chandigarh and another …Respondents

¶9

CORAM: HON’BLE MR. JUSTICE SANJEEV PRAKASH SHARMA HON’BLE MR. JUSTICE SANJAY VASHISTH

¶10

Present: Mr. Sandeep Goyal, Advocate a nd Mr. Rishab Singla, Advocate, f o r the appellant(s).

¶11

Mr. Ajay Jagga, Additional Sta n ding counsel with Mr. Daljeet Singh, Advocate, f o r the respondent - UT Chandigarh (in VATAP-61-201 4 )

¶12

Mr. Sumit Jain, Senior Standin g Counsel with Mr. Rohit Kaushik, Panel Coun s el for respondent No.1 - UT Chandigarh (in VATAP-89-201 4 )

¶13

Mr. Sourabh Goel, Senior Stan d ing Counsel with Ms. Geetika Sharma, Advocate and Ms. Anju Bansal, Advocate, for respondent No.2 (in VATAP-89-2014).

¶14

SANJEEV PRAKASH SHARMA, J.

¶15

These appeals have been admit t ed by this Court on 27.04.201 5

¶16

on the follo w ing substantial questions of law:-

¶17

"(i) Whether on the fa c ts and in the circumstances o f the case, the learned Tri b unal was justified in upholdin g the penalty imposed und e r Section 51(7)(b) for the good s being imported to Chan d igarh from Himachal Prades VARINDER SINGH h 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶18

VATAP No. 61 of 2014

¶19

- 2-

¶20

on the ground of underv a luation merely on the basis o f provisions for levy of e x cise duty on MRP basis unde r Central Excise Act? (ii) Whether on the fa c ts and in the circumstances o f the case, the learned Tri b unal was justified in upholdin g the penalty levied on ro a d side checking under Sectio n 51(7)(b) even though the determination of actua l valuation of goods is wit h in the domain of the assessin g authority ?"

¶21

For adjudication of the aforesai d questions, it would be apposit e

¶22

to quote Sec t ion 51 (7)(a)(b) of the Punjab V AT Act 2005 (hereinafter to b e referred as “ t he Act of 2005”), which reads a s under:-

¶23

“51. Establishment of information collection centres or check posts and inspection of goods in transit:- (7) (a). The officer detai n ing the goods under sub-sectio n (6), shall record the s t atement, if any, given by th e consignor or consignee o f the goods or his representativ e or the driver or other p erson Incharge of the good s vehicle and shall require him to prove the genuineness o f the transaction before hi m in his office within the perio d of seventy-two hours of the detention. The said office r shall, immediately ther e after, submit the proceeding s alongwith the concerned r ecords to the designated office r for conducting necessary enquiry in the matter; (b) The designated of fi cer shall, before conducting th e enquiry, serve a notice o n the consignor or consignee o f the goods detained und e r clause (a) of sub-section (6), and give him an opportu n ity of being heard and if, afte r the enquiry, such office r finds that there has been a n attempt to avoid or evad e the tax due or likely to be du e under this Act, he sh a ll, by order, impose on th e consignor or consignee of the goods, a penalty, whic h shall be equal to thirty p e r cent of the value of the goods.

¶24

VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶25

VATAP No. 61 of 2014

¶26

- 3-

¶27

In case he finds otherwi s e, he shall order release of th e goods and the vehicle, if not already released, afte r recording reasons in wri t ing and shall decide the matte r finally within a perio d of fourteen days from th e commencement of the en q uiry proceedings;” 3. Somewhat similar provisions u n der Section 14-B (6) and (7) o f the Punjab G eneral Sales Tax Act, 1948 (for short, ‘the 1948 Act’) a s amended in 1 974 were challenged on the gr o und of being ultra vires and th e issue was ta k en up by a Five Judges Benc h of this Court in Mool Chand

¶28

Chuni Lal vs Manmohan Singh and another 1977 PLR 456. Fo r understandi n g the similarities between the two provisions, we quote sub - sections 6 a n d 7 of Section 14 of the 1948 A c t, which read as under:-

¶29

“(6) If the officer incha r ge of the check post or barrie r or other officer as mentioned in sub- section (2) ha s reasons to suspect that the goods under transport ar e meant for trade and a r e not covered by proper an d genuine documents as m entioned in sub-section (2) o r sub-section (4), as the c ase may be or that the perso n transporting the goods is attempting to evade payment o f tax due under this Ac t , he may, for reasons to b e recorded in writing and after hearing the said person, order the unloading and detention of the goods, for suc h period as may reasonab ly be necessary and shall allo w the same to be transport e d only on the owner of goods o r his representative or the d river or other person incharg e of the goods, vehicle or v essel on behalf of the owner o f the goods furnishing to his satisfaction a security o r executing a bond with or w ithout sureties for securing th e amount of tax, in the pre s cribed form and manner, for a n amount not exceeding on e thousand rupees or twenty pe r centum of the value of th e goods, whichever is greater:

¶30

VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶31

VATAP No. 61 of 2014

¶32

- 4-

¶33

Provided that where an y goods are detained a repor t shall be made immediate ly and in any case within twenty - four hours of the detent i on of the goods by the office r detaining the goods to th e Excise and Taxation Officer o f the district seeking th e latter's permission for th e detention of the goods fo r a period exceeding twenty-fou r hours, as and when so r e quired, and if no intimation t o the contrary is received f rom the latter the former ma y assume that his proposal has been accepted.

¶34

(7) The officer detain i ng the goods shall record th e statement, if any, given by the owner of the goods or hi s representative or the dri v er or other person incharge o f the goods vehicle or v e ssel and shall require him t o produce proper and gen u ine documents as referred to i n sub- section (2) or sub- s ection (4), as the case may be, before him in his office o n a specified date on which dat e the officer shall submit t he proceedings along with th e connected records to suc h officer as may be authorised i n that behalf by the Sta t e Government for conductin g necessary enquiry in th e matter. The said officer shall, before conducting the e nquiry, serve a notice on th e owner of the goods and g ive, him an opportunity of bein g heard and if, after the e nquiry. such officer finds tha t there has been an attemp t to evade the tax due under thi s Act, he shall, by order, i m pose on the owner of the good s a penalty not exceeding one thousand rupees or twent y per centum of the val u e of the goods, whichever i s greater, and in case he fi n ds otherwise he shall order th e release of the goods”.

¶35

The relevant extract from the j udgment of Full Bench of thi s

¶36

Court in Mool Chand Chuni Lal (supra) are quoted as under:-

¶37

VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶38

VATAP No. 61 of 2014

¶39

- 5-

¶40

“4. It will be noticed a t once that Section 14-B (6), a s it stood originally, provi d ed for the seizure of any good s not covered by documen t s and Section 14-B(8) provide d for the seizure of all g oods in respect of which th e declaration was false. The seizure might be mad e irrespective of the que s tion whether there was an y attempt to evade tax. The basic but unwarrante d assumption underlying b o th the provisions for seizure, a s in the case before the Su p reme Court, was that the good s were transported after s a le within the State. Again, as i n the case before the Supr e me Court, no attempt was mad e to specify what goods m ight be seized. The provision s were considered by Bal Raj Tuli, J., and the Divisio n Bench to fail within the principles laid down in K. P. Abdulla's case (supra). B ut the position is quite differen t now. The new provision fo r the levy of penalty [Amende d Section 14-B(7)] is no l o nger based on any assumptio n that the goods were tr a nsported after sale within th e State. Its present basis is the attempt to evade tax and i t prescribes a condition p r ecedent to the levy of penalty. The condition preceden t is that the authorised office r should record a finding t h at there has been an attempt t o evade the tax due unde r the Act. It cannot possibly b e disputed that the preven t ion of evasion of sales-tax is a power incidental or anci l lary to the levy of Sales-tax an d falls within Entry 54 o f List II of Schedule VII of th e Constitution. Section 1 4-B(7), which provides fo r detention of goods and l e vy of penalty if there has bee n an attempt to evade the tax due under the Act, cannot, therefore, be held to be w ithout constitutional sanction. I t is further to be noticed t hat the goods which are to b e detained are also specifi e d in Section 14-B(6) as good s meant for trade and not covered by proper and genuin e documents.

¶41

VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶42

VATAP No. 61 of 2014

¶43

- 6-

¶44

5. xxx xxx xxx

¶45

6. While Section 14-B(8), as it stood originally, provided for the payme n t of the tax recoverable and a penalty, present Section 14-B(7) does not provide fo r recovery of the tax but provides for the imposition o f penalty which is calculated not on the basis of the ta x payable but on the basis of the value of the goods. Th e present provision is clea r ly outside the rule laid down i n Commissioner of Com m ercial Taxes and others v. Ramkishan Shrikishan J haver and others, (supra). I t cannot for a moment be p retended that there can be n o attempt to evade the ta x due under the Act before th e liability to pay the tax h a s arisen. A scheme or device t o evade the tax may start o perating long before the actua l liability to pay the tax a r ises. As soon as the scheme o r device, is set in motion th ere is an attempt to evade th e tax due under the Act an d it will not be necessary to wai t till the liability to pay the tax actually arises. If a n attempt to evade tax is d i scovered earlier, the liability t o be subjected to penalty i s straightaway attracted. In ou r view, there is no repugnancy between the provision fo r levy of penalty under Sec t ion 14-B(7) when an attempt t o evade the tax is discover e d and the general scheme of th e Act which provides for t h e levy of tax at the point of firs t sale within the State.”

¶46

In Xcell Automation vs Government of Punjab (2007) 5 VS T 308, a Divis i on Bench of this Court having n oticed the Full Bench judgmen t of this court in Mool Chand Chuni Lal (s u pra) took into consideration th e law laid do w n by Hon’ble the Supreme C o urt in Sodhi Transport Co. vs State of U.P. (1986) 62 STC 381 (SC); Delite Carriers (Regd.) vs State of Haryana (1 9 90) 77 STC 170 (SC); and a l so considered the judgment i n

¶47

VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶48

VATAP No. 61 of 2014

¶49

- 7-

¶50

Commissioner of Sales Tax vs P.T. Enterprises (2000) 117 STC 315 (SC) ; which follo w ed the Supreme Court judgment in Check Post Officer vs K. P. Abdulla and Brothers AIR 1971 SC 792.

¶51

In State of Haryana vs Sant Lal (1993) 4 SCC 380 th e provisions o f Section 38 of Haryana Genera l Sales Tax Act, 1973 were hel d to be unco n stitutional. The said provisio n requires every clearing an d forwarding a gent or person transporting g o ods to furnish information i n respect of c onsignments to the assessin g authority. It was held tha t presumption of evasion of tax could not be r a ised against such an agent.

¶52

In Tripura Goods Transport Association vs Commissioner of

¶53

Taxes AIR 1999 SC 719, the Supreme C o urt upheld the rules requirin g transporters t o obtain certificate of registrati o n and to maintain accounts an d also made d e claration in prescribed form as per the provisions, which wer e incidental to evasion of tax.

¶54

In A.B.C. (India) Limited vs State of Assam (2005) 142 ST C 88 (SC) similar provisions in Sections 42 an d 44 of the Assam General Sale s Tax Act, 19 9 3 were also upheld following t h e earlier judgments.

¶55

The Division Bench of this Co u rt in Xcell Automation (supra ) after consid e ring the entire laws and jud g ments passed by the Suprem e Court from t i me to time summed up the posi t ion as under:-

¶56

“(1) Exercise of p ower at the check-post to b e valid, should have reaso n able nexus with the attempt a t evasion.

¶57

(2) Straight-jacket approach is not called for an d each instance of exercis e of power has to be seen in th e

¶58

VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶59

VATAP No. 61 of 2014

¶60

¶61

light of individual facts. N either exercise of power can b e restricted, wherever re q uired for checking attempt a t evasion nor can be exten d ed to areas where there was n o attempt at evasion.

¶62

(3) In an approp r iate case, the writ court ma y examine the exercise of power and interfere if exercise o f power is found to be a r bitrary, mala fide and withou t nexus with attempt at eva s ion on the face of it.

¶63

(4) If there are d isputed questions and there i s reasonable nexus of exe r cise of power with attempt a t evasion, writ petition ag a inst imposition of penalty at th e check-post cannot be ent e rtained.

¶64

(5) Where relevan t documents are duly produce d but a bona fide plea agai n st taxability is raised and ther e is neither mis-declaratio n nor concealment, exercise o f power of imposing pen a lty at the check- post on th e ground of attempt at evasion may not be called for.

¶65

In the present c a se, contention raised by th e assessee that the "cast i r on castings" carried by it wer e not "cast iron" liable to t a x at the first stage, could not b e held to be requiring no a d judication or frivolous or mal a fide. It is not relevant a s to what is the interpretatio n finally taken on this sub j ect and we do not express an y conclusive opinion at thi s stage but having not conceale d any information, having furnished all the information, having placed relianc e on the judgments of th e honourable Supreme C o urt and since the matter di d require serious consider a tion, adjudication by the check - post officer was not call e d for. Invocation of jurisdictio n for imposing penalty on the allegation of attempt at ta x evasion in such a situatio n was not permissible.”

¶66

VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶67

VATAP No. 61 of 2014

¶68

- 9-

¶69

In the present case, the appella n t was duly registered under th e Punjab VA T Act 2005 (as applicable to U T Chandigarh) and engaged i n purchase an d distribution of medicines. It p u rchased two types of medicines , namely, Q M OL and MG from M/s R. K . Laboratories Private Limited , Nalagarh, f o r further selling to various distributors in Chandigarh. Th e goods were i n transit from Hiamchal Pradesh to Chandigarh when the sam e were check e d at Chandigarh. The driver p roduced the requisite invoic e amounting t o Rs. 1,83,214/- including GST. T he Checking Officer, however , found that t h e MRP on the medicines Q M OL was Rs. 180/-, as printed , while on the invoice the price was shown to be Rs. 19/-. Similarly, MRP fo r the medicin e MG was printed as Rs. 140/-, w hile the price mentioned on th e invoice was Rs. 18/-. The goods were, th e refore, detained under Sectio n 51(6)(a) of t he Act of 2005 for verificati o n and show cause notice wa s issued to t h e appellant to explain the purchase prices of medicine s mentioned i n the invoice and not the sale p r ice. VAT was chargeable in th e hands of the appellants when the sale of the above mentioned goods were t o be made. Th e AETC did not find the reply s atisfactory and imposed penalt y under Sectio n 51(7)(b) of the Act of 2005 h o lding that the purchasing good s at lesser rates with the attempt to evade the t ax payable to U. T. Chandigar h as the goods would be sold at much lesser r a tes than the value of the goods . It was held that according to the percenta g e fixed by the Central Excis e Department, the excise duty would amount t o Rs. 5,50,200/- and abatemen t of 35% was calculated on the MRP fixin g the price of the goods. Thus , under valuation of goods amounting to Rs. 3,66,986/- was assumed and a penalty of R s . 1,10,096 was imposed. The First Appellate Authority vide it s order dated 2 1.03.2012 upheld the penalty. T he VAT Tribunal dismissed th e

¶70

VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶71

VATAP No. 61 of 2014

¶72

- 10-

¶73

further appeal vide its order dated 16.12. 2 013. Hence, the present VA T Appeal befo r e this Court.

¶74

Learned counsel for the appell a nts submitted that the sales ta x can be imp o sed only when the sale is ma d e in future and the price is th e basis for me a suring tax and not on the basis o f presumptions.

¶75

Learned counsel for the appel l ants further submitted that th e actual deter m ination of value of goods is i n the domain of the assessin g officer and t he checking officer could not have done the valuation of th e goods on th e road side. There was no co n cealment by the appellants no r there is any m ens rea on the part of the app e llant to evade the tax. The pric e mentioned i n the invoices was the price as fixed by the manufacturer an d was the cost / purchase price for the appell a nt at his level. Therefore, ther e could not b e any occasion for evasion of t ax. No sale has been made a t Chandigarh. The goods were purchased ag a inst C-form from the consigne r at Baddi, w h o had duly charged the GST @ 2%. Since the imposition o f excise tax e x empted in the State of Himac h al Pradesh, presumption canno t be drawn on the said basis.

¶76

Learned counsel for the appell a nts has also relied on Divisio n Bench judg m ent of this Court in CWP No. 1 576 of 2002 – Gujarat Ambuja Cements Limited and others vs the State of Haryana decided o n 30.08.2007, t o submit that tax applies only w hen the actual sale occurs. H e has also reli e d on State of Rajasthan and another vs Rajasthan Chemists Association ( 2006) 6 SCC 773, where a sim i lar issue arose and the Suprem e Court held t hat the tax was to be based on actual sale and not on th e anticipated f u ture sales.

¶77

VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶78

VATAP No. 61 of 2014

¶79

- 11-

¶80

Learned counsel for the res p ondents have relied on th e judgment in Mool Chand Chuni Lal (su p ra) and also on the judgmen t passed by A llahabad High Court in M/s Radha Fragrance vs Union of India and 4 others 2023 (97) GST 1015. T he Allahabad High Court hel d that if there i s a gross under valuation of go o ds, the conclusion can be draw n that the goo d s were under valued to evade ta x .

¶81

Learned counsel for the respo n dents have supported the orde r passed by the authorities and submitted tha t the Assistant Commissioner o f Excise & T a xation had calculated the value of the goods in the present cas e in the mann e r as rational as possible for hi m by relating it to the percentag e of MRP discounted by the Central Excise D e partment for payment of excis e duty. The p u rchase price was disproportionately low as compared to MR P and the actio n of the respondents, therefore, w as in accordance with the law.

¶82

We have considered the submis s ions.

¶83

We also find that the issue rais e d in the present petition stand s finally adj u dicated by the Supreme Court in Rajasthan Chemists Association ( supra), wherein it was held as u nder:-

¶84

“41. The princ ip al contention about th e invalidating of the basis o f the measure of tax envisage d under Section 4-A of the A ct as inserted vide the Financ e Act, 2004 is that whil e it levies taxes on the sal e transaction carried o n by the manufacturer o r wholesalers or distributo r the measure with which f tota l turnover is to be determi n ed is not part of the sale whic h attracts tax but its premi s e is to be found on subsequen t sale which, under the s c heme of single point tax is no t excisable to tax at all. MRP which a wholesaler ca n VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶85

VATAP No. 61 of 2014

¶86

- 12-

¶87

charge in respect of sch e duled formulations too is fixe d by the Control Orde r . In respect of schedule d formulations the wholes a ler is required to leave at leas t 16% margin in MRP for t he retailers and he is entitled t o retain not g more than 8% profit on the purchase price. There being statutory pr o hibition against the wholesaler s to charge MRP from th e ir buyers, the maximum retai l price fixed on the packet has no rational connection wit h the taxable sale effected by the wholesalers and whic h becomes the subject-matt e r of charge as a first point tax. In such event, there exist s no nexus between the measur e of levy and subject of lev y .

¶88

44. In the conte x t of the meaning assigned to th e expression "sale of go o ds" or price or consideratio n element of such "sale o f goods" as taxable event, th e conclusion that can fai r ly be reached is that for th e taxing event of sale, if t he price is to be the basis fo r measuring tax, it must re l ate to actual transaction of sal e that becomes the subjec t of tax and not to a differen t transaction that may take place in future at a price.”

¶89

We find that the invoices have b een issued by the manufacturer ,

¶90

who is plac e d in Himachal Pradesh where t he excise duty is exempted. I n the circumst a nces, the valuation of goods i. e . purchase price for any perso n would be co m paratively much lower than t h at of other places where excis e duty is paya b le. It is also not a case of the State authorities that the invoice s were differe n t for the appellant in compar i son to other distributors. Onc e there is no f inding in this regard, a presu m ption cannot be drawn that th e invoices we r e under valued merely becau s e MRP rate mentioned on th e product was on a much higher side. So far as the dealer is concerned, namel y the appellan t s, they would further sell the g oods to various distributors. I f

¶91

VARINDER SINGH 2024.08.29 17:10 I attest to the accuracy and authencity of this order/judgment

¶92

VATAP No. 61 of 2014

¶93

- 13-

¶94

the sale pri c e is comparatively low, the c a se of tax evasion would arise . Further it is t o be noticed that the price of a m edicine is not necessary on th e basis of the M RP as purchased by the retail e r which is on two stages ahea d as the dealer would sell the product to a dist r ibutor, who would further sell i t to a wholes e ller and subsequently from w h ole seller the product will b e further transferred to the retailer. Each sta k eholder would keep their ow n margin of pr o fit. Thus, to presume that ther e is an evasion of tax at the leve l of the perso n who is a dealer going to furth e r sell the goods to a distributor , is a farfetch e d presumption. The action of t h e respondents imposing penalt y on such a presumption would be an exercise of arbitrary power . Accordingly , the question no. 1 is answered i n favour of the appellants.

¶95

The Division Bench of this Co u rt in Xcell Automation (supra) , has also an s wered the aforesaid question i n favour of the assessee. Th e invocation o f jurisdiction on allegations of a ttempt of tax evasion is withou t sufficient re a sons and the order is totally lac o nic.

¶96

The question no. 2, as frame d above, relates to the penalt y imposed by i nvoking Section 51(7) (a) and ( b ) of the Act of 2005. However , such power o f imposing penalty was not re q uired to be invoked at the stag e of road side checking and the power can on l y be exercised by the assessin g authority who shall reach to the conclusion t hat there has been an attempt t o evade tax a f ter actual valuation of the go o ds. The judgment in Sant Lal (supra) wou l d, therefore, hold field for th e present purpose. Question is , therefore, an s wered accordingly.