(Prayer: These STRPs. are filed under Section 65(1) of Karnataka Value Added Tax Act, 2003 against the Order dated 7.8.2014 passed in STA 3462-3469/2013 on the file of the Karnataka appellate tribunal, Bengaluru, dismissing the appeals filed under Section 9(2) of the Central Sales Tax Act 1956 r/w Section 63 of the Karnataka Value Added Tax Act, 2003.)
Vineet Saran, J.
1. These revision petitions have been filed by the assessee challenging the order dated 07.08.2014 passed by the Karnataka Appellate Tribunal whereby the Tribunal has upheld the imposition of penalty for non-furnishing of declaration in Form-H under the Central Sales Tax Act, 1956 (for short the CST Act') to substantiate its claim that certain items in question which were sold for export would be exempted from payment of tax. The assessment period in question is of May, June, July, August, October and November, 2005 as well as February and March-2006.
2. The brief facts of the case are that the petitioner-E. Ramamurthy, who was doing business of extraction and sale of iron ore, died on 05.08.2006, which was after the relevant assessment period and thus, his son and legal heir R. Praveen Chandra was brought on record. For the relevant assessment period the assessee had exported iron ore to the tune of over Rs.43 crores. However, for the export of iron ore amounting to Rs.9,70,80,387/-, the relevant declaration in Form-H had not been furnished, although in the returns filed by the assessee, such sales had been shown as export sales. As such, for the aforesaid export sales, Central Sales Tax at the rate of 10% was levied, as the assessee could not produce the requisite declaration showing that the same was for export. In the present petition, there is no dispute with regard to levy of such Central Sales Tax at the rate of 10%. The dispute is with regard to levy of penalty under Section 72(2) of the Karnataka Value Added Tax Act, 2003 (for short the KVAT Act') read with Section 9(2) of the CST Act.
3. By the assessment order dated 08.03.2013 passed by the Assessing Officer for the relevant tax period, a penalty of Rs.18,35,853/- was imposed, which was later rectified by order dated 12.03.2013 and enhanced to Rs.19,41,608/-. The appeal filed by the assessee was dismissed by the Joint Commissioner vide order dated 12.11.2013. The Tribunal also dismissed the second appeal filed by the assessee on 07.08.2014. Aggrieved by the same, this revision petition has been filed by the assessee.
4. We have heard Sri T.N. Keshava Murthy, learned counsel appearing for the petitioner as well as Sri T.K. Vedamurthy, learned HCGP appearing for the respondent and have perused the record. With consent of learned counsel for the parties, this revision petition has been heard and is being disposed of finally at the stage of admission.
5. It is contended by learned counsel for the petitioner that immediately after the tax period in question, the assessee E. Ramamurthy, had died on 05.08.2006 and thereafter the son of the deceased assessee took over charge of the business, and in such circumstances, despite export of iron ore being to the tune of Rs.43 crores during the said period, the assessee could not obtain the requisite declaratory Form-H from all the buyers. Declaration with regard to export of iron ore to the tune of Rs.9,70,80,387/- could not be obtained. It is submitted that while filing the return, the assesse is required to disclose the sales which are subject to tax, and for such sales which are exempted on account of export, the assessee is given three months time to furnish the declaration in Form-H. It is contended that in the present case there was no wrong declaration made by the assessee in its return, and the entire export sales made by the assessee had been disclosed, but due to non-furnishing of declaration Form-H for certain sales, the assessee did not get the benefit of Section 5(3) of the CST Act. It is also contended that since there was no concealment with regard to sales made by the assessee, there could neither be mens rea attributed nor could it even amount to understatement, as total sales made by the assessee had been duly disclosed by the assessee. It is contended that the Tribunal as well as the authorities below have wrongly held that once the difference of tax is more than 5%, the imposition of penalty would be automatic and that no discretion is left with the Assessing Authority. Learned counsel submits that the Assessing Authority had the discretion to consider the explanation given by the assessee and that imposition of penalty would not be automatic, as has been held by two Division Benches of this Court in the cases of Fosroc Chemicals (India) Private Limited, Bangalore “vs- State of Karnataka 2014 (80) Kar.L.J. 497 decided on 05.11.2014 and Sri Byrava Civil Engineering Works, Bengaluru “vs- Government of Karnataka 2015 (82) Kar.L.J.144 decided on 30.03.2015.
6. Sri T.K. Vedamurthy, learned HCGP appearing for the respondent has, however, submitted that though in view of the aforesaid Division Benches decisions (which were rendered subsequent to the passing of the order of the Tribunal), the imposition of penalty may not be automatic but in view of the fact that no adequate explanation had been given by the assessee in response to the show cause notice issued to him, the imposition of penalty is fully justified in law.
7. While considering a case with regard to concessional rate of tax to be paid under the CST Act for inter-state sales for which the assessee was required to furnish declaration in Form-C, a Division Bench of this Court in the case Fosroc Chemicals (India) Private Limited (supra) has held that it is clear that imposition of penalty under Section 72(2) is not automatic. A discretion is conferred on the Assessing Authority to impose penalty or not and the rate of such penalty is statutorily
Provided. ...
An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. ?
Hence, it is clear that penalty is not to be imposed merely because it is lawful to do so. As per the Act itself, before imposing penalty an option to show cause is to be given to the assessee. Once opportunity to show cause is given, it would be imperative that while arriving at a conclusion whether penalty is to be imposed or not, reply given by the assessee has to be considered, meaning thereby that penalty is not to be imposed merely because there is understatement or over statement, but the authority is required to look into the explanation given by the assessee in response to the show cause notice, which would clearly mean that while imposing penalty, discretion has to be exercised by the authority and the same is not automatic.
8. In the present case, though it is admitted that reply dated 04.03.2013 given to the show cause notice was received from the assessee, but none of the authorities has considered the explanation so given by the assessee. Holding that once the under statement of the tax is made by the assessee, the prescribed authority has to impose penalty and that it was not allowed any discretion in the matter, would not be the correct position of law. As we have already held above, that the authorities have to look into the explanation submitted by the assessee before imposing penalty, which is not automatic. In the present case, since no such discretion has been exercised by the authorities below and the penalty has been imposed merely after holding that there was difference of more than 5% of tax payable and tax paid by the assessee, we are of the opinion that the order passed by the Tribunal deserves to be quashed.
9. Accordingly, the order dated 07.08.2014 passed by the Tribunal is quashed. The matter is remanded to the Tribunal to take a fresh decision with regard to imposition of penalty, after considering the explanation given by the assessee in its reply dated 04.03.2013 submitted after receiving show cause notice. The Tribunal shall pass fresh orders, in accordance with law, after giving an opportunity of hearing to the petitioner, as expeditiously as possible, preferably within three months from the filing of the certified copy of this order.
With the above direction, the revision petitions stand disposed of.