1. Penalty under section 36(2)(c) of the Bombay Sales Tax Act, 1959 - on the Ad hoc payment of tax

Held : No

The appellant had sought determination under section 52 as to whether "Lead Oxide" would be covered under C-I-29 attracting tax at 4%. The Commissioner by his order dated 12-10-1987 held the product in question is covered by residuary entry attracting tax @ 10%. The matter reached the Tribunal by way of Appeal, and the Hon'ble Tribunal accepted the plea of the applicant and held the product in question should be classified as C-I-29. This decision of the Tribunal is challenged by way of reference before the High Court of Mumbai and is pending.

The assessment of the appellant for the period 1993-94 under the Bombay Sales Tax Act, 1959 and under the Central Sales Tax Act, 1956 were completed by the Assistant Commissioner of Sales Tax (Assessment),Thane. The assessment resulted in an excess payment of Rs. 2,293/-. The assessing authority noticed that the appellant had made an adhoc payment of Rs. 3,02,119/- on 3-5-1997, on which he imposed penalty under section 36(2)(c) at Rs. 2,53,000/-. The appellant plea for holding the impugned goods under C-I-29 and allowing him set off under Rule 41F on the basis of the decision of the Tribunal in the appellant’s own case was not accepted by the assessing officer and he followed the determination order passed by the Commissioner of Sales Tax. The assessing authority had also levied interest under section 36(3)(a) at Rs. 1,793/- and penalty under section 36(4A) at Rs. 500/-. The Joint Commissioner of Sales Tax decided the appeal on 30-1-2006 . According to him, the Revenue having not accepted the judgment of the Tribunal and has filed reference the plea of the appellant cannot be accepted and therefore he dismissed the appeal.

Before the Tribunal the appellant agitated only penalty under section 36(2)(c) and the rest of the points were given up. After considering the rival submissions the Tribunal came to the conclusion that there is no case of levy of penalty under section 36(2)(c). The reasons adduced by the Tribunal for arriving the conclusion are:– It is not mentioned in the assessment order as to the penalty is imposed under the main clause or under explanation. A reference is made that this penalty is being levied in the context of ad hoc payment of Rs. 303,119/-. As the payment is not according to the return it seems the penalty is imposed under Explanation –I to section 36(2)(c). On profound consideration of the facts narrated earlier the Tribunal had come to the conclusion that the appellants product is classifiable under C-I-29 and he is also entitled for 41F set off as the same is non-ferrous metal. The matter is before the High Court and it is highly debatable. Even though the appellant is not pressing the grounds regarding the classification and set off, if the judgment of the Tribunal is followed, the appellant would be entitled to an additional refund of very substantial amount which in all likelihood will exceed the amount of penalty under section 36(2)(c). According to the Tribunal there is neither any concealment nor any negligence on the part of the appellant. The whole interpretation centres round the classification of the particular product. All taxes have been paid before the date of assessment. The Tribunal therefore held that the appellant has discharged the burden of proof under Explanation-I; i.e., the differential tax dues arrived at after excluding the ad hoc payment was not caused due to any gross or wilful negligence on his part. There is therefore, no case for levy of penalty and in all fairness it has to be deleted.

(Progressive Organics vs. The State of Maharashtra – in Second Appeal No. 564 of 2006 dated 30-11-2006 before Third Bench, the judgment was delivered by Mr. G.G. Kochrekar, Member. The appellant was represented by Mr. P.V. Surte, Advocate.)

2. The appellant head office in Nagpur – Appellant purchased a Maruti car from Nagpur for use at its Raipur (M.P) office. Vehicle registered in Raipur. Whether the appellant is liable to pay Entry Tax under the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987?

Held : No

The appellant purchased a motor vehicle at Nagpur for use in its branch situated at Raipur (Madhya Pradesh). The Sales Tax Authorities at Nagpur issued notice to the appellant on 2-7-1993 and assessed the appellant to Entry Tax and penalty to the tune of Rs. 73,845/-. Appeal filed against the said order was dismissed by the Deputy Commissioner of Sales Tax (Appeals) Nagpur, against which the appellant had come before the Tribunal.

The submission of the appellant before the Tribunal was that the vehicle was purchased at Nagpur for the use of its Branch Office in Raipur. The vehicle was registered in Raipur under No. MP-23-B-9391 under the Motor Vehicle Act on 11-6-1992 with the Regional Transport Authority, Madhya Pradesh. The appellant’s head office being at Nagpur the vehicle happened to come to Nagpur. Notice of assessment was issued on 30-6-1993. According to the appellant till that date through the vehicle used to come to Maharashtra, it was not liable for registration in Maharashtra since the vehicle was not in Maharashtra continuously for more than 12 months. Section 46 of the Motor Vehicles Act lays down that when a motor vehicle registered in one State has been kept in another State for a period exceeding 12 months. Then the owner of the vehicle shall within such time apply to the Registering authority within whose jurisdiction the vehicle is present. According to the appellant the vehicle is entering Maharashtra for a short period which is less than 12 months. Then the appellant referred to the charging section and submitted that as per section 3, for the purpose of levy of tax under the Entry Tax Act, the vehicle should be liable for registration in the State of Maharashtra under the Motor Vehicles Act, 1939. The appellant also referred to section 40 of the Motor Vehicle Act which says that the Registering Authority in whose jurisdiction the vehicle owner resides or where he has a place of business and where the vehicle is normally kept is the authority for registration. In the present case the vehicle is purchased for Raipur office, which is normally kept at the Raipur office, at the time of registration the vehicle was physically available at Raipur and after satisfying the conditions for registration the R.T.O., Raipur registered the vehicle in Madhya Pradesh. It is further submitted that as per section 46 and subject to provisions section 47 a motor vehicle registered in any State shall not be required to be registered elsewhere in India. Suffice it to say the plea was considering the provisions of Motor Vehicles Act and the charging section 3 of Entry Tax Act, the impugned vehicle is not liable for registration in the State of Maharashtra and therefore the levy of tax is bad in law. In support of the plea the appellant has also relied on the decision of the Tribunal in Sahara India Financial Corporation Ltd. (S.A.1140 of 2003 dated 22-8-2003 & M/s Ketan Motors Ltd. (S.A. No.1440 of 2003 dated 31-4-2004).

On the other hand the revenue pleaded that the notice sent to the appellant at Raipur was received back and all subsequent notices were received at Nagpur office and therefore the appellant is a permanent resident in Maharashtra and liable for registration in Maharashtra.

The Tribunal after going through the provisions of Motor Vehicles Act and charging section 3 of the Entry Tax Act, observed that one of the conditions for levy of tax as per section 3 of the Entry Tax Act is that the vehicle is liable for registration in the State under the Motor Vehicles Act. The Tribunal further observed that it is pertinent to note that the vehicle was purchased on 29-5-1992 and it was registered with R.T.O. Raipur on 11-6-1992 and that time the vehicle was physically available for inspection by R.T.O. authority Raipur. The Tribunal further observed that the Entry Tax Officer has not brought any evidence on record when the motor vehicle thereafter entered in Maharashtra and it was in Maharashtra for a continuous period for more than 12 months . The Tribunal further observed that the reasons given by the First Appellate authority that the insurance was taken in Nagpur and the notice of assessment addressed at Raipur returned unserved is not a conclusive proof to establish that the vehicle was normally kept at Nagpur. For levy of tax the burden was on the assessing authority to prove the charge of tax. The Tribunal held that since the vehicle was not liable for registration under the Motor Vehicles Act in Maharashtra, it is not liable for levy of Entry Tax under section 3 of the Entry Tax Act. The Tribunal also accepted the ratio of the decision rendered by it in Sahara India Financial Corporation and M/s Ketan Motors Ltd.

(M/s Central India Distributors vs. The State of Maharashtra – Second Appeal No.1141 of 2003 dated 12th December 2006 before the Third Bench of the Maharashtra Sales Tax Tribunal. The judgment was delivered by Mr.D.H.Sali, Member . The appellant was represented by Mr.Ashok Chandak, Chartered Accountant.)

3. Contravention of section 46 – Whether Credit Notes issued by the appellant to its vendees is sufficient evidence to prove that the tax amounts in question are actually refunded to them.

Held : No

Brief facts leading to the case is as under:–

The appellant is a manufacturer of chemicals, plasticizers, amines, gases etc. The appellant was assessed for the period C.Y. 1986 on 28-12-1989. During the assessment it was noticed by the assessing authority that in respect of sales of certain chemicals effected from 1-7-1986 onwards the appellant had collected tax @ 10% even though the rate was reduced to 4% as per Notification entry 233 under section 41 of the Bombay Sales Tax Act, 1959. The assessing authority therefore issued notice in Form 29 on 15-12-1989 for forfeiture of excess tax collection which was to the tune of Rs. 3,92,261/-. In response to the said notice the assessee replied that he has already issued Credit Notes to all the concerned buyers and produced copies of credit notes. The assessee therefore submitted that there is no excess collection in contravention of section 46. Not satisfied with the evidence produced before him in support of the refund of tax, the assessing authority directed the assessee to produce acknowledged copies of Credit Notes as also confirmatory letters from the concerned buyers to confirm that they have received the credit notes and that the Credit Notes are accounted in their books of account and they have not claimed any set off in the context of the tax amounts represented by the credit notes. The assessee could produce the confirmation from only one buyer out of 42 buyers for an amount of Rs. 41,637/-. The assessing authority therefore passed the forfeiture order on 14-12-1992 forfeiting an amount of Rs. 3,50,624/- under section 37 read with section 46 of the Act. Aggrieved by the said order, First Appeal was preferred which came to be dismissed on merit by the Deputy Commissioner of Sales Tax by his order dated 25-10-2000. In the appeal proceedings also the appellant could not produce the acknowledged copies of credit notes or confirmatory letters. However, the appellant produced balance confirmation as on 31-3-2000 as per the appellant’s books of account. The Deputy Commissioner did not accept the same. Against the dismissal order of the Deputy Commissioner of Sales Tax, the appellant has approached the Tribunal by way of Second Appeal.

The sum and substance of the plea of the appellant before the Tribunal was that even before issue of forfeiture notice the appellant had issued credit notes. All Credit Notes were properly accounted for. It was not fair on the part of the lower authorities to insist for acknowledged copies as the period is very old. Practical difficulties are not considered. Balance confirmation as on 31-3-2000 in respect of 16 buyers were produced. The appellant therefore pleaded that the forfeiture order should be set aside. In reply the Revenue argued that the appellant’s claim that excess collection of 6% is refunded to the buyers should be proved with production of supporting documents. If the appellant has really refunded the excess collection, according to the department, there is no reason for those parties not to confirm that fact.

The Tribunal after considering the rival submissions upheld the view of the revenue for the following reasons. Except for the copies of credit notes and the relevant entries in his own books of account the appellant did not produce any other evidence to support his claim that particular tax amounts having been refunded to the buyers. The Tribunal agreed with the view of the department that when excess tax has admittedly been collected in the sale bills, mere issue of Credit Notes cannot be a sufficient evidence to refute the fact of excess tax collection and the authorities would be quite justified in asking for additional evidence in the form of confirmatory letters from the concerned buyers. The fact that a number of renowned manufacturing companies like Asian Cable Corporation, Indian Dyestuff Industries Ltd., National Organic Chemical Industries Ltd., Rashtriya Chemicals & Fertilizers Ltd., are the buyers weighed with Tribunal. It is most likely that most of these buyers must have claimed set off in the context of the tax amounts in question and if the set off is claimed and given, it is not at all in the fitness of the things to refund the tax amounts to them. The forfeiture proceedings are also initiated within a period of 3 years. According to the Tribunal on the basis of the facts, if the appellant had really raised credit notes to refund the tax amounts to the concerned parties and if the tax amounts are physically refunded to them, then there is absolutely no reason as to why those parties could not give the required confirmatory letters. According to the Tribunal since the buyers appear to have claimed set off, in the context of the tax amounts in question, they are certainly not entitled to get refund of the said tax amounts and in short in that event, neither the appellant nor the buyers are entitled to retain the tax amounts in question and the only authority which can retain those amounts is the Government.

The Tribunal also did not accept the plea that some parties have given balance confirmation as on 31-3-2000 and thereby the Credit Notes in question can be said to have been confirmed by them. The Tribunal was of the firm view that in the matter of forfeiture the question as regards the tax is collected or not and whether the collected tax is refunded or not has to be verified and ascertained on the basis of direct evidence related to the particular individual transactions and not on the basis of indirect evidence not supported by documents relating to the transactions during the in-between long period.

The appellant has placed strong reliance on 2 judgments of the Tribunal: (1) Pudamji Pulp & Paper Mills Ltd., (S.A. 423/424 of 2000 dated 30-4-2002). The matter was under the Central Act and related to giving credit notes for reduction of sale price. Ledger accounts of the concerned parties were produced and the Tribunal accepted the plea. However, according to the Tribunal the present case is different. There was no involvement of excess tax collection to be forfeited. Another case relied upon by the appellant was Impact Containers Pvt. Ltd. (S.A. 1748 of 1985 and S.A. 805 of 1998 dated 3-8-2002). The relevant facts are that assessee collected 8% tax on aluminium collapsible tubes. Subsequently the Tribunal held the A.C. tubes were covered by C-I-29 and liable to tax @ 4%. The assessee issued credit notes in two phases. In the first phase, credit notes were issued for 2% tax collection and to that extent it was claimed to have been actually refunded to the buyers by way of adjustment in their running accounts. In the second phase, credit notes for additional 2% tax collection were issued but this tax amount was not physically refunded to the buyers and instead an undertaking was given to them to the effect that it would be refunded on receipt thereof from the department. The revenue did not accept the credit notes and forfeited the entire excess collection of 4%. The matter reached the Tribunal and Tribunal directed the department to refund the amount to the assessee and the assessee to refund the amount to the buyers to be followed by necessary refund proof.

In the present case the Tribunal did not find the reasoning of the Bench delivered the judgment in Impact Containers Pvt. acceptable. The Tribunal observed that when the assessee has unauthorizedly collected any tax or has collected tax in excess of his legal liability, in contravention of the provisions of section 46 of the Act, such amount has to be forfeited by the Government subject to of course following statutory provisions. The Tribunal went on to observe that the assessee who is claiming that the tax amounts admittedly collected by him in the bills are refunded to the buyers, and, therefore, it is he, who is in the best position to obtain the relevant confirmation letters from the buyers as to whether they have accounted the credit notes and whether they have claimed any set off. In case the buyer refuses to give such confirmatory certificate, the seller who has already collected tax from the buyer, can always allow such tax amounts to get forfeited. In that view of the matter, it would be wrong to say that the seller has to be at the mercy of the buyer for getting the required facts ascertained and that therefore the burden for the ascertainment of facts has to be on the department and not on the seller. The Tribunal therefore respectfully declined to follow the ratio of the judgment in Impact Containers Pvt. Ltd. The Tribunal has also referred to the decision of the Apex Court in R.S. Joshi, Sales Tax Officer vs. Ajit Mills Ltd. (40 S.T.C. 497). The Tribunal concluded that having regard to the said Supreme Court judgment, when excess tax is admittedly collected, there is no other option left with the authorities, but to forfeit it under section 37 and then pass it on to the buyer either by way of set off under section 42 or by way of refund under section 38(6) of course subject to the relevant provisions and according to the Tribunal Impact Containers Pvt. Ltd. (supra) contemplates departure from this machinery and instead of forfeiting, seeks to refund the excess amount to the selling dealer at a time when the fact of excess tax collection is not refuted. It is further observed that the Tribunal in the present case is guided by the Hon. Apex Court in the case of Mafatlal Industries Ltd vs. Union of India (111 STC 467).

In view of the foregoing discussions the Tribunal dismissed the second appeal.

(Amines & Plasticizers Ltd. vs. The State of Maharashtra (Second Appeal No.453 of 2001 dated 30th November 2006. The judgment is delivered at the Third Bench by the Hon'ble Member Mr.G.G. Kochrekar. The appellant was represented by Mr. Suresh S. Gaitonde, Advocate).