M/S Yadu Sugar Mill Ltd. vs The Commissioner Commercial ...
2018 Latest Caselaw 3572 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

						A.F.R.
 
Court No. - 7
 

 
Case :- SALES/TRADE TAX REVISION No. - 311 of 2018
 

 
Applicant :- M/S Yadu Sugar Mill Ltd.
 
Opposite Party :- The Commissioner Commercial Taxes
 
Counsel for Applicant :- Piyush Agrawal
 
Counsel for Opposite Party :- C.S.C.
 

 
Hon'ble Saumitra Dayal Singh,J.

1. Heard Sri Piyush Agrawal, learned counsel for the applicant-assessee and Sri B.K. Pandey, learned Standing Counsel for the opposite party. The present revision application is being decided finally, at fresh stage itself, with consent of both parties.

2. Upon hearing the parties, the question of law framed in the memo of revision have been reframed or dovetailed as below. Both sides have advanced submissions on those questions.

(i) Whether penalty under Section 34(8) of the U.P. Vat Act, 2008 (hereinafter referred to as the Act) is mandatory ?

(ii) Whether justification to impose penalty survived when the assessee had, of its own and prior to issuance of any notice in that regard, cleared the default in payment of T.D.S. amount together with interest ?

3. The revision relates to A.Y. 2010-11. Admittedly, this was the first year of business and assessment for the assessee as it was granted registration w.e.f. 20.05.2010; the assessee made payments to building contractors on which it made deductions of tax on source (T.D.S in short); however, that amount of T.D.S. was not deposited within time prescribed by law; nevertheless, the assessee deposited the same before issuance of any show-cause or other notice in that regard. Thus, the assessee, made deposits of various amounts i.e. Rs. 31,606/- (together with interest of Rs. 31,606/-), on 30.11.2011; Rs. 24,026/- (together with interest of Rs. 24,026/-), on 30.11.2011; Rs. 66,572/- (together with interest of Rs. 31,715/- vide three challans dated 21.2.2011, 9.4.2011 and 18.06.2011), and; Rs. 1,33,233/- (together with interest of Rs. 1,68,090/-), on 30.11.2011. Further admittedly, the entire amount of default of T.D.S. was cleared by the assessee together with interest.

4. Thereafter, a notice was first issued to the assessee under Section 34(8) of the Act proposing to impose penalty for the delay in deposit of T.D.S. amount for the A.Y. 2010-11. The assessee set up a defence stating it had already cleared the default and therefore, it was not liable to penalty. The Assistant Commissioner rejected the explanation furnished by the assessee and imposed penalty equal to twice the amount of default, by his order dated 18.09.2015. The assessee carried the matter in appeal, that was dismissed. The penalty was sustained. Upon further appeal, the Tribunal has also rejected the appeal. Hence this revision.

5. Sri Piyush Agrawal, learned counsel for the applicant-assessee submits the penalty under Section 34(8) of the Act is not mandatory, rather it is discretionary. Relying on the language of the Section 34(8) of the Act, it has been submitted that there is nothing to the language to suggest that each and every default committed by the assessee in depositing the T.D.S. is liable to be penalized as a matter of principle or rule or mandate of the legislature. In this regard, Section 34(8) of the Act may be taken note of, which reads as under:

"Section 34. Tax Deduction at source-

(1)....................

........................

........................

(8) If any person referred to in sub-section (1) fails to make the deduction or after making deduction fails to deposit the amount so deducted as required by sub section (6), the assessing authority may, after giving to such person an opportunity of being heard, by order in writing, direct that such person shall pay, by way of penalty, a sum not exceeding twice the amount deductible under this section but not so deducted and, if deducted, not so deposited into the Government Treasury."

(emphasis supplied)

6. He further submits, the Assessing Authority was bound to consider the entire facts and circumstances of the case including the fact that this was the first year of the assessment of the assessee; the entire defaulted amount stood deposited with the revenue together with interest and; the default had been cleared before issuance of any show cause or other notice, by the assessing officer. In fact, it has been submitted, at the relevant time the assessing officer was unaware of the default committed by the assessee and that the notice was first issued by the assessing officer more than four years after close of A.Y. 2010-11. The assessee, on its own, acted with bona fide intent and made good the loss to the revenue by, clearing the default together with interest that was otherwise chargeable. Therefore the penalty should not have been levied. Reliance has also been placed on two earlier decisions of this Court in Sales/Trade Tax Revision No. 335 of 2015 (Commissioner of Commercial Tax Vs. Rajendra Kumar Gupta Memorial Trust) decided on 24.07.2015, as followed in Sales/Trade Tax Revision No. 99 of 2016 (M/s Shell India Markets Pvt. Ltd. Vs. Commissioner of Commercial Tax) decided on 01.04.2016.

7. Sri B.K. Pandey, learned Standing Counsel on the other hand submits that once commission of default is admitted the imposition of penalty under Section 34(8) of the Act became necessary. The discretion was confined to the quantum of penalty to be imposed, only. The provision mandates the assessing officer to necessarily pass an order in writing and to direct the defaulting assessee to pay the penalty. He has placed reliance on another decision of this Court in the case of C.C.T. Vs. Bareilly Highways Projects Limited, 2017 NTN (64) 1, wherein this Court held, the fact that the defaulting assessee may have deposited the interest along with the belated tax amount, would not make material difference on the penalty that may be imposed. Once it was found that the tax deducted had not been deposited, the payment of interest arose as a natural consequence of that default. On the other hand, penalty provisions were independent where under the liability had to be determined 'to the extent permitted by law'. It was only for the purpose of quantification of the penalty amount, the Court held, extenuating circumstances may be considered to determine the quantum of penalty.

8. Having considered the arguments so advanced by learned counsel for the parties, in the first place, it may be noted neither decision cited by either side has directly interpreted the statutory language and decided whether the penalty under Section 34(8) of the Act is mandatory or discretionary. Still the decision in the case of C.C.T. Vs. Bareilly Highways Projects Limited (supra) does hold, for the purpose of imposition of penalty, it may not be a material consideration that the assessee had already paid the defaulted amount of tax along with interest. In fact, in that decision itself, the court clarified, the imposition of penalty would remain a distinct provision where penalty may be imposed "to the extent permissible in law". However, it has not been clarified or elaborated as to the pre-conditions when penalty may be imposable as may lead to a logical inference that penalty would become imposable in every case of default to make or deposit the T.D.S. amount.

9. On the other hand the two decisions cited by learned counsel for the applicant-assessee hold where the assessee had cleared the default of tax together with interest, no prejudice had been caused to the revenue. Therefore, the penalties were deleted. However, these decisions were not brought to the notice of the Court in C.C.T. Vs Bareilly Highways Projects Limited (supra).

10. Also, in cases arising from Section 8-D (6) of the U.P. Trade Tax Act, 1948 with which the provisions of section 34(8) of the Act are pari materia, this Court consistently upheld the deletion of similar penalties since the assessee (in those cases) had deposited the entire amount of T.D.S. together with interest prior to issuance of penalty notice. In the cases of B.S.N.L. through Executive Engineer Vs. Commissioner of Trade Tax U.P. (VSTI 2014 (19) B-154) and; The Commissioner Commercial Tax, Lucknow Vs. S/S. Garrison Engineers Project (2017 UPTC-400), this Court upheld the deletion of similar penalties.

11. Thus, at first there appears to exist a difference of opinion in the judgments cited by the learned counsel for the applicant-assessee and learned Standing Counsel to the extent the decisions of C.C.T. Vs Rajendra Kumar Gupta Memorial Trust and M/s Shell India Markets Pvt. Ltd. Vs. C.C.T and other judgments noted above, appear to hold once the assessee had cleared the default of tax together with interest, no prejudice may be claimed by the revenue as may justify imposition of penalty, while in the case of C.C.T. Vs. Bareilly Highways Projects Limited (supra), another learned Single Judge held deposit of tax made belatedly along with interest may not be a lead to penalty under Section 34(8) of the Act being dropped. That conclusion was reached largely in absence of any earlier decision on the point being placed before the Court. Though the element of concealment was rightly held to be irrelevant, yet, that does not form any part of the reasoning in the two earlier judgments relied upon by learned counsel for the assessee.

12. Though it is true 'concealment' is not an ingredient of penalty under section 34(8) of the Act, however, therefore, imposition of penalty is not automatic or mandatory merely upon the occurrence of a default. The true nature of penalty - whether mandatory or discretionary may be determined on an interpretation of the statutory provision providing for penalty and not on a general principle of law or administrative convenience or even the facts of each case. From a plain reading of section 34(8) of the Act it appears, penalty 'may' be imposed by the assessing officer, if after considering the reply of the assessee, the assessing officer considers imposition of the penalty to be warranted. In contrast, the word 'shall' appears in the later part of the sub-section to indicate once such order imposing a penalty is passed, the assessee would be obligated to pay that amount of penalty as may be specified in the penalty order. Again, the assessing officer 'may' impose the quantum of penalty as per his discretion. Thus, he 'may' impose any penalty not exceeding twice the amount of the tax deductible at source.

13. The words 'may' and 'shall' having been used in two parts of the same sub-section providing for levy of penalty, it appears natural and logical to assign the normal grammatical meaning to those two words so as to preserve the essential and inherent difference in their grammatical sense or meaning. In the context of examining the discretionary or obligatory nature of consequences arising from such usage, it is seen, the legislature has used the word 'shall' in that sub-section while providing the consequence that visits an assessee upon a penalty order being actually passed. Normally, such a consequence providing for recovery etc. has to be mandatory. As such, to signify and/or emphasize that consequence, the legislature has used the word 'shall' to make plain that the penalty order has to be mandatorily complied. In Pradip Kumar Maity v. Chinmoy Kumar Bhunia, (2013) 11 SCC 122 the Supreme Court observed:

"6. ...........Chinnamarkathian v. Ayyavoo holds that whenever the word "may" is employed in a statute it confers discretion to do something. It seems to us that in instances where the legislature uses the words "shall" and "may" in close proximity of each other, as in Section 38, there is virtually no room to construe the word "may" as mandatory. Indeed, the decisions in this context dwell predominantly on the scope of interpreting "shall" as merely obligatory, whereas the nodus in hand is the obverse. G.P. Singh in his treatise titled, Principles of Statutory Interpretation remains steadfast in the opinion that when both words are used in the same section, "shall" imposes an obligation or imperative whilst "may" connotes directive or discretionary power. ..............."

14. It is difficult to read the word 'may' first used in section 34(8) of the Act to signify a mandatory action by the assessing officer, though the plain grammatical meaning of the word 'may' suggests otherwise as to existence of a discretion or an option to do or to not do a certain thing. If the legislature intended to provide a mandatory penalty upon each and every default, then, it would have used the word "shall" in the first part of that sub-section also. The legislature having used both "may" and "shall" in the same sub-section in the context of the same penalty, it would be doing violence to the language used by the legislature to not recognize and give full effect to the difference in the plain grammatical meaning of the two words, that otherwise exists.

15. It may have been otherwise if the legislature had used the word "shall" in the earlier and the word "may" in the latter part of that sub-section. In that case it may have been urged with success that the word "may" though indicates existence of a discretion, it has to be read as obligatory, otherwise it would lead to absurd results by leaving it optional to the defaulter to comply with the penalty order passed against him.

16. Another reason to hold the penalty under section 34(8) of the Act discretionary and not mandatory arises from the indisputable position that there exists discretion with the assessing officer to impose such quantum of penalty as may not exceed twice the amount of defaulted amount. However, there is no prescription of a minimum penalty. Once such discretion exists, it has to be conceded that the assessing officer has to apply his mind to relevant facts such as the nature (admitted or disputed) of default; extent of default; the conduct of the defaulting assessee etc. to determine the quantum of penalty that may be justified.

17. In absence of any amount or rate or quantum being specified by the legislature by way of minimum penalty imposable, necessarily a minimum penalty of say one Rupee or such amount would have to be imposed in every case of default, even in cases where the assessing officer may otherwise feel satisfied with the explanation of the defaulting assessee and no higher penalty may thus be warranted or imposed. Plainly, such a construction would lead to meaningless if not absurd results. Such penalties if allowed to be imposed would serve no useful purpose either to the revenue or the assessee, besides resulting in wastage of government money and time.

18. Read in its entirety, though the language of section 34(8) of the Act does not admit any element of concealment as an ingredient for the penalty imposable under that provision of law, at the same time it clearly does not appear to suggest that in every case of default, in either making a deduction or in timely depositing the T.D.S. amount, the defaulting assessee must, as a matter of principle, be penalised. The word 'shall' used to provide for the effect or consequence of the penalty order cannot be read out of context to imply that the assessing officer must necessarily, in all cases of default, irrespective of all other attending facts and circumstances obliged to impose penalty. To accept such an interpretation, besides doing violence to the plain language of the sub-section would otherwise discourage a bona fide assessee from rectifying his own default, especially in cases where the revenue may not be even aware of the default or its cure on self-act of the assessee as in the instant case.

19. Thus on the question of interpretation, the imposition of penalty under section 34(8) of the Act as also quantification of the penalty amount (where that penalty may be found imposable), is found to be directory and not mandatory. Only the enforcement of the penalty order is found to be mandatory. The judgment of this court in the case of C.C.T. Vs. Bareilly Highways Projects Limited (supra) does not interpret the penalty under section 34(8) of the Act as mandatory. It cannot be read to that effect.

20. Even as to applicability of that judgment, it is wholly distinguishable. First, it only holds, in determining the penalty, it may be relevant but not itself sufficient to drop the penalty if the assessee had cleared the default together with interest. It did not hold that in such facts penalty would remain necessarily imposable. Second, though noted, it did not examine the consequence (on levy of penalty), of the assessee having cleared the default with interest before it was noticed by the revenue. Third, the earlier view taken by this Court in favour of deleting the penalty in cases where the entire default together with interest stood removed by the assessee (before its detection by the revenue), was not brought to its notice and was therefore not considered. Read in that manner, the judgment in the case of C.C.T. Vs. Bareilly Highways Projects Limited (supra) is clearly distinguishable and in any case not binding. It has to be confined to the facts of that case. Thus there does not exist any real conflict between that judgment and the earlier consistent view of this Court.

21. In the present case, undisputedly the assessee rectified the default committed by it (during A.Y. 2010-11) together with interest before the end of the calendar year 2011 i.e. during A.Y. 2011-12. The revenue on the other hand did not realize the existence of that default or its rectification made by the assessee, till as late as 09.09.2014. This undisputed fact mitigates against the levy of penalty as the assessee was not caught having committed the default and it had made good the loss to the revenue before issuance of any notice of demand with respect to the defaulted amount etc. The loss suffered by the revenue, if any, became negligible and/or minimized. There survived no further legal justification to penalize such an assessee. That also appears to be the consistent view of this court in the judgments noted above with which I am in agreement.

22. Thus, the questions of law noted above are answered in the negative i.e. in favour of the assessee and against the revenue. The revision is allowed. No order as to costs.

Order Date :- 12.11.2018

Prakhar