Orissa High Court
Afr vs State Of Odisha on 29 March, 2023
ORISSA HIGH COURT: CUTTACK
STREV NO. 47 OF 2017
In the matter of an application under Section 9(2) of the
Central Sales Tax Act, 1956 and Rule 22 of the Central
Sales Tax (Odisha) Rules, 1957 read with Section 80 of
the Odisha Value Added Tax Act, 2004.
---------------
AFR
M/s Sri Padmavati Cashew ..... Petitioner
Industries
-Versus-
State of Odisha, represented by
Commissioner of Sales Tax,
Odissa ..... Opp. Party
For Petitioner : M/s. Bhabani Prasad Mohanty,
Niranjan Paikray, Rudra Prasad
Kar and Aditya Narayan Ray,
Advocates
For Opp. Parties : Mr. Susanta Kumar Pradhan,
Addl. Standing Counsel
(CT & GST Organisation)
P R E S E N T:
THE HONOURABLE DR. JUSTICE B.R.SARANGI
AND
THE HONOURABLE MR. JUSTICE M.S. RAMAN
DECIDED ON : 29.03.2023
DR. B.R. SARANGI,J. M/s. Sri Padmavati Cashew Industries, a
proprietorship concern of Sri M. Nagabhusan Rao, has
// 2 //
filed this revision to quash the order dated 04.02.2017
under Annexure-3 passed by the Odisha Sales Tax
Tribunal, Cuttack in dismissing S.A. No. 90 (C) of 2013-
14 preferred by the petitioner-dealer and allowing S.A.
No. 143 (C) of 2013-14 preferred by the revenue and
setting aside the order dated 30.10.2013 passed by the
Joint Commissioner of Sales Tax, Koraput Range,
Jeypore under Annexure-2 and restoring the assessment
order dated 19.02.2013 passed by the Asst.
Commissioner of Sales Tax, Koraput Circle, Jeypore
under Annexure-1 imposing tax and penalty of
Rs.1,83,078.00 under Rule 12(4) of the Central Sales
Tax (Odisha) Rules, 1957, pertaining to the tax periods
from 01.04.2010 to 31.03.2012.
2. The petitioner before this Court is a dealer
and an assessee being assigned with TIN 21331601578.
As per the tax evasion report received from the Deputy
Commissioner of Sales Tax, Vigilance, Koraput Division,
Jeypore, proceedings under Section 43 of the Odisha
Value Added Tax Act (for short "OVAT Act") and Rule
// 3 //
12(4) of the Central Sales Tax (Odisha) Rules, 1957 (for
short "CST (O) Rules, 1957") were initiated against the
dealer. For assessment under the CST Act, notice in
Form-IVA under the CST (O) Rules, 1957 was issued. In
response to the said notice, the dealer appeared and
produced its books of accounts. On examination of the
same, it was found that the dealer processed cashew nut
to produce cashew kernel and its by-products and also
effected purchase of cashew nuts from both inside and
outside the State of Odisha. During the period of
assessment, the dealer had disclosed its total sale under
inter-State at Rs.2,86,41,600/-, CST of Rs.9,33,802/-
and shown adjustment of Rs.56,041/- against VAT ITC.
But on verification it was found that the dealer had no
input tax credit for that tax period to adjust. As the
dealer had paid excess amount of tax under the OVAT
Act, it could not adjust the same against CST dues in
view of Rule 7(3)(c) of the CST (O) Rules. Except the said
irregular claim of adjustment of excess payment made
under the OVAT Act against the tax due under the CST
// 4 //
Act, the return figures were accepted. But against total
sale of Rs.82,56,800/- at concessional rate of tax against
declaration in Form 'C', the dealer submitted 'C' forms
for Rs.75,41,800/- and failed to submit the 'C' forms for
the rest amount of Rs.7,15,000/-. Therefore, in absence
of 'C' form for Rs.7,15,000/-, the dealer was taxed at the
appropriate rate of tax. Accordingly, tax dues was
calculated on the net taxable turnover @ 2% on
Rs.75,41,800/- (sale against 'C' form as an SSI Unit), 4%
on Rs.2,10,99,800/- (sale without 'C' form of cashew
kernel) came to Rs.9,94,828/-, against which the dealer
had already paid Rs.9,33,802/- through challans.
Therefore, the tax dues came to Rs.61,026/-. As such,
an amount of Rs.1,22,052/- was imposed as penalty
under Rule 12(4)(c) of the CST (O) Rules, 1957.
Therefore, the total tax and penalty together came to
Rs.1,83,078/- to be paid by the petitioner-dealer.
Consequentially, the demand notice was issued to the
petitioner-dealer.
// 5 //
2.1 Against the aforesaid order of assessment
demanding Rs.1,83,078/- which includes penalty of
Rs.1,22,052/- under Rule 12(4)(c) of the CST (O) Rules,
1957, the petitioner-dealer preferred an appeal under
Section 9(2) of the CST Act and Rule 22 of the CST (O)
Rules read with Section 77(1) of the OVAT Act, 2004
which was registered as AAC (KOR) 20/12-13. The
appellate authority, upon hearing, vide order dated
30.10.2013, came to a definite finding that, so far as
imposition of maximum penalty under Rule 12(4)(c) of
the CST (O) Rules, 1957 is concerned, the petitioner had
not suppressed any turnover which would affect the
revenue. The appellate authority also held that no
suppression of any turnover or fraud was established
nor the dealer was found to have illegally deducted any
turnover as exempted sale which would affect the tax
liability. By holding so, resorting to the discretionary
power vested under Rule-12(4)(c) of the CST (O) Rules,
1957, the appellate authority limited the penalty to
Rs.30,000/- instead of Rs.1,22,052/- and accordingly
// 6 //
allowed the appeal in part and reduced the assessment
to Rs.91,026/-. The calculation is detailed hereunder:-
As determined As As determined by
by STO claimed JCST
by
Appellant
Gross Rs.2,86,41,600.00 Rs.2,86,41,600.00
turnover
Taxable Rs.2,86,41,600.00 Rs.2,86,41,600.00
turnover
Tax assessed Rs. 9,94,828.00 Rs. 9,94,828.00
Tax paid Rs. 9,33,802.00 Rs. 9,33,802.00
Balance tax Rs. 61,026.00 Rs. 61,026.00
Penalty Rs. 1,22,052.00 Rs. 30,000.00
imposed
Total to pay Rs. 1,83,078.00 Rs. 91,026.00
2.2 Against the aforesaid order of the appellate
authority, viz., Joint Commissioner of Sales Tax,
Koraput Range, Jeypore, the petitioner preferred S.A. No.
90 (C) of 2013-14 and, as such, the State of Orissa also
preferred S.A. No. 143 (C) of 2013-14 before the Odisha
Sales Tax Tribunal, Cuttack. The tribunal heard both
the appeals together and by a common order dated
04.02.2017, while dismissing the appeal preferred by the
petitioner, allowed the appeal preferred by the revenue
and set aside the order passed by the Joint
Commissioner of Sales Tax, Koraput Range, Jeypore and
// 7 //
restored the order passed by the Asst. Commissioner of
Sales Tax, Korapur Circle, Jeypore. As such, the cross
objection filed by the revenue was also disposed of.
Hence, this revision.
3. The assessee-petitioner, in the revision
petition, formulated following questions of law for
determination:-
"(A) Whether on the facts and in the
circumstances of the case, the order of
the Tribunal is perverse and
erroneous?
(B) Whether on the facts and
circumstances of the case, the Tribunal
was justified in upholding the penalty
equal to twice the amount of tax
particularly when there was no
suppression of any turnover by the
petitioner nor any fraud has been
established nor the petitioner is found
to have illegally deducted any turnover
as exempted sale which affects the tax
liability?
(C) Whether on the facts and in the
circumstances of the case, the Tribunal
is justified in upholding the levy of tax
and penalty imposed under clause (c)
of sub-rule (4) of Rule 12 of the CST (O)
Rules particularly when the order of
assessment has been made under Rule
12(4) (a) of the CST (O) Rules on the
basis of the scrutiny of returns without
completion of assessment under sub-
// 8 //
rule (1), (2) or (3) of Rule 12 of the CST
(O) Rules?
(D) Whether on the facts and in the
circumstances of the case, the Tribunal
has committed gross illegality in
upholding the levy of penalty
undisputedly when the first appellate
authority has satisfied that there was
no escapement of tax and the
adjustment of VAT against CST
payable was with reasonable cause?
(E) Whether on the facts and
circumstances of the case, the
imposition of penalty under Rule 12 (4)
(c) of the CST (O) Rules is maintainable
or sustainable in the eye of law in
absence of any substantial provisions
under the CST Act, 1956?"
4. As a matter of fact, this Court, vide order
dated 28.11.2017, has admitted the revision petition on
the following question of law:-
"(B) Whether in the facts and circumstances
of the case, the learned Tribunal was
justified in upholding the penalty equal
to twice the amount of tax particularly
when there was no suppression of any
turnover by the petitioner nor any fraud
has been established nor the petitioner
is found to have illegally deducted any
turnover as exempted sale which
affects the tax liability?"
5. In course of argument, Mr. Bhabani Prasad
Mohanty, learned counsel appearing for the petitioner
// 9 //
laid emphasis on the question No.B and contended that
on perusal of the order of the first appellate authority it
would be evident that he has categorically found that
there was no suppression of any turnover by the
petitioner nor was any fraud established nor was the
petitioner found to have illegally deducted any turnover
as exempted sale to affect the tax liability. It is further
contended that neither the order of the assessing
authority nor the order of the Sales Tax Tribunal
indicates that there was "escapement" of any turnover or
any fraud was established or the petitioner was found to
have illegally deducted any turnover as exempted sale so
as to impose penalty. His further contention is that when
there was no escapement of turnover and the adjustment
of excess tax paid under the OVAT Act against the CST
payable, imposition of penalty under Rule 12(4)(c) of the
CST (O) Rules, 1957 is without jurisdiction and without
any authority of law.
6. Sri Susanta Kumar Pradhan, learned Addl.
Standing Counsel appearing for the Revenue justifies the
// 10 //
order passed by the tribunal and contended that no
illegality or irregularity has been committed by the
second appellate tribunal, so as to warrant interference
of this Court, as imposition of penalty under Rule
12(4)(c) of the CST (O) Rules, 1957 is within the
discretionary power of the authority.
Sri Susanta Kumar Pradhan, learned
Additional Standing Counsel referred to a decision
rendered by this Court in the case of State of Odisha Vrs.
Chandrakanta Jayantilal, Cuttack, STREV No.69 of 2012,
vide Order dated 05.07.2022, wherein earlier decisions
in National Aluminium Company Ltd. Vrs. Deputy
Commissioner of Commercial Taxes, Bhubaneswar-III
Circle, Bhubaneswar, 2021 (I) OLR 828 and Jindal
Stainless Ltd. Vrs. State of Odisha, (2012) 54 VST 1 (Ori)
are taken note of, and harped on the point that the
penalty as was imposed by exercising judicious
discretion on the finding that there was erroneous
adjustment of tax touching the liability under the CST
Act, the assessment order restored by the learned
// 11 //
Odisha Sales Tax Tribunal does not deserve indulgence
in the present proceeding.
7. "Escaped Assessment" can be understood in
common parlance as that the turnover cannot be said to
have escaped assessment except in the case where an
assessment has been made which does not include the
turnover. At all events, such turnover has not escaped
assessment if they are pending at the time proceedings
for the assessment of the assessee's figures disclosed in
the return which have not yet terminated in a final
assessment thereof. More so, the words "for any reason"
placed before the expression "escaped assessment"
clearly indicate that the Legislature intended to include
all those cases which either resulted from mere
inadvertence or from conscious misapprehension of the
proper situation. There is no justification for confining
the meaning of the word "escape" to those cases only
which have not come to the notice of the assessing
officer at all and excluding those cases where he has
applied his mind, but on account of an error of judgment
// 12 //
has set any part of the turnover free from assessment.
More specifically, the expression "escaped assessment"
is not the same thing as "escaped from assessment". But
in the technical sense an 'escape' is an unauthorized
departure from legal custody; in a loose sense the word
is used to indicate either such an unlawful departure or
an avoidance of capture.
8. In the case at hand, nothing has been placed
on record indicating that the turnover disclosed in the
return has been escaped assessment so as to entitle the
assessing authority to impose penalty under Rule12(4)(c)
of CST (O) Rules, 1957. But the assessing authority
imposed penalty in exercising his discretion and such
discretion has been exercised without any reasonable
cause. There is a specific finding that the petitioner has
not suppressed any turnover which will affect the
revenue. It is no doubt true that a discretionary power
has been vested with the assessing officer for imposing
penalty under Rule 12(4)(c), but when suppression of
any turnover or commission of any fraud has not been
// 13 //
established, nor the petitioner has been found to have
illegally deducted any turnover as exempted sale to affect
the tax liability, in that case imposition of penalty under
Rule 12(4)(c) cannot have any justification.
9. It may be relevant to extract the relevant
provisions of Rule 12(4) of the CST (O) Rules as it existed
during the relevant tax periods with respect to which
returns were furnished and assessment was undertaken:
"12. Assessment.--
(4) (a) Where, after a dealer is assessed
under sub-rule (1), (2) or (3) for any period,
the Assessing Authority, on the basis of any
information in his possession, is of the
opinion that the whole or any part of the
turnover of the dealer in respect of any
period or periods has escaped
assessment, or has been under-assessed,
or has been assessed at a rate lower than
the rate at which it is assessable or that the
dealer has been allowed wrongly any
deduction from his turnover or exemption
under the Act or has been wrongly allowed
set off of input tax credit in excess of the
amount admissible under clause (c) of sub-
rule (3) of Rule 7 of these rules, he shall
serve a notice in Form IVA on the dealer.
(b) The hearing of the dealer shall be
concluded in accordance with the provisions
of clauses (b) and (d) of sub-rule (3).
// 14 //
(c) The Assessing Authority shall, after
hearing the dealer in the manner specified in
clause (b), assess the amount of tax payable
by the dealer in respect of such period or
periods for which assessment proceedings
has been initiated and if he is satisfied
that the escapement is without any
reasonable cause, he may direct the
dealer to pay, by way of penalty, a sum
equal to twice the amount of tax
additionally assessed.
***"
10. Bare perusal of aforesaid provisions of Rule
12(4) which enables the Assessing Authority to initiate
action for assessment is dependent on certain pre-
conditions, namely:
i. Initiation of the assessment under Rule
12(4) should be preceded by assessment
under sub-rule (1), (2) or (3);
ii. The basis for action is information in
the possession of the Assessing
Authority;
iii. On the basis of such information opinion
must be formed by the Assessing
Authority;
iv. Such opinion must relate to the
following eventualities:
a. the whole or any part of the turnover
of the dealer in respect of any period
// 15 //
or periods has escaped assessment;
or
b. the whole or any part of the turnover
of the dealer in respect of any period
or periods has been under-assessed;
or
c. the whole or any part of the turnover
of the dealer in respect of any period
or periods has been assessed at a rate
lower than the rate at which it is
assessable; or
d. the dealer has been allowed wrongly
any deduction from his turnover; or
e. the dealer has been allowed wrongly
exemption under the Act; or
f. the dealer has been allowed wrongly
set off of input tax credit in excess of
the amount admissible under clause
(c) of sub-rule (3) of Rule 7 of these
rules.
In presence of aforesaid eventualities, the Assessing
Authority is empowered to serve a notice in Form IVA on
the dealer.
11. So far as imposition of penalty for the present
context is concerned, upon adherence to the principles
// 16 //
of natural justice, the Assessing Authority shall assess
the amount of tax payable by the dealer in respect of
such period or periods for which assessment
proceedings has been initiated. Upon determination of
tax liability upon assessment, the Assessing Authority is
bestowed with power to apply his mind whether to
impose penalty. For invoking power under Rule 12(4)(c)
for imposition of penalty, it is mandated as follows:
i. The Assessing Authority is required to be
satisfied that:
a. There has been escapement of
turnover;
b. Such escapement was without any
reasonable cause.
ii. Upon fulfilment of said requirements,
the Assessing Authority may exercise his
discretion by directing the dealer to pay,
by way of penalty, a sum equal to twice
the amount of tax additionally assessed.
12. When the aforesaid provisions are juxtaposed
with the factual position of the present case, without
ascertaining whether the amount of Rs.56,041/-
disallowed on account of adjustment availed by the
// 17 //
assessee-dealer against excess tax paid under the OVAT
Act (which fact remained uncontroverted) would
tantamount to escapement of turnover, the Assessing
Authority straightway imposed penalty under Rule
12(4)(c) of the CST (O) Rules. Neither the Assessing
Authority has assigned any reason nor does the
Assessment Order reveal recording of his satisfaction.
Said amount of Rs.56,041/- ex facie emanates from the
turnovers disclosed by the petitioner in the returns. This
fact is returned by the Assessing Authority in his
Assessment Order in the following words:
"*** On verification it is found that the
dealer processes cashew nut to cashew
kernel and its by-products. He has effected
purchase of cashew nuts from both inside
and outside the State of Odisha. During the
period of assessment he disclosed his total
sale under inter-State at Rs.2,86,41,600/-,
i.e., sale against C Form for
Rs.82,56,800.00, without C Form for
Rs.2,03,84,800.00, CST of Rs.9,33,802.00
and shown adjustment of Rs.56,041.00
against VAT ITC. But on verification it is
found that the dealer has no input tax credit
for that tax period to adjust. As the dealer
has paid excess amount of tax under the
OVAT Act, he cannot adjust the same
against the CST dues. ***"
// 18 //
13. Against imposition of penalty, the assessee
has submitted by way of grounds of appeal before the
First Appellate Authority as follows, which forms part of
the Appellate Order:
"In the instant case, the dealer has
by mistake paid under the OVAT challan
instead of CST challan. The tax payment
is made, so the dealer cannot be
penalized on wrong interpretation and it
should be broadly considered."
Since the aforesaid fact and figure of turnover found
incorporated in the account books, this Court is of the
considered opinion that the Assessing Authority has not
applied his mind to the material fact available on record.
This view is supported by the dicta of Hon'ble Supreme
Court laid down in Sree Krishna Electricals Vrs. State of
Tamil Nadu and Another, (2009) 23 VST 249 (SC).
14. The discretionary exercise of power amounts
to something that is not compulsory, but it is left to
discretion of the person or authority involved, such as a
discretionary grant. It is opposite to mandatory.
Therefore, discretionary is a term which involves an
alternative power, i.e., a power to do or refrain from
// 19 //
doing a certain thing. In other words, it would be power
of free decision or choice within certain legal bounds.
15. Necessity, thus, arises to state from K.K.
Gopalan & Co. Vrs. Assistant Commissioner
(Assessment), (2000) 118 STC 111 (Ker), wherein it has
been observed that 'discretion' means use of private and
independent thought. When anything is left to be done
according to one's discretion the law intends it to be
done with sound discretion and according to law.
Discretion is discerning between right and wrong and
one who has power to act at discretion is bound by rule
of reason. Discretion must not be arbitrary. The very
term itself stands unsupported by circumstances
imports the exercise of judgment, wisdom and skill as
contra distinguished from unthinking folly, heady
violence or rash injustice. When applied to a Court of
Justice or Tribunal or quasi-judicial body, it means
sound discretion guided by law. It must be governed by
rule, not by humor; it must not be arbitrary, vague and
fanciful but legal and regular. Discretion must be
// 20 //
exercised honestly and in the spirit of the statute. It is
the power given by a statute to make choice among
competing considerations. It implies power to choose
between alternative courses of action. It is not
unconfined and vagrant. It is canalized within banks
that keep it from overflowing.
16. In S.P. Road Link Vrs. State of Tripura,
(2006) 144 STC 380 (Gau) reference has been made to
Kumaon Mandal Vikas Nigam Ltd. Vrs. Girja
Shankar Pant, (2001) 1 SCC 182 to observe that
'discretion' means when it is said that something is to be
done within the discretion of the authorities, that
something is to be done according to the rules of reason
and justice, not according to private opinion, according
to law, and not humour. It is to be, not arbitrary, vague,
and fanciful, but legal and regular. And it must be
exercised within the limit, to which an honest man
competent to the discharge of his office ought to confine
himself.
// 21 //
17. Therefore, if Rule 12(4)(c) provides for exercise
of discretionary power for imposition of penalty, the
assessing officer should have exercised such
discretionary power reasonably. In absence of any
rationality or reasonability, exercise of discretionary
power can be construed as arbitrary and unreasonable
exercise of power by the authority. Therefore, when the
first appellate authority examined the fact vis-à-vis
contention raised by the parties and came to a definite
finding that the petitioner has not suppressed any
turnover which will affect the revenue and the
discretionary power has been vested with the assessing
officer while imposing penalty under Rule 12(4)(c) and in
fact there has been no suppression of any turnover or
fraud nor the petitioner has been found to have illegally
deducted any turnover as exempted sale which will affect
the tax liability, it limited the penalty to Rs.30,000/-
instead of Rs.1,22,052/-. But the tribunal, while passing
the order impugned, has come to a different conclusion
construing as if the assessing authority is mandatorily
// 22 //
required to impose penalty of a sum equal to twice the
amount of tax additionally assessed under Rule 12(4)(c),
restored the assessment order. The learned Tribunal has
failed to consider the effect of words "if he is satisfied
that the escapement is without any reasonable cause"
contained in Rule 12(4)(c) of the CST (O) Rules. But
nothing has been placed on record to that extent and, as
such, there is no question of levy of two times of penalty
in case the assessing authority comes to the conclusion
that the escapement is with reasonable cause. Therefore,
reduction of penalty by the first appellate authority
appears to be improper, when such determination of
liability against the petitioner is absolutely based on no
record.
18. A pari materia provision is contained in
Section 43(2) of the Odisha Value Added Tax Act, 2004
giving discretion to the assessing officer to impose
penalty, wherein it has been provided that it is
imperative for the assessing officer to be satisfied that
the escapement or under assessment of tax "is without
// 23 //
any reasonable cause." This was considered by this
Court in National Aluminium Co. Ltd. v. Deputy
Commissioner of Commercial Taxes, (2012) 56 VST 68
(Ori) = 2013 (I) ILR-CUT 595 read with clarificatory order
dated 08.03.2021 in RVWPET Nos. 211, 212 and 213 of
2013 (National Aluminium Co. Ltd. v. Deputy
Commissioner of Commercial Taxes), 2021 (I) OLR
828, wherein it has been enunciated as follows:
"6. While considering the second question
viz., whether imposition of penalty under
Section 43(2) of the Orissa Value Added Tax
Act, 2004 (OVAT Act) can only be levied if
the escapement is "without any
reasonable cause", an observation was
made in paragraph 36 of the judgment that
"penalty is not independent of the tax
assessed. If the tax is assessed, imposition
of penalty under Section 42(5) is warranted.
***
8. Again in paragraph 39 of the judgment,
it is observed as under:
'*** once the Assessing Officer
comes to the conclusion that the dealer
is indulged in fraudulent activities and
assesses him under Section 43 of the
OVAT Act, there is no need for the
Assessing Officer to make further
investigation to find out whether the
escapement is without reasonable
cause for the purpose of imposition of
penalty under Section 43(2) of the
OVAT Act.
// 24 //
9. The grievance of the NALCO is to the
limited extent of the manner in which the
second question has been dealt with by this
Court in the aforementioned judgment. Mr.
Mishra, learned counsel for the NALCO
points out that this Court has in the above
judgment while placing reliance on the
decision of the Supreme Court in Union of
India Vrs. Dharamendra Textile Processors
and others (2008) Volume-18 VST 180 (SC),
not considered the subsequent decision of
the Supreme Court in Union of India Vrs.
Rajasthan Spinning and Weaving Mills 2009
(Vol.238) ELT Page-3, both of which were in
the context of Section 11 AC of the Central
Excise Act, 1944. The wording of the said
provision was not on par with the wording of
Section 43(2) of the OVAT Act. The further
grievance is that there was no occasion for
the Court to have made any observations as
regards the imposition of penalty under
Section 42 (5) of the OVAT Act as the said
provision was in the context of audit
assessment and differently worded from
Section 43(2) of the OVAT Act.
***
11. The Court notes that under Section
42(5) of the OVAT Act the penalty levied is
"equal to twice the amount of tax assessed"
under Section 42(3) or 42(4) pursuant to an
audit assessment. There is no discretion
with the Assessment Officer (AO) to reduce
this amount of penalty. On the other hand,
Section 43(2) of the OVAT Act is under the
heading "Turnover escaping assessment",
and is differently worded. It reads thus:
'43 (2) If the assessing
authority is satisfied that the
escapement or under assessment of
tax on account of any reason(s)
mentioned in sub-section (1) above is
without any reasonable cause, he
may direct the dealer to pay, by way
// 25 //
of penalty, a sum equal to twice
the amount of tax additionally
assessed under this section."
12. It is seen under Section 43(2) of the
OVAT Act the levy of penalty in the event of
turnover escaping assessment, or under
assessement, is not automatic. The AO
has to be satisfied that escapement or
under assessment of tax "is without
reasonable cause". Further upon arriving
at such conclusion, the AO 'may direct the
dealer to pay, by way of penalty, a sum
equal to twice the amount of tax
additionally assessed under the Section.'
The word 'may', in this context gives the AO
a discretion, which is unavailable to him
under Section 42(5) of the OVAT Act.
13. The Court, therefore, finds merit in the
contention of the learned counsel for the
Petitioner that the observation in the
judgment dated 9th October 2012, on the
aspect of penalty under Section 42 (5) of the
OVAT Act was not warranted. All that was
required to be observed was that since the
question had been rendered academic in
view of the finding on issue No.1, the
imposition of penalty under Section
43(2) of the OVAT Act, was not
automatic and that there is a discretion
in the AO in this regard upon finding
that there has been an escapement or
under assessment of tax."
19. While considering pari materia provision
contained in Section 10(2) of the Odisha Entry Tax Act,
1999 in comparison to Section 43(2) of the Odisha Value
Added Tax Act, 2004, this Court following interpretation
// 26 //
in National Aluminium Company Limited, 2021 (I) OLR
828 stated in the case of Shree Plastics Pvt. Ltd.,
Berhampur Vrs. State of Odisha, STREV No. 15 of 2013,
vide Order dated 13.07.2022 as follows:
"10. Section 10(2) of the OET Act reads as
under:
'(2) If the assessing authority is
satisfied that the escapement or under
assessment of tax on account of any
reason(s) mentioned in sub-section (1) above
is without any reasonable cause, he may
direct the dealer to pay in addition to the tax
assessed under sub-section (1), by way of
penalty, a sum equal to twice the amount of
tax additionally assessed under this
section.'
11. That can be no doubt that the levy of
penalty does not have to be automatic. It is
contingent on the STO being satisfied that
the escapement of tax was 'without any
reasonable cause'. ***"
20. Applying the above ratio to the present
context, the essential component of Section 43(2) of the
OVAT Act for attracting the penalty, i.e., satisfaction of
the assessing officer that the escapement of tax was
without reasonable cause, if the same principle will
apply to the provisions contained under Rule 12(4)(c) of
the CST (O) Rules, 1957, nothing has been placed on
record to indicate that there is satisfaction of the
// 27 //
assessing officer that the escapement of tax was without
reasonable cause. In absence of the same, imposition of
penalty cannot be sustained in the eye of law.
21. In the judgment dated 07.12.2022 rendered in
STREV No. 17 of 2016 (M/s United Electricals &
Engineering Pvt. Ltd. v. State of Odisha) to which one
of us (Mr. Justice M.S. Raman) was a party, this Court
has come to the similar finding and answered the
question in favour of the assessee and against the
department.
22. Another pertinent aspect which deserves
discussion in the present context is non-recording of
satisfaction by the Assessing Authority to the effect that
"the escapement is without any reasonable cause". The
following observation of this Court is found in United
Electricals & Engineering Pvt. Ltd. Vrs. State of Odisha,
STREV No.17 of 2016, vide Order dated 07.12.2022:
"2. As far as question I is concerned, it
is seen that in the assessment order
dated 5th February, 2013 while raising a
demand on the basis 'erroneous claim
of Input Tax Credit (ITC)', the Sales
// 28 //
Tax Officer (STO), Ganjam-I Circle,
Berhampur proceeded to impose penalty
under Section 43(2) of the Odisha Value
Added Tax Act, 2004 (OVAT Act) without
actually coming to any conclusion that
ITC with differential tax wrongly
availed by the Petitioner-Assessee
was 'without reasonable cause'.
3. As explained by this Court in
National Aluminium Co. Ltd. v. Deputy
Commissioner of Commercial Taxes,
(2012) 56 VST 68 (Ori) read with
clarificatory order dated 8th March, 2021
in RVWPET Nos.211, 212 & 213 of 2013
(National Aluminium Co. Ltd. Vrs. Deputy
Commissioner of Commercial Taxes),
2021 (I) OLR 828, there is a discretion in
the Assessing Officer under Section 43(2)
of the OVAT Act to impose penalty. It is
imperative for the Assessing Officer
to be satisfied that the escapement of
under assessment of tax 'is without
any reasonable cause'.
4. As far as present case is concerned,
the assessment order of the Assessing
Officer does not record the satisfaction of
the Assessing Officer that wrongful
availment of ITC by the Petitioner was
'without reasonable cause'. Thus, the
essential component of Section 43(2) of
the OVAT Act for attracting the penalty,
viz., the satisfaction of the Assessing
Officer that the escapement of tax was
without reasonable cause, is absent in
the present case."
// 29 //
23. The counsel for the Revenue failed to cite
recording of satisfaction that the dealer did not
discharge his liability under the CST Act without
reasonable excuse. Rather it is not disputed that the
petitioner-dealer while discharging liability under the
CST Act adjusted the excess tax paid under the OVAT
Act and such fact is supported by explanation that
instead of deposit being made through challan relating
to CST, the dealer had made it through challan relating
to VAT. The reasoning so assigned appears to be
"reasonable" one. The record does not bear allegation of
mischief like fraud, collusion, wilful misstatement or
suppression of fact or deliberate breach of law, much
less contumacious conduct on the part of the assessee.
Therefore, it can be said that there was "reasonable
cause" shown by the petitioner-assessee in connection
with the discharge of tax liability, but there is no
intention to evade payment of tax. Unless the assessing
authority records satisfaction as provided under clause
(c) of Rule 12(4) to the effect that the escapement was
// 30 //
"without any reasonable cause", he should not have
imposed penalty.
24. Penalty is not prescribed for mechanical
imposition because law permits such a levy. It is well
settled legal position that while interpreting the
provisions of the statute, every part of the provisions of
the statute has to be given effect to and one part cannot
be interpreted in a manner inconsistent with another
part of the statute that would defeat the object and
purpose of the Act and rules framed thereunder. As laid
down in Mohammad Ali Khan and Others Vrs.
Commissioner of Wealth Tax, AIR 1997 SC 1165 wherein
the following lines has been quoted from J.K. Cotton
Spinning & Weaving Mills Co. Ltd. Vrs. State of Uttar
Pradesh, AIR 1961 SC 1170:
"The Courts always presume that
the Legislature inserted every part thereof
for a purpose and the legislative intention
is that every part of statute should have
effect."
It is also well-established that where language
of any provision in a statute is clear, it is impermissible
// 31 //
to vary the language unless the plain and unambiguous
language leads to an absurd result. In the present case,
the language of Rule 12(4)(c) in unequivocal terms spells
out that satisfaction of the Assessing Authority as to the
reasonableness of the cause is imperative. In absence of
such material borne on record, the very invocation of
exercise of power to impose penalty is considered to be
flawed.
In Khemka and Co. (Agencies) Pvt. Ltd. Vrs.
State of Maharashtra, (1975) 2 SCC 22 Constitution
Bench (5-Judge) of the Hon'ble Supreme Court has been
pleased to render the conceptual understanding of
"penalty" qua Section 9(2) of the CST Act in the following
manner:
"25. Penalty is not merely sanction. It is not
merely adjunct to assessment. It is not
merely consequential to assessment. It is not
merely machinery. Penalty is in addition to
tax and is a liability under the Act. ***
penalty is not a continuation of assessment
proceedings and that penalty partakes of the
character of additional tax.
***
28. *** A penalty is a statutory liability.
The Central Act contains specific provisions
for penalty. Those are the only provisions for
penalty available against the dealers under
// 32 //
the Central Act. Each State Sales Tax Act
contains provisions for penalties. These
provisions in some cases are also for failure
to submit return or failure to register. It is
rightly said that those provisions cannot
apply to dealers under the Central Act
because the Central Act makes similar
provisions. The Central Act is a self-
contained code which by charging section
creates liability for tax and which by other
sections creates a liability for penalty and
imposes penalty. Section 9(2) of the Central
Act creates the State authorities as agencies
to carry out the assessment, re-assessment,
collection and enforcement of tax and
penalty payable by a dealer under the Act."
25. Since penalty is a statutory liability and is
substantive in nature, the provisions for imposition
thereof are to be strictly construed. It is, therefore,
pertinent to put forth the well-accepted principle with
regard to strict interpretation. In a taxing statute one
has to look at what is clearly said. There is no equity
about a tax. There is no intendment. There is no
presumption as to a tax. Nothing is to be read in,
nothing is to be implied. One can only look fairly on the
language used. If the meaning of the provision is
reasonably clear, Courts have no jurisdiction to mitigate
harshness. A Court of law, has nothing to do with the
// 33 //
reasonableness or unreasonableness of a provision of a
statute except so far as it may hold it in interpreting
what the Legislature has said. If the language of a
statute be plain, admitting of only one meaning, the
Legislature must be taken to have meant and intended
what it has plainly expressed, and whatever it has in
clear terms enacted must be enforced though it should
lead to absurd or mischievous results. The Court is not
to be concerned with the question whether the policy
that the provision embodies is wise or unwise, or
whether it leads to consequences just or unjust,
beneficial or mischievous. As long as there is no
ambiguity in the statutory language, resort to any
interpretative process to unfold the legislative intent
becomes impermissible. The supposed intention of the
Legislature cannot then be appealed to whittle down the
statutory language which is otherwise unambiguous. If
the intendment is not in the words used it is nowhere
else. The need for interpretation arises when the words
used in the statute are, on their own terms, ambivalent
// 34 //
and do not manifest the intention of the Legislature.
Artificial and unduly latitudinarian rules of construction
which, with their general tendency to give the taxpayer
the breaks are out of place where the legislation has a
fiscal mission. Be it noted that individual cases of
hardship and injustice do not and cannot have any
bearing for rejecting the natural construction by
attributing normal meanings to the words used since
hard cases do not make bad laws. A fiscal statute shall
have to be interpreted on the basis of the language used
therein and not de hors the same. No words ought to be
added and only the language used ought to be
considered so as to ascertain the proper meaning and
intent of the legislation. The Court is to ascribe the
natural and ordinary meaning to the words used by the
Legislature and the Court ought not, under any
circumstances, to substitute its own impression and
ideas in place of the legislative intent as is available from
a plain reading of the statutory provisions. Reference be
had to Cooke Vrs. Charles A Vogeler Co., (1901) AC
// 35 //
102 (HL); Cape Brandi Syndicate Vrs. Inland Revenue
Commrs., (1921) 1 KB 64; Canadian Eagle Oil Co. Vrs.
King, (1945) 2 AllER 499 (HL); Inland Commrs. Vrs.
Ross & Coulter, Re Bladnoch Distillery Co., (1948) 1
AllER 616 (HL); Keshavji Ravji & Co. Vrs. CIT, (1990)
183 ITR 1 (SC); Orissa State Warehousing Corporation
Vrs. CIT, (1999) 4 SCC 197; State of Andhra Pradesh
Vrs. Gouri Shankar Modern Rice Mill, (2006) 147 STC
370 (AP).
26. This Court at this juncture wishes to take
cognizance of well-settled proposition of law as restated
in Zuari Cement Limited Vrs. Regional Director,
Employees' Insurance Corporation, Hyderabad and
Others, (2015) 7 SCC 690, wherein it has been laid down
that it is the basic principle of law long settled that if the
manner of doing a particular act is prescribed under any
statute, the act must be done in that manner or not at
all. This Court in Rudra Prasad Sarangi Vrs. State of
Odisha and Others, 2021 (I) OLR 844 has observed as
follows:
// 36 //
"10. In Nazir Ahmed Vrs. King Emperor, AIR
1936 PC 253, law is well settled 'where a
power is given to do a certain thing in a
certain way the thing must be done in that
way or not at all. Other methods of
performance are necessarily forbidden.' The
said principles have been followed
subsequently State of Uttar Pradesh Vrs.
Singhara Singh, AIR 1964 SC 358,
Dhananjay Reddy Vrs. State of Karnataka,
AIR 2001 SC 1512, Chandra Kishore Jha
Vrs. Mahabir Prasad, AIR 1999 SC 3558,
Gujrat Urja Vikas Nigam Ltd. Vrs. Essar
Power Ltd., AIR 2008 SC 1921, Ram Deen
Maurya Vrs. State of U.P., (2009) 6 SCC 735.
11. It is apt to refer here the legal maxim
'Expressio unius est exclusion alterius i.e. if
a statute provides for a thing to be done in a
particular manner, then it has to be done in
that manner and any other manner are
barred. Similar question had come up for
consideration before this Court in Subash
Chandra Nayak Vrs. Union of India, 2016 (1)
OLR 922 and this Court in paragraph-8
observed as follows:
'*** the statute prescribed a thing to be
done in a particular manner, the same has to
adhered to in the same manner or not at all.
The origin of the Rule is traceable to the
decision in Taylor Vrs. Tailor, (1875) LR I Ch
D 426, which was subsequently followed by
Lord Roche in Nazir Ahmad v. King Emperor,
AIR 1936 PC 253(2). But the said principle
has been well recognized and holds the field
till today in Babu Verghese Vrs. Bar Council
of Kerala (1999) 3 SCC 422, and Zuari
Cement Limited Vrs. Regional Director,
Employees' State insurance Corporation,
Hyderabad and others, (2015) 7 SCC 690
and the said principles has been referred to
by this Court in Manguli Behera Vrs. State of
// 37 //
Odisha and Others, W.P.(C) No. 21999 of
2014 disposed of on 10.03.2016."
27. Aforesaid salutary principle has been noticed
by this Court while dealing with assessment under the
OVAT Act in the matter of Patitapabana Bastralaya Vrs.
Sales Tax Officer and Others, (2015) 79 VST 425 (Ori) =
2015 (I) OLR 183 and Balaji Tobacco Store Vrs. Sales
Tax Officer, 2015 SCC OnLine Ori 85; .
28. The demand raised in the assessment order
also seen to have on account of non-submission of
declaration in Form C. As an illustrative case, viz.
General Traders Vrs. State of Odisha, STREV No.64 of
2017, vide Judgment dated 08.12.2022, needs to be
taken note of, where this Court was in seisin of
imposition of penalty under Rule 12(3)(g) of the CST (O)
Rules, which is pari materia with the provision in Section
42(5) of the OVAT Act, in connection with non-
submission of declaration forms. It has been held by
referring to benevolent Circular bearing No.
42/III(I)38/09/CT, dated, 20.04.2015 issued by the
Commissioner of Commercial Taxes that even though
// 38 //
the language of said provision employed in the
mandatory sense and the imposition of penalty is
construed to be automatic, no penalty is required to be
insisted upon by the revenue authorities for mere non-
submission of declaration forms in order to avail
concessional rate of tax. On the same principle, for non-
submission of declaration form in the present case, the
penalty imposed under Rule 12(4)(c) is liable to be
deleted. In the instant case, therefore, the learned
Odisha Sales Tax Tribunal has not taken care of the
provisions contained in Rule 12(4) of the CST (O) Rules
in proper perspective.
29. In the above view of the matter, the order
dated 04.02.2017 passed by the Odisha Sales Tax
Tribunal, Cuttack in S.A. No. 90 (C) of 2013-14 and S.A.
No. 143 (C) of 2013-14, as well as the order of the 1st
appellate authority dated 30.10.2013 and the order
passed by the assessing authority, so far as it relates to
imposition of penalty of Rs.1,22,052/- on the petitioner
under Rule 12(4)(c) of the CST (O) Rules, 1957, cannot
// 39 //
be sustained in the eye of law and the same are liable to
be quashed and are, hereby, quashed.
30. As a consequence thereof, the question of law
as framed by this Court is answered in the negative, i.e.,
in favour of the petitioner-assessee and against the State
of Odisha-Revenue. Thereby, the sales tax revision
petition succeeds, but, in the circumstances, with no
order as to costs.
(DR. B.R. SARANGI)
JUDGE
M.S. RAMAN, J. I agree.
(M.S. RAMAN)
JUDGE
Orissa High Court, Cuttack
The 29th March, 2023, Ashok/GDS
