Some Views on Penal actions under Punjab VAT act 2005


Rules of natural justice are important part of fundamental rights as enshirined in our constitution. Rules of natural justice means fair play in action i.e. to save the citizens from arbitrariness in administrative or quasi judicial action. Rules of natural justice are part of Rule of law as ensured under article 14 of our constitution. Violation of rules of natural justice result in arbitrariness and violation of fundamental rights as provided by our constitution to the citizens of India. The rules of natural justice ensures that any person is not subjected to arbitrariness and justice not only appear to have been done with him but manifestly have been done.


Since rules of natural justice are part of the fundamental rights provided by our constitution the same have to be followed while taking any quasi judicial or administrative action under every law and the taxation laws are no exception to it. Any authority whether appellate or not has to follow the rules of natural justice while making any order.

Issue of show cause notice is must before leving any penalty under  PVAT Act 2005: It is well esteblished principle that the power to levy penalty under taxation laws is incidental and ancillary to the power of collection of tax and is provided to make sure the compliance of tax deposits by the assessees. But Taxation laws are welfare laws i.e they are for the welfare of the general public at large and this thing should be kept in mind while taking any action under taxation laws.
Issue of show cause notice before taking any action against a person is  a vital part of rules of natural justice, since it provides the person a reasonable oppurtunity of being heard which ensures fair play in action.
Chapter X of the PVAT Act 2005 deals with the offences and penalties under PVAT Act 2005. Before taking any penal action against a dealer an opportunity of being heard must be provided by issue of a show cause notice as it is not only a part of rules of natural justice as gurranteed by our constitution but also is provided u/s 61 of the Punjab VAT Act itself.

Section 61 runs as under:

61.    The Commissioner or the designated officer shall be the competent authority to impose penalty under this Act. No penalty shall, however, be imposed, unless the person concerned is afforded an opportunity of being heard by serving a notice.


As is clear from section 61 show cause notice is required to be issued before leving any penalty under PVAT Act, but here the example of Penal section 54 of PVAT Act is taken as it is mostly concerned with the public at large.

 Section 54 of the Punjab VAT Act 2005 provides for penalty of Rs. 100 per day subject to a maximum of Rs. 10000 if a person without sufficient cause:

(a) fails to furnish any return or annual statement by the prescribed date; or
(b) fails to furnish along-with the return or annual statement, the proof of payment of tax in accordance with the provisions of this Act; or
(c) fails to rectify any error or omission in any return or annual statement in accordance with the provisions of this Act; or
(d) fails to comply with the requirements of any notice issued under this Act,

the Commissioner or the designated officer, may, direct him to pay in addition to tax, interest and penalty under any other provisions of this Act, a further penalty of a sum of rupees one hundred, per day of default, subject to  the maximum of rupees ten thousand.


It is clear from the plain reading of section 54 that if a person commits default in filling any return or statement or comply with any notice he can be subjected to penalty u/s 54. But if the person concerned has sufficient cause due to which default happened he will not be subjected to penalty.

Whether the defaulting dealer has a sufficient cause or not can be known only if he is given an opportunity of being heard by the designated officer seeking to levy penalty.


Suppose if a dealer B files his quarterly VAT Return after two days from the due date, he cannot be insisted to deposit Rs 200 for the default along with furnishing of the return without issuing a show cause to him. Leving of penalty without a show cause notice would be a clear violation of not only rules of natural justice but also of section 61 and 54 of PVAT Act itself.

 Moreover the Rule 50 of Punjab VAT Rules which provides for the procedure for levying penalty also shows that the show cause notice has to be issued before levying any penalty under the Act.

Hence no penalty under PVAT Act should be levied without a show cause notice and if the defaulting dealer has a sufficient cause for the default then no penalty should be levied on the defaulting dealer.


 Locking of TIN No. under rule 51A of PVAT Rules: 
Rule 51A of Punjab VAT Rules has been added in the Punjab VAT Rules 2005 w.e.f 12-09-2008 to provide for the locking of TIN No of a dealer in certain circumstances.

Locking the TIN no means the temporary stoppage of interstate movement of goods of the concerned person for the purpose of verification or further legal action. Temporary stoppage is done by locking the TIN No of the concerned person in the server of the software used by the VAT Department all over the state including at barriers set up at the various borders of the state.


TIN no of a person can be locked as per rule 51A if
- he fails to pay any tax, penalty or interest payable under the Act or
- fails to furnish a return or returns or annual statement by the prescribed date or
- has filed incomplete or incorrect returns or
- has conducted huge transactions as per Information Collection Centre data available in the computer system but has not filed corresponding returns or
- no business at the declared place is being conducted or
- has failed to comply with the requirements of any notice issued by a designated officer

If a dealer commits default in filling of any of his return u/s 26 of PVAT Act within due date then his TIN No is locked immediately by the computer system of the Excise and Taxation Department in Punjab resulting in stoppage of interstate movement of goods of the person concerned
                       
Proviso to the rule 51A provides that a notice in form VAT 58 shall be issued immediately after locking of the Tax Identification Number by the designated officer to the person concerned stating therein the action taken and the reasons thereof. Any TIN No whenever is locked or reopened this fact shall be displayed in office notice board.

It is  clear from the plain reading of Rule 51-A of PVAT Rules 2005 that after locking the TIN No of a registered person a proper notice needs to be issued stating therein the reasons for the action taken to the person concerned and the action taken regarding opening or locking of TIN No needs to be displayed at the official notice board.

The return defaulter's TIN Nos are locked immideately after the due date by the department in Punjab. But It is seen that  no notice is being issued in VAT form 58 after locking the TIN No of the defaulting dealer in many cases, nor any information is displayed in the office notice board after locking or opening of any TIN No. which is a clear violation of Rule 51A and is also violation of rules of natural justice which are gurranteed under Article 14 of the constitution of India, since the person concerned is denied the reasonable opportunity of being heard. If a person does not know the reasons why his TIN No is locked how can he compile with the default for which his TIN No is locked.

Once a person comes to know about the default for which his TIN No is locked he can very well compile with the default and once the default is completed TIN No. should be unlocked immediately thereafter.


For example if a dealer B’s TIN No is locked due to late filling of his quarterly return by two days from the due date then notice in form VAT 58 of such action taken under rule 51-A  must  be given to B stating the reason therein about why his TIN No is locked i.e non filing of his return within due date.

B’s TIN No should be unlocked after filing of the return after two days. Whether any penalty proceedings u/s 54 for late filing of return has been started or not, should not be considered for the purpose of unlocking TIN No of B since the reason for locking the TIN NO was default in filing the return and if it is compiled with, the TIN No should be unlocked. Penalty proceedings are separate proceedings and should be considered separately. If after the final order of leving  penalty for late filing of return u/s 54, the penalty is not deposited then TIN No may be locked again for non deposit of penalty but that too should be done after issuing another notice as required under rule 51-A after the locking of TIN No.  

If no notice as required under rule 51A is issued after locking the TIN No of a defaulting dealer, It may render the locking of TIN No as illegal as violative of not only rule 51-A but also render the locking of TIN No as an arbitrary action violative of Article 14 of the Constitution of India which gurrantees right to equality before law and attacks at arbitrainess in administrative actions.

Locking of TIN No without a notice after the locking  also restricts the Fundamental right under Article 19(1)(g) of the constitution which gurrantees right to practise any profession, or to carry on any occupation, trade or business by restraining such person from carrying on his business inter-state, since the TIN No is locked without complying with the provisions of rule 51-A i.e without issuing a notice afterwards.

Thus in view of clear provisions of the law the requisite notice under rule 51-A must be issued, thereby  proper and fair opportunity of being heard be provided to the defaulter so that the default if any on  the defaulter person’s part against whom action is  taken can be compiled with by such person and such clear mandatory provisions must be compiled with.
 

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