Section 51(7)(c) of Punjab VAT Act,
2005 prescribes penalty equal to 50% of the value of goods for not producing
requisite documents i.e (Invoice/Delivery challan, Goods Receipt etc.) at the
check post or Information collection centre with a view to attempt or avoid or
evade the due tax.
Similarly section 51(7)(b)
prescribes penalty equal to 30% of the value of goods, if the goods are
accompanied with requisite documents but attempt to evade tax or avoidance or
evasion of tax is proved.
In both the above clauses word
"shall" has been used which gives impression that such penalties are
minimum penalities which must be levied if conditions for levy of penalty are
satisfied. It is also ussual practice to levy penalty at minimum of 50%
or 30% of the value of goods if goods are found to be without requisite
documents or ingenuine documents.
Levy of penalty at the rate of 50%
or 30% on the value of goods u/s 51(7) of Punjab VAT Act, 2005 seems very
unjust and unreasonable when the tax quantum is far less than the penalty
imposed for its evasion.
The power to levy penalty in a tax law is always
provided with the power of collection of tax as it is neccessary for tax
compliance but is only an incidental and ancillary power to the levy and
collection of tax. That means the power to levy penalty should be such that it
does assist in making tax compliance and it should not become disproportionate to
the amount of tax and becoming confiscatory in nature.
For example if a person carries
goods say gold worth Rs. 30 lakh with requisite documents but he is unable to
prove the genuineness of the transaction as required u/s 51(7), in such case
the tax effect would be just Rs. 30000(as tax on gold is just 1% under PVAT
Act) but penalty [if imposed at 30% u/s 51(7)(b)] would be Rs.10 lakh i.e more
than 30 times of the amount of tax evaded which is totally disproportionate to
the amount of tax and levy of such penalty could well put such person out of
business.
Supreme Court in State of Haryana
And Ors. vs Sant Lal And Anr. I (1994) BC 104 SC, JT 1993 (5) SC 425, 1993 (3)
SCALE 718 struck down penalty provisions u/s 38 of Haryana General Sales
Tax Act, 1973 as unconstitutional which prescribed penalty @ 20% on the value
of goods on carrying and forwarding agents(dalals) handling documents of title
to the goods, if such agents fail to get licence or fail to furnish information
in respect to the transaction of the goods.
Supreme Court held as under:
" It is difficult to hold that
a clearing or forwarding agent, 'dalal' or person transporting goods can be
made liable to a penalty equivalent to 20 per cent of the value of the goods
'in respect of which no particulars and information have been furnished. Given
the obligation to furnish particulars and information, a penalty for evasion of
tax, in addition to the tax evaded, can reasonably and fairly be imposed which
bears a proportion to the quantum of tax that has escaped assessment but it
cannot reasonably and fairly bear a proportion to the value of the goods the
sale of which has occasioned the liability to tax. A penalty as high as that
sought to be imposed could well put a smaller clearing or forwarding agent or
'dalal' or person transporting goods out of business."
It is clear from the above verdict
of Supreme Court that only such penalty for evasion of tax can reasonably
and fairly be imposed, which bears a proportion to the quantum of tax that has
escaped assessment but it cannot reasonably and fairly bear a proportion to the
value of the goods the sale of which has occasioned the liability to tax.
Levy of penalty should be within
reasonable limits to act as a sufficient or mere deterrent and not reaching the
levels of confiscation. When such levels are reached, it becomes a tax in the
nature of tax on income, which is a Central Government subject.
Thus levy of such huge and
disproportionate penalty as compare to the amount of tax
should be treated as opperessive and arbitrary levy, violative of Article 14 of
our Constitution and in some cases such huge arbitrary penalty may put a person
out of his business effecting his fundamental right to freedom of carrying on business as gurranteed under Article 19(1)(g)
of our Constitution.
Penalty levied u/s 51 of Punjab VAT Act also bears proportion to the value of goods instead of quantum of tax, hence the penal provisions of section 51 and the penalties levied thereunder needs attention of the higher
judiciary and should be tested on the touchstone of Article 14 and Article 19
of the Constitution of India in view of the Supreme Court Judgement as mentioned above.
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