Inncorrect or erroneous claim under VAT does not attract penalty proceedings

Madhya Pradesh High Court in Super Traders v Additional Commissioner of Commercial Taxes has held that incorrect or erroneous claim not sustainable under VAT law would not make a case of concealment of taxable item, therefore penalty is not leviable in such case.

The High Court relied upon the landmark judgement of Hon’ble Supreme Court under Income Tax law namely CIT vs Reliance Petroproducts Pvt Ltd. [2010] 322 ITR 158 (SC), while deciding the issue of penalty under VAT law, wherein it was held that The word ‘particulars’ must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.

M/S Super Traders Jeevan Vihar  
 Additional Commissioner Of ... on 25 March, 2014
[2014] 72 VST 129 (MP)
W.P. NO.18644/2010
25/3/2014 :


Calling in question the orders passed by the Assessing Authority and the Revisional Authorities in the matter of assessment of VAT to be paid by the petitioners for the period 2004-2005, this petition has been filed.

Challenge is made to the legality of the penalty imposed under Section 69(1) and as the amount of tax has already been paid, it is said that challenge is only made to the penalty imposed on VAT.

Petitioner is a registered dealer with the Commercial Tax Department and carrying on the business of sale and purchase of Cement at Bhopal manufactured by M/s Diamond Cements, Damoh. An ex-parte order of assessment was passed by respondent No.2 for the assessment year 2004-2005. This assessment order was set aside in appeal and the matter was remanded back. The assessment was done and certain amount with regard to transportation or the fright amount was disallowed so also certain amount with regard to payment through credit note was disallowed. Tax was assessed on these amount and on the ground of concealment, penalty is imposed.

As far as tax collected is concerned, the same has been paid and the only challenge is made to imposition of penalty on both the counts i.e. on amount of fright and transportation charges so also on account of credit note. As far as concealment of the amount with regard to fright charges are concerned, learned counsel invites our attention to the orders of assessment passed and points out that while considering the question in the backdrop of Section 9(B) of the Commercial Tax Act, the learned Assessing Officer in his order Annexure P/1 dated 24.11.2008 has found that certain amount is claimed as the amount of price for purchase of cement from M/s Diamond Cements. It is found that this is not the entire purchase amount, this includes certain amount paid towards transportation and fright charges and as these amounts cannot be deducted, penalty is imposed on this amount on the ground of concealment. It is the case of the petitioner that the amount is disclosed in the return, there is no concealment and therefore, in the light of law laid down by the Supreme Court in the case of Commissioner of Income Tax Vs. Reliance Petroproducts Pvt. Ltd. - [2010] 322 ITR 158 (SC), the amount of penalty cannot be imposed on the ground of concealment of fright charges. It is said that it is nothing but an amount claimed as purchase price which has been disallowed and therefore, it does not fall within the category of concealment.

As far as adjustment through payment of credit note is concerned, learned counsel indicates that Supreme Court in the case of IFB Industries Ltd. Vs. State of Kerala - (2012) 20 STJ 485 has approved the mode of claiming benefit through credit note and as this is held to be a known system of business and trade practise, it is argued that enforcement of penalty on this transaction is also unsustainable. Even though petitioner is not claiming refund of this amount, it is said that imposition of penalty be quashed.

Shri Rahul Jain, learned Dy. Advocate General appearing for Revenue tried to justify the Revenue by contending that the amount has been recovered in the light of concealment established in the matter and therefore, there is no illegality.

We have heard learned counsel for the parties and considered the rival contentions. From the documents and material available on record, it is clear that in the matter of concealment of fright or transportation charges infact the amount was included in the Bill for purchase of Cement and the Assessing Officer has bifurcated the amount and did not permit addition of the transportation or fright charges in the cost price of product purchased i.e. cement. Therefore, it is not a case where the petitioner has concealed any item, which is taxable but has only include it to be a amount in a particular head i.e. purchase price which is not permissible. It is a case where in the particulars and details supplied by the petitioner certain incorrect and erroneous claim is made which is not sustainable under law. According to the Supreme Court in the law laid down in the case of Reliance Petroproducts Pvt. Ltd. (supra) this will not amount to concealment of income but would come in the category of an erroneous or incorrect deduction or adjustment made. It is held that it does not fall in the category of furnishing inaccurate particulars or concealment of income and is not taxable.
Keeping in view the aforesaid and applying the same in the facts and circumstances of the present case, we are of the considered view that imposition of penalty on concealment of fright charges is not correct. It is a case where the petitioner erroneously included the amount as it was included in the bill by the Manufacturer of Cement. That being so, to that extent the imposition of penalty under Section 29 has to be quashed.

As far as claiming benefit of transaction made through credit note are concerned, the Supreme Court in the case of IFB Industries Ltd. (supra) has held that discount through credit note issued even subsequent to sale without there mention in sale vouchers is permissible. This is held to be an established trade practice and if the petitioner had also claimed rebate or discount on credit note, in view of the law laid down by the Supreme Court in the case of IFB Industries Ltd. (supra), this will also not amount to concealment or suppression of income subjected to penalty. Taking note of all these factors and law as discussed herein above based on the judgment of the Supreme Court, we are of the considered view that the order of authorities in the matter of imposition of penalty in the facts and circumstances of the case is unsustainable. Accordingly, penalty imposed in the matter are set aside and the amount is directed to be refunded to the petitioner.

In view of the aforesaid, this petition stands allowed and disposed of.

( Rajendra Menon) ( A. K. Sharma ) Judge Judge mrs.mishra


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