The Orissa High Court while granting relief to National Aluminum Company Limited (NALCO) ruled that the Levy of penalty in event of turnover escaping assessment is not automatic, so the AO ought to be satisfied of escapement.
The petitioner, NALCO filed the review petition raising the issue 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”.
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 judgment while placing reliance on the decision of the Supreme Court in Union of India v. Dharamendra Textile Processors and others, not considered the subsequent decision of the Supreme Court in Union of India v. Rajasthan Spinning and Weaving Mills 2009, 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.
Mr. Sunil Mishra, learned counsel appearing for the Opposite Party-Commercial Tax Department, first points out that against the above judgment, in so far as question No.1 is concerned, the Department is in appeal before the Supreme Court. He does not dispute the fact that Section 43(2) of the OVAT Act is worded differently from Section 42(5) of the OVAT Act and further that in the context of the present case what was relevant was Section 43(2) of the OVAT Act.
The division bench headed by Chief Justice Dr. S. Muralidhar and Justice B.P. Routray clarified that 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.
Therefore, the court recalled the observation that the imposition of penalty would be automatic under Section 42 (5) of the OVAT Act, when in fact the provision that is relevant to the context, is Section 43 (2) of the OVAT Act.
The Court clarified that even this question would relevant only if the Department succeeds in the appeal in the Supreme Court, and it is held that the NALCO is liable to pay tax.
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