The Himachal Pradesh High Court has ruled that the penalty provision under Section 16(7) of the Himachal Pradesh Value Added Tax (HP VAT) Act, 2005, cannot be applied unless the statutory authority establishes the applicability of Section 16(4) of the Act.
The Division Bench comprising Justices Tarlok Singh Chauhan and Rakesh Kainthla stated that “None of the authorities below has satisfied itself with regard to the applicability of provisions of Section 16(4) of the HP VAT Act, 2005, before invoking sub-section (7). Without a specific finding regarding the applicability of subsection (4) of Section 16, the orders passed by the authorities below cannot be sustained.”
In this case, the petitioner, a dealer in wire rods and tor steel, delayed compliance with Section 16(4) by one day and five months, respectively, for two relevant periods, citing financial constraints. Subsequently, the Revenue imposed a penalty under Section 16(7). The petitioner argued that although there was a delay in tax payment, returns were filed only after the tax was paid, ensuring no breach of Section 16(4) of the Himachal Pradesh Value Added Tax Act, 2005.
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The Court observed that the Revenue failed to confirm a breach of Section 16(4) before imposing the penalty. Consequently, it remanded the matter back to the assessing authority for reconsideration.
In its decision, the Court referred to Dayle De’Souza v. Union of India (2021), where the Supreme Court emphasized that imposing a penalty for failing to meet statutory obligations is a discretionary power that must be exercised judicially, considering all relevant circumstances.
The Court also highlighted that the purpose of legislation should guide the exercise of discretion, ensuring that penalties are not imposed on unintentional defaulters who are otherwise law-abiding.
Vishal Mohan, Senior Advocate, with M/s Aditya Sood and Varun Gupta appeared for the petitioner whereas the Respondent was represented by Mr. I.N. Mehta, Senior Additional Advocate General, with Ms. Sharmila Patial, Additional Advocate General.
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