The Karnataka High Court ruled that the Penalty under Value Added Tax Act can not be imposed in every case merely because it is lawful to do so.
The petitioner, M/s Mangalore Refinery and Petrochemicals Limited is a dealer registered under the provisions of the Act and is engaged in the activity of manufacture and sale of petroleum products. The petitioner is a public sector company. The petitioner is also a registered dealer under the provisions of the Central Sales Tax Act. The petitioner has commenced its operations in the year 1996 and has carried out the activities of expansion and modernization. The petitioner commenced the commercial production in the initial stage referred to as Phase I in the year 1995-96 with a rated capacity of 3 MMTPA. Subsequently, the petitioner claimed additional investments for expansion of its manufacturing unit under the second stage referred to as Phase II by which the rated capacity was enhanced to 9 MMTPA. The commercial production for Phase II commenced in the year 1999-2000.
The petitioner thereafter made further investments and began an expansion of Phase III in the year 2009-10 by which capacity was enhanced to 15 MMTPA. The petitioner linked the existing units to the new units undertaken after the Phase III expansion project to form a continuous process plant with uninterrupted operations. The commercial production of Phase III commenced in March 2012. The petitioner, during the expansion of Phase III facilities, procured capital goods for use in Phase III expansion from registered dealers within the State of Karnataka with applicable value-added taxes and availed and utilized input tax credit on the purchasers in the same month of purchase against the tax liability of the same month arising out of sales made out of the existing Phase I and Phase II facilities which continued to generate revenue/turnover/tax liabilities.
Mr. Ravi Raghavan, the counsel for the petitioner submitted that under Section 12(2) of the Act as soon as one of the conditions provided therein namely commencement of commercial production, or sale of goods in the course of export of goods out of the territory of India and once such conditions are fulfilled, the provisions of Section 12(2) of the Act is applicable and the petitioner is, therefore, eligible under Section 12(1) of the Act to avail of the input tax credit.
On the other hand, learned Additional Government Advocate for the respondent submits that the petitioner has availed of the incentive/exemptions in respect of Unit III under the incentive scheme of the State Government separately and Unit III for the purposes of Section 12(2) of the Act has to be treated as an independent unit and since the aforesaid unit had not commenced the commercial production, therefore, the petitioner is not eligible to avail of the input credit tax.
The division bench of Justice Alok Aradhe and Justice Hemant Chandangoudar held that since the petitioner had fulfilled the conditions prescribed in Section 12(2) of the Act, therefore, the petitioner was eligible to avail of the benefit of an input tax credit. There is no element of any mens rea that the petitioner had the intention to evade tax. The petitioner had paid taxes according to the information furnished in the return and therefore, it should not have been penalized subsequently after the assessment proceedings are finalized and the amount of tax is determined.
“It is well settled in law that penalty cannot be imposed merely because it is lawful to do so. Since we have held that the petitioner was entitled to benefit of the input tax credit, therefore, the question of levy of penalty and interest does not apply. It is also pertinent to mention here that the petitioner has deposited the amount of interest and penalty under protest and therefore, the petitioner is entitled to refund of the aforesaid amount,” the court said.Subscribe Taxscan AdFree to view the Judgment