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Judgment
K. Shivashankar Bhat, J.—The assessee is a dealer under the provisions of the Karnataka Sales Tax Act, 1957. During the assessment years 1985-86 and 1986-87 it was realised that there were some delays on the part of the assessee in filing the monthly returns and making payments which attracted the provisions of section 12B of the Act. Consequently, notices were issued u/s 12B(3) seeking the explanation of the petitioner and pointing out the several days of delay involved. We find that the delays are marginal in the sense on a few occasions the delay in making the payment ranged between 20 to 25 days. In one case it exceeded one month and in the month of August the delay involved was 7 months and 21 days. The assessee filed his explanation and pointed out that the assessee was getting the stock from its head office at Nagpur and the sales were effected at Bangalore thereafter. All the cheques collected at Bangalore were sent to the head office at Nagpur and there used to be delay in the process of realising the cheques and, therefore, there were some delays in the payments every month.
The assessing authority had in fact found that at the time the assessment order had been made the assessee had paid a substantial amount of tax and the balance due for the assessment year 1985-86 was Rs. 4,983 only and it was Rs. 3.898.59 in respect of the assessment year 1986-87. It is, therefore, clear that the ultimate balance due was very marginal.
The assessing authority levied maximum penalty of 1 1/2 times the amount as stated in section 12B(3). The assessee went up in appeal. The appellate authority declined to accept the explanation of the assessee. The appellate authority made the following observations :
"The short payment of tax for the year as a whole as seen from the final demand notices issued in these cases is found to be marginal (of the order of about one per cent. of the tax as finally assessed). Thus when the year of assessment is taken as a whole, penalty u/s 12B(3) is not attracted.
(iv) Penalty u/s 12B(3) is rightly attracted in these cases since admittedly the tax payments in respect of each month of default is less than the tax payable for that month as on the due date for such payment, i.e., as on the 20th day succeeding the 1st day of the month under consideration. The decision of the Karnataka Appellate Tribunal relied upon by the assessing authority makes this tact very clear."
Thereafter he directed the levy of penalty in the following terms :
"For every ten days of default (or part thereof) penalty at ten per cent. of the defaulted amount of tax shall be levied."
The Appellate Tribunal did not disturb the finding of the appellate authority. However, it adopted a different formula to levy the penalty. The order of the Appellate Tribunal in this regard reads :
"Considering the period of delay in payment of advance tax for each month as required u/s 12B(1) of the Act, we are of the view that calculation of penalty for default at the rate of one and one half per cent. of the amount of tax per month for part of the month for the period of default for the first three months after the period of expiry of the time prescribed u/s 12B(1) of the Act and two and one half per cent. of such amount for each month or part of the month subsequent to the first three months as aforesaid is considered to be reasonable."
Mr. Indrakumar, learned counsel for the assessee, submitted before us that in the face of the findings given by the appellate authority this is not a case for levy of penalty at all. Learned counsel pointed out that the levy of penalty is not mandatory and section 12B(3) vests a discretionary power and the said discretionary power should be exercised judiciously and just because there is a delay the penalty should not be levied. The learned counsel relied on a decision of this Court in Manilal Monaji Somayya Vs. The Commercial Tax Officer, Gokak and Another, The Bench observed in the said case thus :
"The Act provides for imposition of penalty for failure to pay every month the advance tax on the dealer''s taxable turnover during the preceding month. But the liability to pay penalty does not arise merely upon proof of default in payment of tax in advance every month. As observed by the Supreme Court in Hindustan Steel Ltd. Vs. State of Orissa, ''an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances''."
It is now an accepted principle that levy of penalty is in the nature of a quasi-criminal proceeding and the power to levy penalty should be exercised only if the party concerned is proved to have acted in total disregard of the law and in this regard the conduct of assessee is quite relevant. When there is no finding that the defaulting party defaulted deliberately and the circumstances disclose that the assessee acted to the best of his capacity to comply with the provisions of the law, the penalty shall not be levied. Circumstances in each case has to be examined in the light of the principle enunciated in the decision of the Supreme Court in Hindustan Steel Ltd. Vs. State of Orissa, quoted in the aforesaid decision of this Court.
In the instant case we find that the assessee has been paying the amount every month but belatedly. It is not a case of one or two delays but a constant repetitive act but the assessee has explained that these delays are the result of lack of proper arrangement for payments at Bangalore, an explanation which has not been rejected by any of the parties. Therefore, it cannot be said that there was a total defiance of law all along by the assessee but nevertheless it looks to us that the assessee was negligent to some extent while making the payments. The appellate authority has directed the computation of the penalty by evolving his own yard-stick which has been replaced by the Appellate Tribunal and the Appellate ? Tribunal has practically applied the provisions of section 13(2) of the Act, which again is not a proper mode of working out the penalty. Section 13(2) is not attracted to the levy of penalty u/s 12B(3) at all [vide Elestone Estates and Industries Ltd. Vs. The State of Karnataka, There are two aspects in the matter of levying penalty. The first is to examine whether the facts of the case calls for the levy of penalty. The second is the quantum of penalty. Even if the first aspect is attracted because of the constant negligence on the part of the assessee in making the payments, still in order to arrive at the quantum of penalty to be levied, the general behaviour and conduct of the assessee shall have to be considered and the fact that the assessee had all along made substantial payments and the delays are only marginal should be taken note of. If the case of the petitioner is considered in the above manner it calls for levying some penalty because there was repetitive delays and this could be attributed to culpable negligence on the part of the assessee in not making any arrangement to have a bank account at Bangalore when he is trading in Bangalore. However, the quantum of penalty cannot be as high as the one directed to be levied by the Appellate Tribunal. This is a case where a nominal penalty would not only satisfy the requirement of law but would also serve as a warning to the assessee to be more diligent hereafter. In these circumstances, we are of the view that penalty of Rs. 500 for each assessment year would be an appropriate penalty.
In the result, these revision petitions are allowed. The orders of the assessing authority, the first appellate authority and the Appellate Tribunal are modified by directing the assessee to pay Rs. 500 each for the assessment years 1985-86 and 1986-87 as penalty u/s 12B(3) of the Act.
Petitions allowed.