Maheswari Jewellery Mart vs Commercial Tax Officer (Intelligence), Vijayawada

Syed Shah Mohammed Quadri, J.—The petitioner seeks a writ of mandamus for a declaration that the action of the respondent in collecting the compounding fees of Rs. 4,000 and penalty of Rs. 30,600, is illegal and arbitrary and for a consequential direction to refund the said amounts.

The petitioner is a dealer registered under the Andhra Pradesh General Sales Tax Act, 1957 (for short, "the Act"). He is carrying on the business of manufacture and sale of jewellery at Vijayawada. On July 29, 1989, the Commercial Tax Officer (Intelligence), Vijayawada, respondent herein, inspected the premises of the petitioner and on verification of the stocks found certain variations. The respondent passed an order on August 17, 1989 computing the suppressed turnover at Rs. 1,86,920 under various heads and directed payment of tax on that basis. Further, the respondent also directed payment of Rs. 4,000 as compounding fees as the petitioner has accepted the offence and agreed to pay the said compounding fees. It is alleged that the respondent collected a further sum of Rs. 30,600 as penalty for the year 1989-90 which is equivalent to three times the tax which was found payable (Rs. 10,200). It is in these circumstances the petitioner has approached the court for the writ indicated above.

This writ petition was filed on June 3, 1992. But, on August 17, 1993 notice before admission was ordered. Till today, no counter-affidavit is filed by the respondent.

Sri Raji Reddy, the learned counsel for the petitioner, submits that though the petitioner seeks relief of refund of both the compounding fees as well as penalty the submission he would make will be confined only to the collection of penalty from the petitioner. The learned Government Pleader however, seeks further time for filing counter. We are not inclined to grant any time for further filing counter.

The main allegation on the basis of which the collection of penalty is questioned is that no show cause notice was issued to the petitioner before the penalty was collected. Sub-section (4-B) of section 14 of the Act prescribes the procedure for levying the penalty. The provision may be read here :

"Before issuing any direction for the payment of any penalty under sub-section (2), sub-section (3) or sub-section (4), the assessing authority shall give the dealer a reasonable opportunity to explain the omission to disclose the turnover or to furnish correctly any particulars and shall make such enquiry as he considers necessary."

From a perusal of the provision extracted above, it is evident that before issuing any direction for the payment of any penalty under sub-sections (2), (3) and (4) of section 14 of the Act, the assessing authority is bound to give the dealer a reasonable opportunity to explain the omission to disclose the turnover or to furnish correctly any particulars and to make such enquiry as he may consider necessary. In this connection, it may also be relevant to read sub-section (8) of section 14 which prescribes the quantum of penalty to be levied, which is as follows :

"The penalty leviable under sub-section (2), sub-section (3) or sub-section (4)..........

(a) shall not be less than three times but which may extend to five times the tax or the fee due in a case where the assessing authority is satisfied that the failure of the dealer to disclose the whole or part of the turnover or any other particulars correctly or to submit the return before the prescribed date, was wilful; and

(b) shall not exceed one half of the tax or the fee due in a case where such failure was not wilful."

The proviso to sub-section (8) of section 14 affords a defence to a dealer in a case where the failure to comply with the requirements of the abovesaid provision is due to bona fide mistake on the part of the dealer in which case the dealer cannot be made to pay the penalty. In view of the above position in law, it is incumbent on the assessing authority to issue notice because the question of the nature of the failure to comply with the requirements of the law, whether it is due to bona fide mistake on the part of the dealer or whether it is wilful or not will have to be determined by the authority, if such a plea is taken by the dealer. To enable the dealer to take the defence available in law, the issuance of notice giving him reasonable opportunity to file his defence is a pro-requisite. Such a mandatory requirement has been overlooked by the respondent before collecting the penalty. A Division Bench of this Court in Annam Jewellers Vs. Deputy Commercial Tax Officer and Another, took the same view holding that collection of tax u/s 6-A and penalty thereon without giving any show cause notice or opportunity to the petitioner was illegal and arbitrary. In these circumstances, we have no option but to declare that the collection of penalty of Rs. 30,600 from the petitioner by the respondent is illegal and arbitrary and issue direction to the respondent to refund the same. A writ shall be issued accordingly.

We make it clear that this order of ours will not preclude the authority from taking steps to collect penalty in accordance with law.

The writ petition is accordingly allowed. No costs.

Writ petition allowed.