M/s Tenughat Vidyut Nigam Limited vs State Of Jharkhand And Ors

Heard learned senior counsel for the petitioner Company, learned counsel for the State and learned counsel for the Central Coalfields Limited

(herein after referred to as the 'CCL').

As the issues involved in all these three writ applications are the same, they have been heard together and are being disposed of by this common

Judgement.

The petitioner Company is engaged in the production, supply and sale of electricity, and for the purpose of production of the electricity at its

Thermal Power Plant, it requires coal, which was purchased from the Central Coalfields Limited. As provided under Section 45(1) of the Jharkhand

Value Added Tax Act, 2005, (hereinafter referred to as the 'J.V.A.T. Act'), the petitioner Company was required to deduct the prescribed amount,

which is 2%, on account of VAT, as tax deducted at source (for short 'TDS'), from the bills raised by the Central Coalfields Limited for supply of

coal, and by virtue of Section 45(3) of the J.V.A.T. Act, the same was required to be deposited in the Government Treasury in the prescribed manner.

By virtue of Section 45(5) of the J.V.A.T. Act, if such TDS was not made, the Company was liable to pay by way of penalty a sum not exceeding

twice the amount of the tax deductible under sub-Section (1).

In all these matters, this obligation of deduction of TDS was not carried out by the petitioner Company, and accordingly, the impugned demand have

been raised by the Assessing Authority under the J.V.A.T. Act, imposing the penalty as well as tax upon the petitioner. The assessment orders were

passed on 19.03.2015, 05.03.2016 and 21.03.2017, as contained in Annexure-2 to these writ applications. However, by the said orders the liability has

been imposed, not only for the amount of penalty, rather also for the deductible 2% of the tax amount. Subsequently, the demand notices were also

issued on 16.11.2016, 23.04.2016 and 30.08.2017, as contained in Annexure-6 in W.P.T. No.759 of 2017, and Annexure-3 to the other writ

applications. Subsequent thereto the garnishee orders had also been issued, and it is an admitted position that pursuant to the garnishee orders some

amounts have also been deposited by the petitioner Company.

Learned senior counsel appearing for the petitioner submitted that the impugned assessment orders as contained in Annexure-2 and the demand

notices as contained in Annexures-3 and 6 to these writ applications as also the consequent garnishee orders cannot be sustained in the eyes of law,

inasmuch as, the VAT payable on the coal purchased, has already been deposited by the petitioner Company to the CCL, from which purchase of

coal was made, and the CCL, in turn, has deposited the tax in the State-exchequer. It is submitted that this is an admitted position, and there is no

revenue loss to the State-exchequer due to the non-deduction of TDS by the petitioner @ 2%. Learned senior counsel for the petitioner submits that

since there was no revenue loss to the State Government, the petitioner Company was also not liable to any penalty. It is further submitted by learned

senior counsel for the petitioner, that by the impugned orders / the demand notices, 2% TDS has also been sought to be recovered from the petitioner,

which would amount to the double taxation, and on this count also, the impugned orders / notices cannot be sustained in the eyes of law.

In support of his contention that even the penalty could not be imposed upon the petitioner, learned senior counsel has placed reliance upon the

decision of the Hon’ble Apex Court in M/s. Hindustan Steel Ltd. Vs. State of Orissa, reported in (1969) 2 SCC 62,7 wherein, it has been held as

follows:-

“8. --------------. 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. Even if a minimum penalty is prescribed, the authority

competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions

of the Act or whether the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. --

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(Emphasis supplied).

Learned senior counsel again placed reliance upon the decision of the Hon’ble Apex Court in Employees' State Insurance Corporation Vs. HMT

Ltd. & Anr., reported in (2008) 3 SCC 35, wherein the law has been laid down as follows:-

“21. A penal provision should be construed strictly. Only because a provision has been made for levy of penalty, the same by itself would

not lead to the conclusion that penalty must be levied in all situations. Such an intention on the part of the legislature is not decipherable

from Section 85-B of the Act. When a discretionary jurisdiction has been conferred on a statutory authority to levy penal damages by

reason of an enabling provision, the same cannot be construed as imperative. Even otherwise, an endeavour should be made to construe

such penal provisions as discretionary, unless the statute is held to be mandatory in character.â€​

(Emphasis supplied).

Learned senior counsel further placed reliance upon the decision of the Hon’ble Apex Court in Nirlon Ltd. Vs. Commissioner of Central

Excise, Mumbai, reported in (2015) 14 SCC 798, wherein where it was found that the entire exercise was revenue neutral and there was no mala fide

intention on the part of the assessee, the penalty imposed was set aside. Placing reliance on these decisions, learned senior counsel submitted that the

impugned action of the State Revenue Authorities cannot be sustained in the eyes of law.

Learned counsel for the State, on the other hand, has opposed the prayer and has submitted that a plain reading of Section 45(5) of the J.V.A.T.

Act would show that the provision is mandatory in nature, and in that view of the matter, the Revenue Authorities had no way out, but to impose the

penalty, once it was found that the TDS was not deducted by the petitioner Company. It has been submitted that Revenue Authorities had only limited

descretion in deciding the quantum of penalty, but so far as the imposition of penalty is concerned, the provision of the Act is mandatory. Learned

counsel for the State has thus, submitted that the law laid down in Employees' State Insurance Corporation's case (supra), is not applicable to the facts

of this case, as this decision clearly shows that it relates to the cases where the statute is not mandatory in character. Learned counsel for the State

has also placed reliance upon the decision of the Hon’ble Apex Court in Guljag Industries Vs. Commercial Taxes Officer, reported in (2007) 7

SCC 269, wherein the law has been laid down as follows:-

Default or failure to comply with Section 78(2) is the failure/default of statutory civil obligation and proceedings under Section 78(5)

are neither criminal nor quasi-criminal in nature. The penalty is for statutory offence. Therefore, there is no question of proving of intention

or of mens rea as the same is excluded from the category of essential element for imposing penalty. Penalty under Section 78(5) is attracted

as soon as there is contravention of statutory obligations. Intention of parties committing such violation is wholly irrelevant.

(Emphasis supplied).

Further reliance has been placed by the learned counsel for the State upon the decision of the Hon’ble Apex Court in Commissioner Of Customs

(Import), Mumbai Vs. Dilip Kumar & Company & Ors., reported in (2018) 9 SCC ,1 wherein the Hon’ble Apex Court has placed reliance with

the approval, upon the decision of five Judges' Bench of the Hon’ble Apex Court in State of W.B. Vs. Kesoram Industries Ltd., reported in

(2004) 10 SCC 201, laying down the law as follows:-

“(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any

presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is

not expressed; it cannot import provisions in the statute so as to supply any deficiency; ------------.â€​

Placing reliance on these decisions, it is submitted by the learned counsel for the State that in interpretation of the tax statute, there is no scope of

any equitable considerations, and in view of the fact that Section 45(5) of the J.V.A.T. Act is mandatory in nature, the fact whether the State-

exchequer was put to loss or not, or the bona fides of the petitioner, cannot be looked into, and once it is found that the petitioner Company had

defaulted in deducting the TDS, imposition of penalty was imperative. Learned counsel for the State, however, very fairly conceded that the impugned

orders / demand notices, so far as the demand of the 2% tax amount has also been made from the petitioner Company, is bad in the eyes of law, as

this certainly amounts to double taxation, as the entire tax amount had already been paid to the State-exchequer through the CCL. But so far as the

imposition of penalty is concerned, according to learned counsel for the State, there is no illegality in the same.

Learned senior counsel for the petitioner, in reply has submitted that the decision of the Hon’ble Apex Court in Guljag Industries's case

(supra), shall not be applicable to the facts of this case, inasmuch as, the said case was a clear case of evasion of tax, whereas the case of the

petitioner Company is not of evasion of the tax. It has further pointed out by the learned senior counsel for the petitioner that in view of the Proviso to

Section 45(5) of J.V.A.T. Act, the provision cannot be held to be mandatory in nature.

Section 45 sub-Section (1) to (5) of the J.V.A.T. Act needs to be looked into for proper adjudication of these matters, which reads as follows:-

“45. Special Provision relating to Advance Recovery of Tax on Sales and Supplies to Governments and Other persons. â€

(1) Notwithstanding anything contained in this Act but subject to the provisions of Sections 14, 49 and 57, any person responsible for

paying sale price or any amount purporting to be the full or part payment of sale price in respect of sales or supplies of taxable goods

exceeding rupees one lac during a year made to -

(i) the State Government; or

(ii) Central Government; or

(iii) a Company, Corporation, Board, authority, undertaking or any other body owned, financed or controlled either wholly or partly by the

State Government or the Central Government shall, at the time of payment, subject to such conditions and restrictions as may be prescribed,

deduct an amount at the rate as may be specified by the State Government by a notification on account of tax on the amount of such

payment:

Provided that the rate or rates to be specified by the State Government shall not be more than the rate of tax applicable to the goods sold or

supplied.

(2) Notwithstanding any law or contract to the contrary, the person making such deduction shall be lawfully competent to make such

deduction.

(3) Payment of the amount deducted under sub-section (1) into the Government Treasury in the prescribed manner, shall be the liability of

the person making such deduction.

(4) Payment of the amount deducted under sub-section (1) into the Government Treasury by the person making the deduction shall be

deemed to be a payment by or on behalf of the seller or supplier concerned.

(5) If any person contravenes any or all of the provisions of sub-sections (1), (2) or (3), he shall be liable to pay, by way of penalty, a sum

not exceeding twice the amount of tax deductible under sub section(1):

Provided that such penalty shall not be imposed unless the person contravening the provisions is given an opportunity of being heard by the

prescribed authority.

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A plain reading of this provision clearly shows that the deduction of the TDS from the bills raised by the CCL for supply of coal, was mandatory

on the part of the petitioner Company, which the Company had not carried out, though the fact remains that the State has not been put to any loss

thereby, and this is a case of revenue neutral, so far as the tax liability is concerned, as admittedly, the State has already realised its due tax from

CCL. However, the fact remains that the wordings of sub-Section (5) of Section 45 of the J.V.A.T. Act shows that the penalty was required to be

realised from the petitioner Company. The wordings of the Act also show and there was discretion upon the Assessing Authority as regards the

quantum of the penalty, which could be any amount up to twice the amount of the tax deductible under sub-Section (1). The Proviso also makes it

clear that before imposing the penalty the petitioner Company was required to be heard in the matter, meaning thereby, that the Company could make

out a case, that it was not liable to pay any penalty what so ever, which the authority concerned was required to record in the assessment order, with

his reasons to differ, in case the authority disagreed.

In this backdrop, we have looked into the orders passed by the Assessing Authority as contained in Annexure-2 to these writ applications. These

orders clearly show that though the Company was given a hearing through its counsel, but all that has been done by the Assessing Authority is that, it

recorded the facts about the Company as to how the Company works for production of electricity, and thereafter simply stating that the books of

account shows that no deduction of TDS was made, and quoting the provision of law, the penalty has been imposed twice the deductible amount, and

even 2% TDS amount has also been ordered to be levied from the petitioner Company.

We find that a plain reading of the impugned assessment orders clearly show that the mandate of Proviso to Section 45(5) of the J.V.A.T. Act,

has not been followed by the Assessing Authority. There is no discussion at all about the defence of the Company and without stating anything about

the reasons that might have been shown before the Assessing Authority by the counsel for the Company, the assessment orders / demand notices

have been passed. The assessment orders can safely be termed as absolutely non-speaking orders, sans giving the facts only about the functioning of

the Company and quoting the provision of law. As such, the impugned orders / demand notices cannot be sustained in the eyes of law.

Consequently, the impugned assessment orders dated 19.03.2015, 05.03.2016 and 21.03.2017, as contained in Annexure-2 to these writ

applications and the demand notices dated 16.11.2016, 23.04.2016 and 30.08.2017, as contained in Annexure-6 in W.P.T. No.759 of 2017, and

Annexure-3 to the other writ applications, and the subsequent garnishee orders, are hereby, quashed.

We remand the matter back to the Assessing Authority to pass the reasoned order afresh, after giving proper hearing to the petitioner Company,

positively within a period of six months from the date of communication of a copy of this order.

It goes without saying that if the petitioner Company is able to make out a case for non-payment of the penalty, the Assessing Authority shall pass

the necessary orders in accordance with law, keeping in view the ratio of the decision of the Hon’ble Apex Court in Hindustan Steel Ltd.'s case

(supra), that penalty is not ordinarily to 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, and that the penalty is not to be imposed merely because it is lawful to do

so. The Assessing Authority shall also take into consideration the ratio of the decision of the Hon’ble Apex Court in Employees' State Insurance

Corporation's case(supra), that only because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that

penalty must be levied in all situations. The Assessing Authority shall also exercise its discretion, in accordance with law, as regards the quantum of

penalty, if the penalty is found leviable, and shall not go for the highest amount of penalty in a mechanical manner.

It goes without saying that in case the Assessing Authority comes to the finding that the penalty was not leviable, the amount already deposited by

the petitioner Company pursuant to the garnishee orders shall be refunded back with the statutory interest.

All these three writ applications are accordingly, allowed with the directions and observations as above.