P.M. Mohammed Rafeek vs State of Kerala

C.N. Ramachandran Nair, J.—The question raised in both the connected revision cases is whether the Tribunal was justified in sustaining penalty at equal amount of tax for dishonour of cheques given towards payment of tax and consequent delay in payment of tax.

At admission stage of the revision cases, learned Government Pleader took notice and offered to argue the matter on merits. Accordingly we heard both sides and proceed to dispose of the revisions by this common judgment.

The petitioner is a dealer in coffee and pepper filing monthly returns and remitting tax thereon under the Kerala Value Added Tax Act (hereinafter referred to as, "the Act", for short). While the tax payable for February, 2009, was Rs. 99,648, the tax payable for March, 2009, was Rs. 1,14,241. The cheques given along with monthly returns towards payment of tax were dishonoured. However, strangely the assessing officer took nearly seven to eight months to notice the dishonour of cheques and consequent non-recovery of tax. The same is revealed from the fact that notice was issued to the petitioner only on October 26, 2009. As and when notice was received, the petitioner remitted the tax due for February and March, 2009, on February 22, 2010 with interest at 12 per cent per annum. The assessing officer however levied penalty u/s 67 of the Act, which is for non-payment of tax along with monthly returns. All the appellate authorities including the Tribunal concurred with the exigibility to penalty, but the two appellate authorities modified the penalty orders, and under the Tribunal''s orders penalty levied is equal to the amount of tax. It is against these orders of the Tribunal, the petitioner has filed these revision cases.

The learned counsel for the petitioner contended that the petitioner was suffering from heart disease and the same led to his failure to arrange funds to honour the cheques presented towards payment of tax. Learned Government Pleader, on the other hand, contended that there is no bona fides in the petitioner''s contention and the same is clear from the fact that the petitioner did not even apply for time for payment of tax even after dishonour of cheques which would have been intimated by the bank to the petitioner at least, though the Department did not admittedly inform him in time. We do not think there is any need to go into the question whether the petitioner had an ailment leading to his inability to arrange funds in the bank to honour the cheques given because a dealer collecting tax has to pay the collected tax to the Government and he has no authority to divert collected tax for any other purpose. However, if for any unforeseen reason the cheques got dishonoured, it was the duty of the petitioner to have intimated the officer and arrange funds at the earliest to honour the cheques. What we notice is that the fault or lethargy is more on the part of the Departmental Officer than on the part of the assessee. This is because the assessing officer before whom the cheques are presented for payment does not bother to take any action for at least 6 months after the dishonour of cheques. In our view, the lapses on the part of the officer are not to be taken lightly. So far as a dealer is concerned, what we find is the low rate of interest for default or delay in payment of tax provided u/s 31(5) at 12 per cent per annum, which is at one per cent per month, (sic) sufficient incentive for the traders to delay payment of tax or even divert collected tax for other purposes.

The learned Government Pleader rightly pointed out that interest reduction is done to make the rate of interest at par with several tax legislations of the Central Government and other States. However, he rightly pointed out that in all cases of default in payment of tax, penalty should be considered depending upon the nature and period of default in terms of section 68 of the Act. In this case, it is seen that penalty is levied by the officer u/s 67 of the Act, which is for general violation and not for default in payment of tax, which is the case here. What we notice is that even though the officer has levied penalty u/s 67 of the Act at double the amount of tax, the Tribunal in fact did not accept the principle that maximum penalty u/s 67 of the Act could be levied because by reducing the penalty to equal amount of tax, the Tribunal has made the penalty orders compliant with section 68 of the Act.

We have, in O. T. Rev. No. 27 of 2011 ( K. V. Paul v. State of Kerala, (2011) 46 VST 86 (Ker) ), held that the scope of section 67 of the Act is such that it covers all cases of violation of the Act and the Rules. However, wherever there is special provision in the Act providing for penalty for specific violation, penalty should be considered under the special provision and not u/s 67 which provides for penalty for all violations not separately provided for. A case of non-payment of tax or default in payment of tax whether it be admitted tax or demanded tax is squarely covered by section 68 of the Act and the relevant provision under which penalty has to be considered is section 68 of the Act, no matter dishonour of cheque submitted along with monthly return amounts to riling of return without payment of tax and so much is a default which falls u/s 67 of the Act as well. Though the assessing officer is given the discretion to fix the penalty depending upon the period of default and the nature of default u/s 68 of the Act, we feel instead of remanding the matter we should exercise our discretion and decide the matter finally. Considering the fact that taxes were paid along with interest on issuing notice by the assessing officer, and the assessing officer himself delayed issue of notice by six months and in view of the financial difficulty expressed by the petitioner consequent upon his heart ailment, we refix the penalty at Rs. 25,000 per month, i.e., Rs. 50,000 as total penalty for delay in payment of tax for the months of February and March, 2009.

These O. T. revision cases are allowed in part as above.