Super Traders vs Additional Commissioner of Commercial Tax

Calling in question the orders passed by the assessing authority and the revisional authorities in the matter of assessment of VAT to be paid by the petitioners for the period 2004-05, this petition has been filed. Challenge is made to the legality of the penalty imposed u/s 69(1) and as the amount of tax has already been paid, it is said that challenge is only made to the penalty imposed on VAT.

The petitioner is a registered dealer with the Commercial Tax Department and carrying on the business of sale and purchase of cement at Bhopal manufactured by M/s. Diamond Cements, Damon. An ex parte order of assessment was passed by respondent No. 2 for the assessment year 2004-05. This assessment order was set aside in appeal and the matter was remanded back. The assessment was done and certain amount with regard to transportation or the fright amount was disallowed so also certain amount with regard to payment through credit note was disallowed. Tax was assessed on these amount and on the ground of concealment, penalty is imposed.

As far as tax collected is concerned, the same has been paid and the only challenge is made to imposition of penalty on both the counts, i.e., on amount of freight and transportation charges so also on account of credit note. As far as concealment of the amount with regard to freight charges are concerned, learned counsel invites our attention to the orders of assessment passed and points out that while considering the question in the backdrop of section 9B of the Commercial Tax Act, the learned assessing officer in his order annexure P/1 dated November 24, 2008 has found that certain amount is claimed as the amount of price for purchase of cement from M/s. Diamond Cements. It is found that this is not the entire purchase amount, this includes certain amount paid towards transportation and freight charges and as these amounts cannot be deducted, penalty is imposed on this amount on the ground of concealment. It is the case of the petitioner that the amount is disclosed in the return, there is no concealment and therefore, in the light of law laid down by the Supreme Court in the case of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd., the amount of penalty cannot be imposed on the ground of concealment of freight charges. It is said that it is nothing but an amount claimed as purchase price which has been disallowed and therefore, it does not fall within the category of concealment.

As far as adjustment through payment of credit note is concerned, learned counsel indicates that the Supreme Court in the case of IFB Industries Ltd. Vs. State of Kerala, has approved the mode of claiming benefit through credit note and as this is held to be a known system of business and trade practice, it is argued that enforcement of penalty on this transaction is also unsustainable. Even though petitioner is not claiming refund of this amount, it is said that imposition of penalty be quashed.

Shri Rahul Jain, learned Deputy Advocate-General appearing for Revenue tried to justify the Revenue by contending that the amount has been recovered in the light of concealment established in the matter and therefore, there is no illegality.

We have heard learned counsel for the parties and considered the rival contentions. From the documents and material available on record, it is clear that in the matter of concealment of freight or transportation charges in fact the amount was included in the bill for purchase of cement and the assessing officer has bifurcated the amount and did not permit addition of the transportation or freight charges in the cost price of product purchased, i.e., cement. Therefore, it is not a case where the petitioner has concealed any item, which is taxable but has only included it to be an amount in a particular head, i.e., purchase price which is not permissible. It is a case where in the particulars and details supplied by the petitioner certain incorrect and erroneous claim is made which is not sustainable under law. According to the Supreme Court in the law laid down in the case of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd., this will not amount to concealment of income but would come in the category of an erroneous or incorrect deduction or adjustment made. It is held that it does not fall in the category of furnishing inaccurate particulars or concealment of income and is not taxable.

Keeping in view the aforesaid and applying the same in the facts and circumstances of the present case, we are of the considered view that imposition of penalty on concealment of freight charges is not correct. It is a case where the petitioner erroneously included the amount as it was included in the bill by the manufacturer of cement. That being so, to that extent the imposition of penalty u/s 29 has to be quashed.

As far as claiming benefit of transaction made through credit note are concerned, the Supreme Court in the case of IFB Industries Ltd. Vs. State of Kerala, has held that discount through credit note issued even subsequent to sale without their mention in sale vouchers is permissible. This is held to be an established trade practice and if the petitioner had also claimed rebate or discount on credit note, in view of the law laid down by the Supreme Court in the case of IFB Industries Ltd. Vs. State of Kerala, this will also not amount to concealment or suppression of income subjected to penalty. Taking note of all these factors and law as discussed hereinabove based on the judgment of the Supreme Court, we are of the considered view that the order of authorities in the matter of imposition of penalty in the facts and circumstances of the case is unsustainable. Accordingly, penalty imposed in the matter are set aside and the amount is directed to be refunded to the petitioner. In view of the aforesaid, this petition stands allowed and disposed of.