Maharashtra VAT Act – Non Submission of Returns - Penalty u/s. 29(8)
Maharashtra VAT Act – Non
submission of Returns –
Penalty u/s. 29(8)
N. T. Nirale,
The MVAT Act has come in to force from 1-4-2005 and is yet to settle down in its administration. The only object of the MVAT Act is “to collect tax on sale or purchase of certain goods in the State of Maharashtra.” Collection of information about the turnover of the dealers is never the object of sales tax law.
Section 20 of MVAT Act makes it obligatory for every registered dealer to file correct, complete and self consistent return at the prescribed intervals. As per section 32, the dealer who is liable to file the returns, must pay the amount of tax due in the Govt treasury [or the prescribed bank]. Such payment has to be of the tax due from him for the period covered by the returns along with the interest payable if any. If revised return is to be filed, the amount of difference in tax has to be paid before filing the revised return.
It has been a universal observation that unless some compulsion is exercised, the rules and regulations are not observed by the people. This is not only true for Indians but is true for the all the people all over the world. That is why the punishment is always prescribed for not following the rules.
In legal terminology this is called ‘every legal obligation has a sanction behind it’. The breaking of the rule is accompanied by some kind of punishment. The punishment may be in the form of ‘extra monetary burden in the form of ‘interest or penalty, or ‘cession of concessions’ or ‘restrictions on personal liberty’ like imprisonment etc.
2. Penaltlies under VAT Act
Section 29 of MVAT Act makes the provisions for ‘imposition of penalty in certain cases’. In this article it is intended to discuss the provision related to non-submission / late submission of return. Relevant section 29 reads as under:
MVAT sec 29  – (8) Where, any person or dealer has failed without reasonable cause to file within the prescribed time, a return for any period as provided under section 20, the I-452 Sales Tax Review .. November, 2009 Article – Maharashtra VAT Act – Non submission of Returns ... 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commissioner may, after giving the person or dealer a reasonable opportunity of being heard, by order in writing, impose on him, in addition to any tax payable by him, a sum of rupees two thousand by way of penalty. Such penalty shall be without prejudice to any other penalty, which may be imposed under this Act:
Provided that, if the return is filed before the initiation of the proceeding for levy of penalty, the penalty shall be levied at rupees one thousand and in any other case, the penalty shall be levied at rupees two thousand.
(In the above section 29, subsection (8), for the words ‘rupees two thousand’ the words ‘rupees ten thousand’ & for the words ‘rupees one thousand’ the words ‘rupees five thousand’ are substituted and new subsection (8) is as follows by the Maharashtra Act No. VIII of 2008 Dt. 31-3-2008)
(8) Where, any person or dealer has failed without reasonable cause to file within the prescribed time, a return for any period as provided under section 20, ‘ the Commissioner may, after giving the person or dealer a reasonable opportunity of being heard, by order in writing, impose on him, in addition to any tax payable by him, a sum of rupees ten thousand by way of penalty. Such penalty shall be without prejudice to any other penalty, which may be imposed under this Act:
Provided that, if the return is filed before the initiation of the proceeding for levy of penalty, the penalty shall be levied at rupees five thousand and in any other case, the penalty shall be levied at rupees ten thousand.
3. Penalty and Interest – Distinguished
The PENALTY for non submission of returns is different from INTEREST –
Interest is levied under section 30  of MVAT Act which is as under:
30(2) – “A registered dealer who has failed to pay the tax within the time specified by or under this Act, shall be liable to pay by way of simple interest, in addition to the amount of such tax, a sum calculated at the prescribed rate on the amount of such tax for each month or part thereof after the last date by which he should have paid such tax:
Provided that, in relation to the tax payable according to the return or, as the case may be, a fresh return or revised return, – – – amount of tax.”
Interest is simple cost for use of Government money by the dealer liable to pay tax. Hence the words like ‘reasonable cause’ or ‘deliberate’ or ‘wilful’ are not found in the provisions for levy of interest. But penalty is altogether different concept. Penalty is a comprehensive term with many different meanings. It has the concept of punishment, corporal or pecuniary, civil or criminal; although its meaning is usually confined to monetary punishment.
4. Ingredients of Penalty
As seen from the tangible wordings of section 29 following are the important ingredients of this subsection –
i] where a person or a dealer,
ii] fails without reasonable cause,
iii] to file return for any period,
iv] as provided under the Act,
v] the commissioner may,
vi] after giving a reasonable opportunity of hearing,
vii] by order in writing,
viii] impose on him a sum of rupees ten thousand or rupees five thousand if the returns are filed before initiation of penalty proceedings,
ix] by way of penalty,
If we analyse above ingredients is it is very clear that for late or non submission of returns the punishment is levy of 'penalty'. As seen above the 'PENALTY' and ‘INTEREST’ are two different things. Interest is generally automatic and is related to the period involved. But the penalty is in the form of punishment and usually relates to the degree of culpability of the default. Therefore it is very important to see if the commissioner [sales tax officer] gets the jurisdiction to initiate the penalty proceedings.
If we read Preamble of the MVAT Act, the object of the Act is – “Whereas it is expedient to consolidate and amend the laws relating to the levy and collection of tax on the sale”. The object is to levy and collect tax. The object is not to collect penalty or to amass returns and data about the turnover of the dealers. If the taxes are paid then simply filing of returns late may not amount to default calling of penal action because there is no intention to evade the taxes.
All defaults are not offences attracting penalty. The qualifying words in section 29 are, ‘without reasonable cause’. Reasonable cause means ‘sufficient cause.’ These words import mens rea [guilty mind] into the behavior of the appellant. The word used in section 29 is “penalty” and not ‘interest’ nor ‘compensation’ nor ‘lump sum’. If tax amount is paid there is no mens rea [guilty mind] and where there is no guilty mind the punishment [even in the form of monetary payment] is not at all justified.
5. Views of Salmond on Penalty
Let us see what “Salmond on Jurisprudence” says in Chap 12, para 82, page 351 [Ed.1966] – “The General conditions of penal liability are indicated with sufficient accuracy in the legal maxim, “Actus non facit reum, nisi mens sit rea” – meaning – the act alone does not amount to guilt, it must be accompanied by a guilty mind. — It is not enough that a man has done some act which on account of its mischievous results the law prohibits; before the law can justly punish the act, an inquiry must be made into the mental attitude of the doer. For although the act may have been objectively wrongful, the mind and will of the doer may have been innocent.” Therefore if the amount of taxes is paid and if the return is submitted late there may not be any default inviting penalty.
6. Acquisition of Jurisdiction by Notice
The jurisdiction of the officer does not depend on the issues of notice, but is predominantly dependent of the subject matter of the notice. If action or inaction does not call for penalty, the officer can not get the jurisdiction merely by issue of notice.
To acquire the jurisdiction the Officer has to issue notice; because the section makes it compulsory to give a reasonable opportunity of hearing. The process of issue of notice and giving hearing is called ‘a principle of Natural Justice’. Orissa High Court has observed in Utakal Asbestos [133 STC 22] about Natural Justice in the following words:
“Rules of natural justice are not rules always expressly embodied in a statute or in rules framed thereunder. They may be implied from the nature of the duty to be performed under a statute. What particular rule of natural justice should be implied and what its context should be in a given case must depend to a great extent on the facts and circumstances of that case, the frame work of the statute under which the enquiry is held. Even if it is accepted that there is no specific requirement of the principles of natural justice in section 13(5) of the Orissa Sales Tax Act, 1947 levy of penalty under section 13(5) of the Act without grant of opportunity cannot be maintained.”
As per general legal principles, the notice has to be issued in the name of the person or the dealer and has to be served properly upon him. It must mention the period of the returns for which it is intended to levy penalty. The date fixed for hearing must give reasonable time to prepare and attend before the Officer. If the date fixed is declared as holiday it is not necessary that the dealer should appear before the officer on next working day; a fresh notice is necessary in such cases. When the dealer attends in response to the notice issued and the officer is not in his seat, the dealer may wait for a reasonable time and then leave the office with a note to the officer that he has attended in response to his notice and request for fresh date of hearing. If the staff of the officer refuses to give acknowledgment for such note, it is always advisable to send the letter to that officer by RPAD on the very next day. Otherwise the officer is sure to pass ex parte order levying penalty, which is difficult to challenge in appeal.
7. The Order of Penalty
After hearing the dealer the officer has to pass the order levying penalty. But as per section 29 the penalty order has to be passed before five years from the end of the year containing period for which the penalty is being levied. If the STO or Asstt Commissioner intends to levy penalty exceeding Rs. 5 lacs then prior approval from the Dy. Commissioner and if the Dy. Commissioner or Senior Dy. Commissioner intends to levy penalty exceeding Rs. 10 lacs then prior approval of the Joint commissioner is necessary as per section 29.
The penalty order should not be in the cyclostyled form. It should be self speaking. The order should discuss as to why the cause given by the dealer for failure to submit the returns according to law, is ‘not a sufficient cause’. If the order levying penalty does not discuss the reasons given by the dealer and or its insufficiency, that order cannot stand the test of law. The Supreme Court has observed in case of Steel Authority of India [16 VST 181] that,
“Reason is the heart-beat of every conclusion: it introduces clarity in an order and without the same it becomes lifeless. Right to reason is an indispensable part of a sound judicial system; reasons at least sufficient to indicate application of mind to the matter before the court, Tribunal or authority. The affected party has to know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made.”
8. Where taxes are paid in time but the returns are filed late
As we have seen earlier the object of the MVAT Act is to collect the taxes and not the information about the turnover of the dealer. Therefore if the taxes are paid in time the degree of default of late submission of returns is automatically decreased. Though such late submission will be covered by section 29, it may not attract the penalty. Because, in view of the word ‘may’ used in that subsection, it is not obligatory for the Commissioner to levy penalty for all the cases.. Following observations made by the Supreme Court in case of Hindustan Steel [25 STC 211] throw the light in such situation.
“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 where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”
Since the words “commissioner may” and “without reasonable cause” are incorporated in the section 29, the judicious use of the discretion before levy of penalty has to be made. Only for technical breach the levy of penalty, even if minimum is prescribed, will not be justified.
“Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose it, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.” [79 STC 400 - Bharat Ply- Wood Products Pvt. Ltd. and [105 STC 144] - Gulmarg Chemicals and Scientific Works]
Imposition of penalty is always quasi-judicial in nature and the power to levy such penalty has to be exercised with judicial discretion. In case of bona fides the penalty should not be imposed. It is observed in case of Indian Oil Corporation’s case that,
“Thus the petitioner in a good faith acted bona fide and it was not a case where the penalty should have been imposed. Therefore the orders imposing penalty under section 7(4) of the Entry Tax Act, 1993 read with section 16(9) of the Finance Act and demand notices issued in pursuance thereof were liable to be quashed.” [138 STC 29]”
9. Impact of Departmental Circulars on levy of Penalty
The Commissioner had issued Trade Circular No. 27T/2007 on 23-3-2007. According to para 3 of that circular,
“Penalty u/s 29(8) of the MVAT Act is attracted for non-filing or late filing of returns. No penalty under this provision will be levied in the cases where full interest is paid suo-motu along with the tax in the late return in the aforesaid manner. In all other cases of late return filing, proceedings of levy of interest and penalty will be completed as per law.”
As observed in case of Shiva Electronics (India) Pvt. Ltd. [19 VST 438] even circular contrary to the statutory provisions would be binding upon the authorities.
“It is also well-settled in view of the decisions relied upon by the counsel for the dealer that even an erroneous circular or the circular contrary to the statutory provisions would be binding upon the authorities of the Department. Reference may be made to the recent decision of the apex court in the case of Arviva Industries  209 ELT 5 (SC) wherein the Apex Court in paragraph 5 has referred to and approved the principles laid down by the Apex Court in the case of Commissioner of Customs, Calcutta vs. Indian Oil Corpn. Ltd.  3 SCC 488 which read as follows:
“1. Although a circular is not binding on a court or an assessee, it is not open to the Revenue to raise a contention that is contrary to a binding circular by the Board. When a circular remains in operation the Revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the statute.
2. Despite the decision of this court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board.
3. A show-cause notice and demand contrary to the existing circulars of the Board are ab initio bad.
4. It is not open to the Revenue to advance an argument or file an appeal contrary to the circulars.”
Since the circulars issued by the Commissioner are binding on all officers of the department and that they are duty bound to follow the circulars of the Commissioner, the penalty will not be justified in cases where the dealer has submitted returns late but has paid the taxes and the interest thereon.
10. Compulsory filing of Electronic returns
From 1-7-2008 filing of Electronic returns is made compulsory. Many of the dealers experience the difficulties in filing the returns electronically.
‘Load shedding’ in the places other than Mumbai and Pune has been a main obstacle in filling such returns. Moreover obtaining the email ID, Connecting internet, Getting the Browser support, Finding the server or provider busy, Not opening the Govt site or page, ‘Submit’ button not functioning, are some sort of difficulties experienced by the dealers. In the initial stages of Computerisation these difficulties assume the prime problems to be faced. Taking into consideration the difficulties in the initial stages, the Finance Minister had given the assurance on the floor of the House that if the taxes are paid the penal action will not be taken for filing electronic returns late. On the basis of such assurance the Commissioner has issued the Trade Circular 21T/2009 dt. 4-7-2009 – para 4 of this circular is as under:
Para[a] –”If the dealers who have not filed one or more returns for the periods starting on or after 1st April 2005 and ending on 30th June 2009, file all such pending returns electronically along with the due payment with interest on or before 31st July, 2009 then penalty for late filing of returns will not be levied.”
As pointed out earlier the circulars are binding on the subordinate staff of the Commissioner. Hence where the returns are filed and the taxes along with interest, if any, is paid, though late, the penalty u/s 29 will not be justified.
11. The view of the Maharashtra Sales Tax Tribunal on the similar set of circumstances
i] M/s Rajendra Metal [VAT SA No. 7/2007 decided on 12-10-2007] – In this case the returns and the taxes were paid late. Though the payment of taxes was without interest the Tribunal, after referring to the circular No. 27T/ 2007 dated 23-3-2007, has reduced the penalty levied u/s. 29 to nominal amount of Rs. 100/-.
ii] CST vs. M/s Rajendra Metal [Rectification No. 125/2007 decided on 2-6-2008] – The Rectification Application was filed by the Commissioner against the decision dated 12-10-2007 given by the Tribunal [referred in para i above]. The submission of the department was that there was no room in the provisions of the Act to reduce the penalty levied and the reduction of penalty is a mistake apparent on record. But this was not accepted by the Tribunal and it is held that because of the word ‘may’ there is discretion to levy penalty. The Supreme Court decision in case of Hindustan Steel [25 STC 211] was followed and the rectification application of the Commissioner was rejected. Thus it is seen that the Tribunal has taken a consistent view that when the taxes are paid a sympathetic view should be taken for technical defaults.
12. Where the minimum penalty is prescribed under the law
It has been a matter of argument as to whether the penalty can be reduced where the minimum amount of the penalty to be imposed is prescribed. The wordings of the section 29 are “impose on him, ....., a sum of rupees ten thousand by way of penalty”. The words are not “a sum not exceeding rupees”. The words exceeding denotes the maximum limit and the penalty can be any amount below that. Therefore it is argued many times that, if the default is established u/s 29 the penalty has to be the prescribed amount only. Since the wordings do not suggest the limit, the penalty has to be imposed at the amount mentioned in the section and that there is no scope to levy the penalty less than the amount prescribed by the section. While making such argument the reliance is always placed on the Supreme Court decision in case of M/s Dharmendra Textile [2008 (231) ELT 3 SC], wherein it was observed by the SC that ‘once the penal section is applicable the authorities would have no discretion on quantum of penalty’.
But it is pertinent to note that section 29 says “the Commissioner may, after giving the person or dealer a reasonable opportunity of being heard,” . The word is ‘may’ and not ‘shall’. This gives commissioner a discretion to levy or not to levy penalty. The Tribunal decisions in cases of M/s Rajendra Metal cited in para 11 above supports this view.
Moreover the Supreme Court itself in its judgment dated 12-5-2009 ruled that the mandatory penalty will not apply to every case of non-payment of duty. [Please see 237 ELT page A105 News & views]. Therefore, unless the default is found to be deliberate or fraudulent one, the penalty at its maximum will not be sustainable. Thus the penalty amount prescribed u/s 29 has to be taken as a range of the amount to be levied as penalty and not the fixed sum which must be levied.
13. Amendments from 1-7-2009
It appears that to come out of the above situation the Govt has amended the MVAT Act from 1-7-2009 and now the amended section 29 stands as under:
(8) Where, any person or dealer has failed to file within the prescribed time, a return for any period as provided under section 20, ‘ the Commissioner shall impose on him, a sum of rupees five thousand by way of penalty. Such penalty shall be without prejudice to any other penalty, which may be imposed under this Act:
The section 85 of the MVAT Act is also amended to make the penalty order as non-appealable order, as under: Sec.85  – No appeal shall lie against, [b-1]. an order levying penalty under sub-section  of section 29.
Now in section 29 the word ‘MAY’ is replaced by the word ‘SHALL’. Therefore the compulsion to levy penalty is introduced in the section. Commissioner [sales tax officer] gets unfettered authority to levy penalty for late submission of returns even if the taxes are paid in time. The amount of penalty is reduced from Rupees Ten thousand to Rupees Five thousand but no appeal can be filed against the penalty order. However it is still felt that the observations of the Supreme Court in case of Hindustan Steel [25 STC 211] will apply to levy of penalty even under amended section.
The situation may arise where the sales tax officer may [by mistake, as his record is not updated, or deliberately] levy the penalty u/s 29 at Rupees Five thousand even if the taxes are paid in time the returns are also filed in time. But the dealer cannot do any thing but to pay Rupees Five thousand, because the appeal will not lie to any superior. Even the High Court will not entertain the Writ as the amount involved will be very small. If the matter is to be fought as a principle then the cost involved will be far more that the amount involved. It is felt that by making the penalty order as non-appealable order all the principles of Natural Justice as propounded by SALMOND and the APPEX Court are washed away.
N. T. Nirale,