Ramesh Chand Lakhimal vs The Commercial Tax Officer

Rajendra Menon, J.—Challenging the orders Annexure P-4 dated 7.01.05 passed by the Assessing Officer imposing a penalty under Section 69(2) of the M. P. Commercial Tax Act, 1994 and the order Annexure P-5 dated 20th July, 2006 passed by the revisional authority dismissing the revision petition, assessee has filed this writ petition under Article 226/ 227 of the Constitution.

Petitioner was a registered dealer liable for payment of tax under the M. P. Commercial Tax Act, 1994. Petitioner is engaged in the business of sale and purchase of various agricultural products including Soyabean and for the period 1.04.96 to 31.03.97, assessment proceedings were concluded and the assessment order was passed on 26.08.04. It was found that various sales both inter-state and intra-state were made by the petitioner and a tax of Rs. 2,29,600/- was levied by the assessing officer for the period in question. The assessment order is Annexure P-1 dated 26th August, 2004.

However, while passing the order of assessment, the learned Assessing Officer found that in reflecting the sale of Soyabean, petitioner has concealed certain material and, therefore, a separate proceeding for imposition of penalty under Section 69(2) should be initiated. Challenging the imposition of tax, petitioner preferred a revision petition and the revision petition was decided vide Annexure P-2 on 2.02.06. While, the revision petition was pending, it came to the notice of the revisional authority that with regard to certain purchase made by the petitioner from M/s Mamta Trading Co. Dabra and M/s Gajanand Traders Dabra, enquiry was conducted by the Commercial Tax Inspector, Gwalior Division, Circle�II. He had recorded statement of certain individuals who were proprietors of the concerns from which the purchase was said to have been made and it was found that these firms have not effected the sale, therefore in the revision petition, a finding was recorded to the effect that petitioner by producing false purchase bills of these traders has committed an irregularity and based on this finding, a penalty at 5 times the tax amount amounting to Rs. 10,55,750/- has been imposed.

Shri Sanjay Mishra, learned counsel for the petitioner invited our attention to a judgment of the Supreme Court in the case of Hindustan Steel Ltd. Vs. State of Orissa, followed by a Bench of this court in the case of Bhawanidas Laxman Das Vs. Additional Commissioner of Sales Tax, Jabalpur & others, (2006) 9 STJ 110 (MP) to say that imposition of penalty is a separate quasi-criminal proceeding and while imposing the penalty, the requirement of law which includes an opportunity of hearing should be followed. He further invites our attention to a judgment of this Court in the case of S. R. Kalani & Co. Vs. C. L. Sharma & another (2004) 3 STJ 282 (MP) followed by a Co-ordinate Bench of this Court in W. P. No. 7650/06 decided on 31.01.13 to say that in a proceeding for imposition of penalty, the assessee is entitled to adduce evidence and to show that in the facts and circumstances, no penalty should be imposed.

It is the case of the petitioner before us and Shri Sanjay Mishra emphasized that based on the enquiry conducted by the Commercial Tax Inspector, Gwalior, Circle-II and a report submitted by this officer for the first time, certain findings were recorded by the Revisional authority while deciding the revision petition vide Annexure P-2 on 2.02.06. Based on the same, the impugned orders of penalty have been imposed but before doing so, neither the report of the enquiry conducted by the Commercial Tax Inspector, Gwalior or the evidence collected against the petitioner was submitted before the petitioner and without granting opportunity to the petitioner, behind his back, the entire material has been used for imposition of penalty. Shri Sanjay Mishra further stated that in the light of the law laid down in the cases as referred to hereinabove, the manner in which the penalty is imposed is unsustainable and the same should be quashed.

Even though, Shri Rahul Jain, learned Dy. Adv. General tried to indicate that the procedure followed is proper but we find that the penalty against the petitioner is imposed only on the ground that by producing false purchase bills from M/s Gajanand Traders, Dabra and M/s Mamta Trading Co., Dabra, petitioner has concealed certain fact. The order of penalty passed by the Revisional authority on 2.02.06 Annexure P-2 is based on the enquiry conducted by the Commercial Tax Inspector, Division No. 2 Gwalior and the statement of certain other persons recorded by this officer, the finding recorded is that the bills of purchase made is false and fabricated documents. No purchase was made by these firms, instead, the purchase seems to have made from the Krishi Upaj Mandi Samitis and, therefore, the penalties were imposed. However, while imposing the penalty based on these material, neither the assessing officer who conducted the proceedings under Section 69(2) nor the revisional authority while deciding the revision on 2.02.06 decided this question only on the basis of material collected behind the back of the petitioner by the Commercial Tax Officer, Gwalior, without giving the petitioner any opportunity to explain the position.

In the case of Hindustan Steel Ltd. (supra), it has been held by the Supreme Court that an order imposing the penalty under the Madhya Pradesh General Sales Tax Act for failure to carry out statutory obligation is a quasi-criminal proceeding. It amounts to defiance of law and establishes the guilty conduct and dishonest intention by the person concerned. The question of imposition of penalty and failure to perform statutory obligations is a matter of discretion of the authority to be exercised on consideration of relevant circumstances. It cannot be done on surmises and conjectures. This principle is again considered in the case of S. R. Kalani (supra). It has been reiterated that penalty proceedings are different from assessment proceedings and if concealment of facts or relevant material is the basis for imposing penalty, the assessee is entitled to adduce evidence to show that no penalty is liable to be imposed, the assessee is entitled to lead evidence and show that no penalty is to be imposed, accordingly the consequence would be that before imposing the penalty, all the material based on which the penalty is proposed to be imposed should be brought to the notice of the person concerned, he should be given an opportunity to rebut the material available against him and, thereafter, only the finding of guilt can be recorded. In the absence of such a procedure being followed, anything done behind the back of this person concerned namely the assessee based on which the material which is not supplied to him will result in illegal imposition of penalty and would be in violation to the principles of natural justice.

That being so, we have no hesitation in holding that even for imposing the penalty under Section 69 (2) of the Commercial Tax Act, if the revenue is in possession of certain material which shows concealment, then before imposing penalty, an assessee is entitled under law to know the material available against him and only after giving him an opportunity to explain the position or rebut the same, the revenue authorities can proceed in the matter for imposing of penalty. Without giving due opportunity of defence based on the material collected behind the back of the assessee, imposition of penalty cannot be sustained.

Records do indicate that the penalty in question has been imposed based on the enquiry conducted and the statement recorded by the Commercial Tax Inspector, Gwalior but neither the material collected by this officer was produced or given to the petitioner nor was any opportunity given to the petitioner to give his say in the matter.

That being so, the entire action for imposing the penalty stands vitiated. Accordingly, we have no hesitation in allowing this petition and quashing the orders Annexures P-4 and P-5. However, the matter is remanded back to the assessing officer to decide the question of imposing of punishment in accordance to law. The order impugned Annexure P-4 passed by the Assessing Officer and the order Annexure P-5 passed by the Revisional authority is quashed and the matter is remanded back to proceed for imposing the penalty in accordance to law that is after issuing notice to the petitioner, hearing the petitioner and after recording a reason.

With the aforesaid, the petition stands allowed and disposed of.