The Punjab and Haryana High court has held that penalty provision under Punjab Value Added Tax Act (VAT) cannot be invoked at the stage of road side checking.
The bench of Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth has observed that power of imposing penalty was not required to be invoked at the stage of road side checking and the power can only be exercised by the assessing authority who shall reach to the conclusion that there has been an attempt to evade tax after actual valuation of the goods.
The appellant/assessee was duly registered under the Punjab VAT Act 2005 and engaged in purchase and distribution of medicines. It purchased two types of medicines, namely, QMOL and MG from M/s R. K. Laboratories Private Limited, Nalagarh, for further selling to various distributors in Chandigarh.
The goods were in transit from Himachal Pradesh to Chandigarh when the same were checked at Chandigarh. The driver produced the requisite invoice including GST. The Checking Officer, however, found that the MRP on the medicines QMOL was Rs. 180/-, as printed, while on the invoice the price was shown to be Rs. 19/-.
Similarly, MRP for the medicine MG was printed as Rs. 140/-, while the price mentioned on the invoice was Rs. 18.
The goods were, therefore, detained under Section 51(6)(a) of the Act of 2005 for verification and show cause notice was issued to the appellant to explain the purchase prices of medicines mentioned in the invoice and not the sale price.
VAT was chargeable in the hands of the appellants when the sale of the above mentioned goods were to be made. The AETC did not find the reply satisfactory and imposed penalty under Section 51(7)(b) of the Act of 2005 holding that the purchasing goods at lesser rates with the attempt to evade the tax payable to UT Chandigarh as the goods would be sold at much lesser rates than the value of the goods.
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It was held that according to the percentage fixed by the Central Excise Department, the excise duty would amount to Rs. 5,50,200/- and abatement of 35% was calculated on the MRP fixing the price of the goods.
Thus, under valuation of goods amounting to Rs. 3,66,986/- was assumed and a penalty of Rs. 1,10,096 was imposed. The First Appellate Authority vide its order dated 21.03.2012 upheld the penalty. The VAT Tribunal dismissed the appeal.
The assessee contended that the sales tax can be imposed only when the sale is made in future and the price is the basis for measuring tax and not on the basis of presumptions. the actual determination of value of goods is in the domain of the assessing officer and the checking officer could not have done the valuation of the goods on the road side. There was no concealment by the appellants nor there is any mens rea on the part of the appellant to evade the tax. The price mentioned in the invoices was the price as fixed by the manufacturer and was the cost/ purchase price for the appellant at his level. Therefore, there could not be any occasion for evasion of tax.
The assessee argued that no sale has been made at Chandigarh. The goods were purchased against C-form from the consigner at Baddi, who had duly charged the 2% GST. Since the imposition of excise tax was exempted in the State of Himachal Pradesh, presumption cannot be drawn on the basis.
The department contended that the Assistant Commissioner of Excise & Taxation had calculated the value of the goods in the present case in the manner as rational as possible for him by relating it to the percentage of MRP discounted by the Central Excise Department for payment of excise duty. The purchase price was disproportionately low as compared to MRP and the action of the respondent-department, therefore, was in accordance with the law.
The court while allowing the appeal held that the price of a medicine is not necessary on the basis of the MRP as purchased by the retailer which is on two stages ahead as the dealer would sell the product to a distributor, who would further sell it to a wholesaler and subsequently from whole seller the product will be further transferred to the retailer. Each stakeholder would keep their own margin of profit. Thus, to presume that there is an evasion of tax at the level of the person who is a dealer going to further sell the goods to a distributor, is a farfetched presumption. The action of the department imposing a penalty on such a presumption would be an exercise of arbitrary power.
Case Title: M/s Simran Medical Agencies Versus The Union Territory of Chandigarh and another
Case No.: VATAP No. 61 of 2014 (O&M)
Date: 28.08.2024
Counsel For Appellant: Sandeep Goyal
Counsel For Respondent: Ajay Jagga
