Penalty – in case of excess payment


A dealer has filed returns showing set-off of ₹ 1,00,000. However, in assessment set-off is reduced to ₹ 10,000, by disallowing set-off of ₹ 90,000 on ground of non-genuine purchases. However, in spite of reduction there is excess and refundable amount of ₹ 20,000 as shown in assessment order. The assessing authority is proposing penalty for concealment u/s. 29(3) of MVAT Act. Whether penalty is justified in such facts of the case?

Reply: Penalty under fiscal laws, like MVAT Act is not automatic but discretionary. Section 29(3) of MVAT Act reads as under:

“29. Imposition of penalty in certain instances

(3) While [or after passing any order] under this Act, in respect of any person or dealer, the Commissioner, on noticing or being brought to his notice, that such person or dealer has concealed the particulars or has knowingly furnished inaccurate particulars of any transaction liable to tax or has concealed or has knowingly mis-classified any transaction liable to tax or has knowingly claimed set-off in excess of what is due to him, the Commissioner may, after giving the person or dealer a reasonable opportunity of being heard, by order in writing, impose upon him, in addition to any tax due from him, a penalty [not exceeding the amount of tax due but not less than twenty five per cent] of the amount of tax found due as a result of any of the aforesaid acts of commission or omission.”

Therefore, there is authority to levy penalty from NIL to 100% of tax dues.

In my opinion, no penalty is attracted in given facts. There are no dues in assessment order as there is refund. Therefore no penalty can be quantified.

The position is also well settled by judgment of Hon. Gujarat High Court in case of
State of Gujarat v. Jay Steel and Tubes Traders (2015) 80 VST 530 (Guj.). Hon. Gujarat High Court has held that when on facts it is found that there is excess availability of input-tax credit as against the assessed additional tax, there was no intention on part of the assessee to avoid payment of taxes. Hence, there can be no imposition of penalty also. The above judgment is reaffirmed by the Hon’ble Gujarata High Court in the
State of Guajarat v. Kin Tech Synergy Pvt. Ltd. (2015) 81 VST 91 (Guj.).

Otherwise also there cannot be concealment to evade tax. There is refund therefore Government is not out of pocket. The disallowance of set-off is due to development subsequent to purchases. Reference can also be made to very land mark judgment of Hon. Supreme Court in case of
Hindustan Steel Ltd. (25 STC 211)(SC), in which Hon. Supreme Court has observed as under about levy of penalty.

“Under the Act penalty may be imposed for failure to register as a dealer: section 9(1) r/w section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. 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 the Act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.”

Looking to all above aspects no penalty can be justified on given facts.

Issue of Form H


A dealer (A) has export order, therefore it is intended to purchase for its supplier (B) against Form ‘H’. The supplier wants to purchase said goods from his supplier (C) and wants to issue him Form ‘H’. Whether it will be as per law?

Reply: The issue of ‘H’ form is governed by section 5(3) of CST Act. Section 5(3) reads as under:

“S. 5. When is a sale or purchase of goods said to take place in the course of import or export.

(3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export.”

Thus, it is a facility given by law makers to effect one prior transaction before export against ‘H’ form, so that the export purchase dealer will not be liable to pay tax and therein to claim refund. Such prior transaction will be considered as export sale. From language of section 5(3), it is clear that it covered the very one transaction prior to export. Therefore such Form ‘H’ facility cannot be extended further. In given case, B cannot issue ‘H’ form to C. Only A can issue ‘H’ form to B.

The world is the great gymnasium where we come to make ourselves strong.

– Swami Vivekananda

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