HP HC: Penalty U/S 16(7) VAT Act Requires Satisfaction of Section 16(4) Applicability

It was carried by the Himachal Pradesh High Court that the penalty provision mentioned in section 16(7) of the HP Value Added Tax Act, 2005 could not get invoked till the legal authority gets satisfied concerning Section 16(4) of the Act applicability.

Section 16(4) mandates a registered dealer to file the whole amount of tax due from him into a Government Treasury before it provides the return. Unable to perform the same draws a penalty u/s 16(7).

A division bench of Justices Tarlok Singh Chauhan and Rakesh Kainthla noted, “None of the authorities below has satisfied itself concerning the applicability of provisions of Section 16(4) of HP VAT Act, 2005 before invoking sub-section (7) thereof. Obviously, in such circumstances, without there being a specific finding concerning the applicability of subsection (4) of Section 16, the orders passed by the authorities below cannot sustain.”

The Petitioner is dealing in wire rods, tor steel, etc. It causes a delay of 1 day and 5 months respectively, before complying with Section 16(4) for the appropriate periods, due to financial scarcity.

The revenue in this backdrop had levied a penalty on the applicant u/s 16(7). The applicant argued that the tax was filed late but there was no violation of section 16(4) insofar as the returns were submitted merely after-tax payment.

It was marked by the court that the revenue does not fulfil itself for the violation of section 16(4). Hence it remitted the case back to the assessing authority.

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Undergoing the same the court directed to Dayle De’Souza v. Union of India, (2021) where the Apex court carried that if the penalty is to be levied towards the failure to undertake a legal obligation is the matter of discretion of the authority to be practised judicially and on a consideration of all the pertinent situations.

“The intent, objective and purpose of the enactment should guide the exercise of discretion, as the presumption is that the makers did not anticipate anomalous or unworkable consequences. The intention should not be to target and penalise an unintentional defaulter who is in essence law-abiding,” it carried.