Intention To Evade Tax Essential For Imposition Of Penalty Under Section 54(1)(2) Of UPVAT Act: Allahabad High Court

Intention To Evade Tax Essential For Imposition Of Penalty Under Section 54(1)(2) Of UPVAT Act: Allahabad High Court

The Allahabad High Court has ruled that the imposition of a penalty under Section 54(1)(2) of the Uttar Pradesh Value Added Tax Act, 2008, necessitates an intention to evade tax.

Section 54(1) of the Uttar Pradesh Value Added Tax Act, 2008, outlines the conditions under which penalties can be levied on an assessee. It stipulates that if an assessing authority determines that an assessee has committed any offense as specified therein, a penalty may be imposed following a proper hearing granted to the assessee.

Section 54(1)(2) stipulates the imposition of penalties if a dealer conceals particulars of their turnover, deliberately provides inaccurate particulars of such turnover, submits a false tax return under the Act, or evades payment of tax owed under the Act. In such instances, the penalty is three times the amount of tax evaded.

“Once the sine qua non to imposition of penalty is evasion of payment of tax, and for evasion there has to be a wilful act, consequently the Court will have to examine as to whether there has been a wilful act on the part of the revisionist in evasion of tax,” held Justice Abdul Moin.

The Court determined that penalties under Section 54(1)(2) cannot be levied in cases where a best judgment assessment has been conducted under Section 28(2) of the UPVAT Act. This is because best judgment assessments are deemed to be made based on the material available before the assessing authority.

Following a survey of the revisionist's premises, an assessment order was issued under Section 28(2) of the UPVAT Act, determining the disputed demand at Rs. 12,44,653/-. Subsequently, the first Appellate Authority reduced the demand to Rs. 6,22,778/-. Both the revisionist and the department filed cross-appeals before the tribunal. The revisionist's appeal was partially allowed by the Tribunal, reducing the tax liability to Rs. 2,46,250/-. The department's appeal was dismissed. This order of the Tribunal became final, and the specified amount was deposited by the revisionist.

While the aforementioned proceedings were ongoing, the revisionist received a notice under Section 54(1)(2) of the Act, 2008. Following this, an order was issued mandating the revisionist to remit Rs. 18,65,625/- in response to the assessed tax of Rs. 6,21,875/-. Appeals filed by the revisionist were subsequently dismissed, including a second appeal.

The petitioner's counsel contended that under Section 54(1)(2) of the UPVAT Act, the imposition of a penalty necessitates a specific determination regarding the intention to evade tax. It was argued that without any finding on mens rea, the penalty cannot be imposed on the revisionist.

The Court noted that an assessment order under Section 28(2) of the UPVAT Act may be issued if the assessing authority is convinced of the accuracy of the books of accounts and other records outlined in Section 28(1) of the Act, which it has scrutinized. If the authority finds these records unreliable, it may resort to making a best-judgment assessment of the turnover and the corresponding taxes owed.

The Court noted that the Assessing Authority had conducted a best judgment assessment of the revisionist's turnover, which formed the basis for finalizing the tax liability. Subsequently, a penalty under Section 54(1)(2) of the UPVAT Act was imposed based on this tax liability.

The Court is emphasizing that a best judgment assessment should be founded on well-founded estimates rather than mere conjectures. Such an assessment should be a "reasonable estimate based on the evidence available to the assessing authority." In light of this, the Court observed that the order issued by the Assessing Authority under Section 28(2) of the Act was grounded in the available material.

The Court referred to the definition of tax evasion provided in the Black Law Dictionary, which defines it as the deliberate effort to subvert or bypass tax laws to unlawfully decrease one's tax obligations.

Highlighting the term "wilful," the Court determined that the decision of the Assessing Authority under Section 28(2) of the UPVAT Act, being grounded on substantial evidence, does not suggest a deliberate effort to evade or bypass tax laws in order to diminish tax liability. The Court reiterated that the presence of an intention to evade tax is imperative for the imposition of penalties.

The Court concluded that there was no determination regarding a deliberate effort by the revisionist to evade tax. It noted that the revisionist had fulfilled its tax obligations, as confirmed by the Tribunal in the best judgment assessment proceedings. Moreover, the Court emphasized that the burden rested on the authorities to demonstrate any intent on the part of the revisionist to evade tax.

In the absence of such evidence, the order imposing a penalty on the revisionist, based on the assessment order passed under Section 28(2) of 2008, cannot be deemed to fall within the scope of any of the circumstances outlined under Section 54(1)(2) of the Act 2008. Specifically, it cannot be construed as an act of tax evasion by the dealer/revisionist warranting the penalty imposed. Consequently, the revision filed by the assessee was granted.