2021 (3) TMI 1024 - HC - VAT and Sales Tax

Input Tax Credit - coal alum caustic soda and other consumables used for generation of electricity - credit of tax paid on purchase of coal alum caustic soda and other consumables etc. against the tax payable on sale of finished product i.e. aluminum aluminum ingots and sheets etc. - reasonable cause of escapement present or not - penalty under Section 43(2) of the OVAT Act. Input Tax Credit - HELD THAT - Coal alum caustic soda and other consumables purchased from market on payment of tax and used for generation of electrical energy in the Captive Thermal Plant of the petitioner which is used in the process of manufacture of finished product viz. aluminum aluminum ingots and sheets etc. taxable under the OVAT Act are input as defined under Section 2(25) of the OVAT Act and the tax which has been paid on such purchases can be claimed as input tax credit under Section 2(27) of the OVAT Act against the tax payable on sale of finished products i.e. aluminum aluminum ingots and sheets etc. - demand raised in the assessment orders disallowing the input tax credit in respect of tax paid on coal alum soda and other consumables used for generation of electrical energy is quashed. Whether imposition of penalty under Section 43(2) of the Orissa Value Added Tax Act 2004 (OVAT Act) can only be levied if the escapement is without any reasonable cause ? - HELD THAT - The Court notes that under Section 42 (5) of the OVAT Act the penalty levied is equal to twice the amount of tax assessed under Section 42(3) or 42(4) pursuant to an audit assessment - There is no discretion with the Assessment Officer (AO) to reduce this amount of penalty. On the other hand Section 43(2) of the OVAT Act is under the heading Turnover escaping assessment and is differently worded - The Court therefore finds merit in the contention of the learned counsel for the Petitioner that the observation in the judgment dated 9th October 2012 on the aspect of penalty under Section 42 (5) of the OVAT Act was not warranted. All that was required to be observed was that since the question had been rendered academic in view of the finding on issue No.1 the imposition of penalty under Section 43 (2) of the OVAT Act was not automatic and that there is a discretion in the AO in this regard upon finding that there has been an escapement or under assessment of tax. Review petitions are allowed.

Summary

Issues:
Review of judgment regarding treatment of consumables as input under OVAT Act and imposition of penalty under Section 43(2) of the Act.

Analysis:
1. The review petitions involved a challenge by the National Aluminum Company Limited (NALCO) seeking a review of a judgment regarding the treatment of consumables like coal, alum, and caustic soda as input under the Orissa Value Added Tax Act (OVAT Act).

2. The main issues for consideration were whether the consumables used for electricity generation could be treated as input under Section 2(25) of the OVAT Act and whether the tax paid on such consumables could be claimed as input tax credit against the tax payable on the sale of finished products like aluminum.

3. The Court ruled in favor of NALCO, stating that the consumables used in the manufacturing process are considered inputs under the OVAT Act, allowing for the input tax credit against the tax payable on the sale of finished products.

4. Regarding the imposition of penalty under Section 43(2) of the OVAT Act, the Court clarified that the penalty is not automatic and that the assessing authority must be satisfied that the escapement or under assessment of tax is without reasonable cause before directing the dealer to pay the penalty.

5. The Court emphasized the distinction between Section 42(5) and Section 43(2) of the OVAT Act, highlighting that the AO has discretion under Section 43(2) to levy the penalty, unlike the mandatory penalty under Section 42(5) after an audit assessment.

6. The Court reviewed the judgment to clarify that the imposition of penalty under Section 42(5) was not warranted, as the relevant provision in the context was Section 43(2) of the OVAT Act, where the AO has discretion in levying the penalty based on the circumstances.

7. The review petitions were allowed to the extent of recalling the observation on the automatic imposition of penalty under Section 42(5) and clarifying the discretionary nature of the penalty under Section 43(2) of the OVAT Act based on the satisfaction of the assessing authority.

8. The judgment highlighted that the question of penalty would only arise if NALCO is held liable to pay tax, contingent upon the outcome of the Department's appeal in the Supreme Court.

9. The Court's decision provided clarity on the treatment of consumables as inputs and the discretionary nature of penalty imposition under the OVAT Act, ensuring a fair and just application of the tax laws.