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2021 (3) TMI 844 - HC - VAT and Sales TaxLevy of penalty under Section 72(2) of KVAT Act - Wrong classification of goods - aluminum castings - whether classifiable as 'non-ferrous castings' under Entry 66 of the Third Schedule to the Act or would fall under unscheduled goods and are liable to be taxed at the rate of 12.5%? - HELD THAT:- From perusal of Section 72(2) of the Act, it is evident that when dealer has filed the returns in the prescribed form and he understates his liability to tax or overstates his entitlement to a tax credit by more than 5% of the actual liability to pay tax, he is liable to pay penalty equal to 10% of the amount of such tax under or overstated. However, the provision requires that before levy of penalty, the dealer has to be given an opportunity to show-cause in writing against the imposition of penalty. It is only after consideration of the cause shown by the dealer, the penalty can be imposed - It is graphically clear that the discretion is with the matter of imposition of penalty and not with regard to the rate of penalty. Thus, it is evident that the levy of penalty under Section 72(2) of the Act is neither automatic nor mandatory. In the instant case, First Appellate Authority, after detailed examination of the material available on record, has found that there is a scope for ambiguity in classification of 'aluminum castings' as 'non-ferrous castings' and according to the Authority, the 'aluminum castings' may be classified under Entry 66 as 'non-ferrous castings' and are liable to tax only at the rate of 4%. The First Appellate Authority has also found that there was a scope for ambiguity and in any case, the transactions were revenue neutral and therefore no mala fide intention would be attributed to the dealer. It is relevant to mention here that the sine qua non that the condition precedent for exercising powers under Section 64 of the Act is that the order of the Authority should be prejudicial in the interest of the Revenue - in this case, both the aforesaid conditions are not fulfilled as the order passed by the First Appellate Authority is well considered which is passed with meticulous appreciation of the material available on record. Therefore, the condition precedent for invoking the powers under Section 64 of the Act, is not fulfilled. Appeal allowed - decided in favor of appellant.
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