TMI Blog1989 (6) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... cted. The petitioner thereafter preferred further appeal before the Sales Tax Tribunal on April 29, 1981, along with a petition for stay of realisation of the amount of penalty till disposal of the appeal. In the meantime the petitioner received a notice dated March 31, 1981, issued by the Superintendent of Taxes asking him to deposit the amount of penalty of Rs. 5,000 imposed under the Central Act by April 7, 1981, as the appeal against the same had already been rejected by the Assistant Commissioner of Taxes. The petitioner informed him that a further appeal was being preferred before the Sales Tax Tribunal and requested him not to start any penalty proceeding for non-payment of the said amount under section 26(2) of the Act. The petitioner also prayed for two months' time to enable him to obtain stay order from the appellate authority. In reply, the Superintendent of Taxes, by his letter dated April 8, 1981, informed the petitioner that his decision to prefer an appeal had no bearing on the payment of penalty money and directed the petitioner to deposit the same by April 15, 1981, failing which it was stated in the said notice that action would be taken under section 26(2) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case we are satisfied that the levy of penalty in the instant case is not tenable in law. 5.. Section 26 of the Act deals with recovery of tax and provides for levy of penalty on dealers in default. Section 26 is set out hereinbelow: "26. Mode of recovery.-(1) If the demand in respect of any dues under this Act is not paid on or before the date specified as aforesaid, the dealer shall be deemed to be in default: Provided that the Commissioner may, in respect of any particular dealer and for reasons to be recorded in writing, extend the date of payment of the dues or allow such dealer to pay the same by instalments and in that case the dealer shall not be deemed to be in default till the date as extended or the last date of payment by instalment is over. (2) Where a dealer is in default, the Commissioner, may in his discretion, direct that, in addition to the amount due, a sum not exceeding that amount shall be recovered from the defaulter by way of penalty. (3) Where a dealer is in default, the Commissioner may order that amount due shall be recoverable as an arrear of land revenue and may proceed to realise the amount due as such: Provided that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he discretion vested in the authorities under the proviso to sub-section (1) of section 26 is not a naked and arbitrary power. The officer concerned should take all relevant circumstances into account and all considerations that could be urged or are urged by the dealer as to why he should not be treated as "not in default". 7.. In Vetcha Sreeramamurthy v. Income-tax Officer [1956] 30 ITR 252 (AP), Subba Rao, C.J. (as his Lordship then was), gave a few illustrations of cases where it might not be justified to treat a person as a defaulter. One of the cases illustrated was where an assessee pays the admitted amount and files an appeal raising a substantial question and gives security for the disputed amount. It was held that in such a case it would be a capricious exercise of discretion if the officer refuses to treat him as not a defaulter. It was also observed that refusal to stay the recovery of tax on the ground that the financial condition of the State requires recovery of arrears would be taking into consideration extraneous and irrelevant circumstances. Each case will have to be examined on its own facts. Cases might easily be conceived where the dealer would suffer financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules can be laid down for exercise of the discretion. Suffice it to say that the power has to be exercised judicially. 9.. Once a dealer is deemed to be in default, the officer concerned is vested with the discretion to levy penalty under sub-section (2) for nonpayment of the amount due. The maximum amount of penalty is a sum equal to the amount not paid. A plain reading of sub-section (2) goes to show that this power can be exercised only after a dealer has been held to be a defaulter under sub-section (1). The proceedings for levy of penalty can be initiated only after the expiry of the due date is over. Till such date is over, a dealer cannot be termed to be a defaulter, and no proceeding can be initiated for levy of penalty under sub-section (2) or for recovery of the same as arrears of land revenue under sub-section (3). 10.. Proceeding for imposition of penalty is not a proceeding for recovery of tax. Penalty under sub-section (2) is for non-payment of tax. As observed in B.D. Khaitan v. Income-tax Officer [1978] 113 ITR 556 (Cal): "Penalty is, inter alia, for non-payment of tax. Penalty is a measure, inter alia, to ensure that taxes are paid. But penalty, in my opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the consequences of failure to pay the dues in time. Therefore, the officer concerned will have to issue a notice to a dealer only after he has been treated as a defaulter. After such a notice is issued, he will have to examine all the facts and circumstances of the case including the explanation, if any, submitted by the dealer and arrive at a conclusion as to whether penalty should be levied for non-payment of the dues or not. Imposition of penalty is not an automatic consequence of default in payment of tax. As laid down by the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 at 214; [1972] 83 ITR 26 at 29: "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 ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter April 30, 1981. The learned counsel for the Revenue contended that the notice issued earlier informing the petitioner that in the event of his failure to pay the amount by April 30, 1981, penalty would be levied on him, should be treated as a notice to show cause under sub-section (2) of section 26. We find it difficult to accept the aforesaid submission as we have already discussed earlier. A notice to show cause against levy of penalty can be issued only on a dealer who is a defaulter. A dealer can be defaulter only after due date of payment, either originally fixed or extended, is over. Till the expiry of such date he cannot be termed as a defaulter. In the instant case the date for payment was extended till April 30, 1981. The dealer can at the most be termed as a defaulter on and from May 1, 1981. Notice to show cause against penalty has to be issued after that date. Any notice issued earlier will be no notice in the eye of law. The penalty levied in the instant case is, therefore, not sustainable on that score alone. 14.. However, we have also perused the impugned order of penalty dated May 2, 1981. The said order reads as follows: "........you are hereby informed th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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