TMI Blog2011 (9) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... which the Tribunal in an appeal filed by the assessee reduced the penalty imposed for the belated filing of an audit report for the year 2006-07 to Rs.25,000/-. The submission of the Revenue is that under Section 61(2) while there is a discretion vested in the Commissioner whether or not to impose a penalty, once the Commissioner decides to impose a penalty it has to be in an amount equal to one tenth per cent of the total sales of the assessment year. In other words, the contention of the State is that while there is a discretion on whether or not a penalty should be imposed in the first place, no discretion is conferred by Section 61(2) to reduce the amount of penalty, once the Commissioner comes to the conclusion that a penalty is liable to be imposed. 2. We admit the appeal on the following substantial questions of law (as recast by the Court to bring out the nature of the controversy in the appeal): "(i) Does Section 61(2) of the MVAT Act confer a discretion on whether or not a penalty should be imposed as well as on the quantum of penalty? (ii) In the event that the Commissioner holds that a penalty has to be imposed under Section 61(2) upon the failure of a deale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that (i) the Legislature has conferred a discretion upon the Commissioner, whether or not to impose a penalty and the discretion also extends to the quantum of penalty to be imposed; (ii) The decision of the Supreme Court in Dharmendra Textile (Supra) turned on the provisions of Section 11AC of the Central Excise Act, 1944 in which the levy of the penalty is mandatory and hence the decision has no application to the provisions of Section 61(2) of the MVAT Act, 2002 in which the imposition of a penalty is not mandatory, but discretionary; (iii) In the event that two constructions are possible a construction which favours the Assessee should be adopted; (iv) The Tribunal has consistently taken the same position which has not been challenged by the Revenue; (v) Unless a discretion were to be construed to have been granted to the Commissioner by Section 61(2) both in regard to the imposition of a penalty and in regard to the extent of the penalty the provisions would be confiscatory; and (vi) The Commissioner has passed orders imposing arbitrary penalties as high as Rs.52.92 lakh in one case, upon which reliance was placed. 6. The rival submissions now fall for determinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed in the requirement of furnishing to the dealer a reasonable opportunity of being heard before a penalty is imposed. The fact that the Legislature contemplated an opportunity of being heard is indicative of the intent of the Legislature that the explanation which the dealer may have, has to be considered before the Commissioner determines as to whether penalty should be imposed. That the imposition of the penalty under sub-section (2) of Section 61 is not mandatory has been emphasized in a judgment of a Division Bench of this Court in Nitco Paints Ltd. V. State of Maharashtr a 2 in the following terms " Section 61(2) clearly specifies that upon the failure of the dealer to get his accounts audited and to furnish a copy of the report within the time as prescribed, the Commissioner may after furnishing a reasonable opportunity of being heard, impose a penalty at the rate stipulated. The law provides that the penalty may be imposed and contemplates that a reasonable opportunity should be furnished to the dealer. Obviously there would be no occasion to furnish a reasonable opportunity of being heard if the liability to levy the penalty was automatic. Since the legislation has used t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharmendra Textile decides." In the case of State of Rajasthan V. D.P. Metals 4 , a three judge bench of the Supreme Court interpreted Section 78(5) of the Rajasthan Sales Tax Act, 1994 which read as follows: "The Incharge of the check-post or the officer empowered under sub-section (3), after having given the person incharge of the goods a reasonable opportunity of being heard and after having held such enquiry as he may deem fit, shall impose on him for possession or movement of goods, whether seized or not, in violation of the provisions of clause (a) of sub-section (2) or for submission of false or forged documents or declaration, a penalty equal to thirty percent of the value of such goods." There, the Court laid emphasis on the use of the word "shall" to hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to ten times the amount of entry tax payable on such goods as if they were not goods of local origin. The High Court had held that the presumption under Section 7(5) was not rebuttable and that the penalty of ten times of the amount of tax, which could not be reduced, was confiscatory. In appeal before the Supreme Court the State of Madhya Pradesh made a statement through Counsel that the State treated the provision for the levy of penalty equal to ten times of the amount of entry tax as a maximum penalty and not a fixed amount of penalty leaving no discretion for imposition of a lesser penalty. Undoubtedly, therefore, there was a concession before the Supreme Court by the State. Moreover, it was urged before the Supreme Court by the State that the presumption was rebuttable. After recording the submissions, the Supreme Court held as follows: "From the aforesaid it follows that Section 7(5) has to be construed to mean that the presumption contained therein is rebuttable and secondly the penalty of ten times the amount of entry tax stipulated therein is only the maximum amount which could be levied and the assessing authority has the discretion to levy lesser amount, dependin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Having therefore, considered the submission which has been urged on behalf of the Appellant, we are of the view that there is no reason to accept the contention that the discretion which is conferred by Section 61(2) does not extend also to the quantum of the penalty. Under the substantive part of sub-section (2) of Section 61 the State Legislature has conferred a discretion on the Commissioner before he imposes a penalty on the dealer for failing to furnish a copy of the audited report within the prescribed period. The proviso to sub-section (2) states that if the dealer fails to furnish a copy of the said report within the prescribed period but files it within one month of the end of the period, and the dealer proves to the satisfaction of the Commissioner that the delay was on account of factors beyond his control, then no penalty under this sub-section shall be imposed upon him. Hence, in the circumstances set out that the proviso to sub-section (2), no penalty can be imposed at all if the conditions therein are fulfilled. The proviso operates when (i) the dealer fails to furnish a copy of the report within the prescribed period but files it within one month of the end of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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