TMI Blog2015 (3) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... to be rendered and tax is service tax and not the sales tax, for the value of the parts which are used in the services are declared and exemption is sought. The assessee is claiming exemption from 1992 - 93. However, the department is refusing to grant the exemption. - The assessee has gone upto the Supreme Court and it is only on 24.08.2005, the Supreme Court pronounced judgment holding the assessee liable to pay tax and clarifying the conflicts of it's own earlier judgments, which was the cause for bona fide doubts in the mind of the assessee in not paying the tax. Though the returns were filed for the year 2000 - 01, within the prescribed time, no assessment orders has been passed, till the passing of the judgment of the Supreme Court. The assessment order was passed on 21.03.2006, immediately the payment is made. Therefore, this nonpayment of tax along with the returns or at the end of the financial year cannot be said to be willful, deliberate or contumacious and that the assessee was acting deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. This aspect has been completely missed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of execution of service maintenance and repair agreements. The petitioner filed his monthly returns and discharging the liability to tax in terms of the determined taxable turnover for each month. On the bona fide belief that the Full Service and Maintenance Agreements (hereinafter referred to as 'FSMA' for short) and the Spares and Service Maintenance Agreements (hereinafter referred to as 'SSMA' for short) were essentially service contracts and that the materials supplied to its customers during the execution of these contracts were only incidental and ancillary to the principal objective of the contracts of service, the petitioner had been declaring the turnover in respect of the said maintenance agreements in its monthly returns by deducting the same while calculating its taxable turnover under the provisions of the Karnataka Sales Tax Act (hereinafter referred to as 'the Act') 3. For the assessment years 1992 - 93 to 1999 - 2000, the petitioner had been calculating the taxable turnover in accordance with the aforementioned method and duly discharging the liability to tax under the Act. However, the assessing authorities passed assessment orders d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view, Mr. Iyer is right. The sale i.e. transfer of property takes place before the goods are consumed. The transfer takes place in respect of tangible goods. Just like petrol is consumed after sale or ink is consumed after sale in this case also the toners and developers get consumed after sale. The property passes the moment they are put in the machine. At that stage they are not consumed but are tangible goods in which property can pass. 4. In fact the Apex Court had passed an interim order earlier which has held as under:- There will be ad-interim stay of encashment of bank guarantess on condition that these bank guarantess are kept alive pending further orders. In the meanwhile, the existing interim arrangement for furnishing the bank guarantees in respect of demands raised will continue. Accordingly, assessee had furnished bank guarantees, whenever the assessment orders has been passed. 5. The present proceedings relate to the assessment year 2000 - 01. Because of the pendency of the matter before the Apex Court the authorities did not proceed to issue any assessment order for the said year. It is only after the Apex Court declaring law on dated 24.08.2005, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is disputing the liability to pay tax based on the judgment of the Apex Court rendered earlier. He has contested the matter up to the Supreme Court. It is only on 24.08.2005, the Apex Court pronounced its judgment and held, tax is payable. As the said matter was pending before the Supreme Court, even the department did not pass the assessment order in respect of the returns filed by the assessee for the subsequent period 2000 - 01. Subsequent to the Apex Court judgment i.e. on 24.08.2005, they processed the returns of the assessee and passed the order on 21.03.2006, demanding the tax and interest payable thereon. In view of the judgment of the Apex Court, the assessee promptly paid the tax and the interest. It shows the intention on the part of the assessee that he had doubt whether to pay the tax or not to pay tax in accordance with law. On the earlier occasions also, the assessment order were passed in pursuance of the interim order passed by the Apex Court, the assessee has furnished bank guarantees also. The Apex Court in the case of Hindustan Steel Limited vs. The State of Orissa reported in 1970 STC V 25 page 211 dealing with the cases in which penalty to be levied has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise a discretionary power coupled with a duty, certainly he should have due regard to the facts of the case with which he is dealing. One cannot simply brush aside all explanations offered in regard to the alleged breach of law inviting the penalty, merely because the authority has the power to impose such penalty. There must be implicit evidence in the process of imposition of penalty that all materials relevant to the exercise of discretion which was before the authority was indeed considered by it before penalty came to be imposed. In the instant case, the penalty provision reads as under:- Section 12 B(4) of the Act: If at the end of the year it is found that the amount of tax paid in advance by any dealer for any month or quarter or for the whole year in the aggregate was less than the tax payable for that month or quarter or the tax for the whole year as finally assessed, as the case may be, by more than fifteen per cent, the assessing authority may direct such dealer to pay, in addition to the tax, a penalty which shall not be less than one half of the tax so paid in short, but not exceeding one and half times the amount by which the tax so paid falls short of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. This aspect has been completely missed by the authorities while exercising the powers of imposing the penalty. It is settled law that penalty cannot be imposed merely because it is lawful to do so. A discretion is conferred on the authority while imposing penalty. It is a judicious discretion. The law on the point is also well settled. The authorities as well as the appellate tribunal did not keep in mind the settled legal position while imposing the penalty or upholding the penalty which is imposed. In that view of the matter, the order passed by the Tribunal cannot be sustained. The Tribunal proceeded on the basis that the assessee himself has taken a decision not to pay the amount of tax without any judicial support for nonpayment of tax. Assessee was relying on the earlier decisions of the Apex Court for denying the liability to pay tax and therefore, the Tribunal was not justified in the aforesaid observations. The Tribunal was of the view that once the judgment was delivered on 24.08.2005, the assessee should have paid the money immediately thereafter. The same having not been done, it amounts to deliberate noncompliance of the law. We find it difficult to accept this reas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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