In a major relief to dealers, the Karnataka High Court has struck down section 72 (1) of Karnataka VAT Act, 2003, as unconstitutional and unreasonable. Allowing a batch of petitions filed by Philips Electronics India Limited and others, Justice D V Shylendra Kumar has said that frequent tinkering in the said Act shows that there is lack of clarity in the legislative policy. Levy of penalty on tax liability is nothing but tax on tax. The court has ordered the authorities to refund the penalty collected so far under the said provision. The complainant challenged the provision which enabled the authorities to impose penalty at the rate of 10% of the value added tax payable in addition to a daily penalty of Rs 50 and interest of 1.25% if there is delay of even one day in furnishing the monthly tax returns. It termed this provision as oppressive and unreasonable. "The huge penalty on smaller dealers and small liability of tax assumes gigantic proportions when the delay is 3-5 years as seen in some cases. A penalty based on extent of delay which sometimes exceeds the liability is grossly disproportionate. An arbitrary penalty which is also an irrational levy automatically loses nexus achieving the object of correcting mischief sought to be prevented by the legislation and therefore renders itself as unconstitutional. Any penalty should be in reasonable limits to act as sufficient and mere deterrent and not reaching level of confiscation," the judge has observed.
HC quashes penalty provision in VAT Act
CA Tilak Raj Sharma (Practising CA in Solan (H.P.)) (6374 Points)
08 January 2009