High Court Quashes Penalty of Rs. 1.5 Lacs; Holds Blank Form-38 Alone Insufficient to Infer Tax Evasion

A partnership firm engaged in photographic services including developing, printing and enlargement of photo-films, purchased one large format printer and two printers for use in its laboratory. The machines were transported from the seller to the firm’s lab and were accompanied by documents, including Form-38 and GRs; a portion of the purchase was financed through a bank. While the goods were in transit they were intercepted by the enforcement mobile squad and seized on the ground that the seller had not filled certain columns of the accompanying Form-38. There was no material on record to show that the goods were intended for sale; they were procured for in-house use. A penalty of 40% amounting to Rs. 1,52,000 was imposed under Section 54(1)(14) of the UP VAT Act; the penalty was upheld in the first appeal and by the Commercial Tax Tribunal.

The firm contended that the printers were not stock-in-trade and that mere incompleteness of Form-38 could not be equated with an intention to evade tax. It was submitted that, in any event, the authorities ought to have rectified or filled in the form in accordance with the accompanying documents rather than seizing the goods. The petitioner relied on earlier decisions of the Court which recorded the proposition that the presence of blank or defective statutory forms, without corroborative evidence of mala fide intent, does not justify the imposition of a penalty.

Issue Raised: Whether a penalty under Section 54(1)(14) of the UP VAT Act is sustainable solely on the basis that Form-38 accompanying goods in transit had blank columns, when there is no evidence that the goods were meant for sale or that there was any intention to evade tax.

Court’s Ruling: The Court permitted the revision and nullified the penalty. The High Court, on reading the record and the relevant precedents, held that the printers that were seized were bought for use in the business of the assessee and not for resale, and technical defaults or omissions in Form-38 would not amount to conclusive proof of the intent to evade tax.

The Court observed that where the material on record, being the order of assessment, is not favorable to any inference of evasion or sale, the imposition of penalty on a half-filled form is unsustainable. Relying on earlier judgments which reach the same conclusion, the Court set aside the impugned order dated 22.10.2012 of the Commercial Tax Tribunal and allowed the revision. The questions of law were decided in favour of the revisionist.

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