ORDER
E. Padmanabhan, J.
1. The writ petitioner prays for the issue of a writ of certiorari to call for the records relating to the proceedings of the respondents in E.T.1/90-91 dated 28.10.1996 and quash the same.
2. The petitioner, a partnership firm and assessees under Tamil Nadu Act XIII of 1990 as well as Tamil Nadu General Sales Tax Act are the petitioner herein. The Tamil Nadu Tax on Entry of Motor Vehicles into Local Areas Act, 1990 (Tamil Nadu Act XIII of 1990), hereinafter referred to as Act XIII of 1990 for convenience was enacted to provide for levy on the entry of motor vehicles into local areas for use or sale therein. The Act received the assent of The President on 24.4.1990 and it has come into force on 20.2.1990, on which date Ordinance No. 1 of 1990 was promulgated. The petitioner is a dealer in motor vehicles, besides they are distributors for Hindustan Motors Ltd., and Hero Honda Motors Ltd. The petitioners are also assessees on the file of the first respondent for the purpose of the said Act XIII of 1990 as well as Sales Tax.
3. On 1.8.1990 the petitioners addressed the first respondent, Commercial Tax Officer, Kumbakonam, as to whether an entry tax has to be paid for vehicles in stock and also the method of payment. During the interview the petitioner was informed that for dealers who pay Sales Tax, there is no need to pay entry tax since levy is in lieu of the other. Between 1.8.1990 and 16.2.1991, the petitioner effected sales of nine motor vehicles in respect of which the petitioner collected appropriate sales tax and surcharge and submitted the returns and paid the said taxes. The petitioner has neither collected nor paid entry tax. The petitioner paid the sales tax levied under The Tamil Nadu Additional Sales Tax Act, 1970, out of the profits of the dealership transaction. The return so filed was accepted by the first respondent and assessment was completed by proceedings dated 31.1.1992. The first respondent accepted the returns as well as the sales tax paid and adjusted the remittance towards tax.
4. The petitioner was informed during the first week of April 1991 that they have to file a return for vehicles received under The Tamil Nadu Act XIII of 1990 and the entry tax also shall be paid as notified. The Tamil Nadu Act XIII of 1990 was amended by Tamil Nadu Act 45 of 1991 with effect from 18.11.1991. Thereafter, the petitioners have been paying the entry tax and to that extent relief from sales tax was availed.
5. The first respondent served a notice dated 15.3.1996 under Rule 3 (2) read with Section 15 (1) of Tamil Nadu Act XIII of 1990 calling upon the petitioners to pay the entry tax, besides penalty. According to the first respondent, the petitioner should have paid the entry tax and is liable to pay penalty for non-payment of entry tax. The petitioner by his objection dated 29.5.1996 raised objections and pointed out details of nine vehicles for which entry tax was demanded.
6. According to the petitioner, the first respondent has no jurisdiction to serve the proceeding since it is time barred, that the entry tax is far less than the sales tax already paid, that the levy being compensated, there cannot be two demands for the same transaction and material and sale of vehicles and at any rate imposition of penalty is not warranted.
7. By the impugned proceedings dated 1.11.1996, the first respondent confirmed the demand for entry tax and penalty thereon, while adding that reduction in tax liability will be allowed as provided for under Section 4 of the Entry Tax Act by revising the assessment under The Tamil Nadu General Sales Tax Act, 1959 for the assessment year 1990-91. Challenging the same, the present writ petition has been filed.
8. It is contended that the proceedings of the first respondent is illegal and barred by limitation. Section 8 (5) of The Tamil Nadu Act XIII of 1990 bars assessment being made beyond three years and, hence, the demand is without jurisdiction. It is further contended that the petitioner has paid the sales tax amounting to Rs.72,278.65, surcharge of Rs.8,673.83, additional sales tax of Rs.17,135.90 and in all aggregating to Rs.98,088.38, while tax now demanded being Rs.Rs.1,09,469/=, which is an error apparent on the face of the record. The entry tax demand, assuming to be valid, could only be Rs.64,449.21 as against the total payment of Rs.98,088.38 towards sales tax for the same vehicle. Hence, it is not a case of erroneous or wrong assessment or loss of revenue.
9. It is contended that the impugned demand is vitiated by error apparent and non-application of mind, in that the respondents having noticed that the entry tax has been determined at 5%, whereas tax demand was calculated at 8%, when penalty demanded, which is erroneous and illegal, and should have taken steps to rectify the demand.
10. The imposition of penalty is an abuse of process. Under Section 15 of Tamil Nadu Act XIII of 1990, there could be no imposition of penalty for error or misconstruction or for bona fide conduct. When once the petitioner has paid the sales tax surcharge and additional sales tax for the transaction, it will automatically exclude the liability towards entry tax as per the statutory provision.
11. Mr. Natarajan, learned senior counsel, further contended that in any event the first respondent should have first set aside all the sales tax erroneously assessed and paid, for which steps for refund were allegedly made before serving the impugned demand and if such steps have been taken there would have been no demand towards entry tax and in fact a refund has to be ordered. It is contended that Tamil Nadu Act XIII of 1990 is clearly unconstitutional, being violative of Articles 301, 304, 14 and 19(1)(g) of The Constitution. The petitioner having no other alternative has to come before this Court since the Tamil Nadu Taxation Special Tribunal has no application to matters of demand and assessment under the Tamil Nadu Tax on Entry of Motor Vehicles into Local Areas Act, 1990. Hence, the present writ petition.
12. On behalf of the respondents, no counter has been filed. But Mr. M.P. Nedunchezhian, learned Government Advocate appeared and made his submissions, besides produced the assessment file. With the consent of counsel for either side, the writ petition itself is taken up for final disposal.
13. It is submitted by Mr. M.P. Nedunchezhian, learned Government Advocate that the petitioner is a registered dealer under The Tamil Nadu General Sales Tax Act on the file of the first respondent and also importer of motor vehicles into local areas and sale as defined under Section 2 (g) of Tamil Nadu Act 13 of 1990. The learned Government Advocate points out that Section 3 (1) of the said Act read with Rule 3 (2) of the Rules provides the method of assessment and prescribe the time for payment of entry tax payable. The petitioner has started paying the entry tax from April 1991, but the petitioner should have done the same commencing from 20.2.1990 itself, on which date the Act came into force. The proposal to impose the penalty and imposition of penalty by the first respondent is competent and he is vested with the powers.
14. The contention that the proceedings is barred by limitation is a misconception as no return has been filed by the petitioner. Only in case were return has been filed, the plea of limitation may arise. The order passed by the first respondent is not liable to be interfered and it not barred by limitation. The assessment proceedings under The Tamil Nadu General Sales Tax Act, 1959 is an independent proceeding with respect to the sales tax payable under the Act and the provisions of the said Act operates independently. The respondent has imposed the penalty under Sections 15 (1) and 15 (2)(a) after issuing a show cause notice and after considering the objections filed in that behalf. It is not necessary to afford an opportunity of personal hearing before imposing the penalty. The set off pleaded by the petitioner is not sustainable as set off would arise only if the tax is paid under the entry tax in terms of Section 4 of the said Act, which the petitioner failed to pay. Therefore, the plea of set off is a misconception. The legal contentions advanced by the petitioner are devoid of merits and no interference is called for with the assessment proceedings as well as the levy of penalty. The learned Government Advocate prayed for dismissal of the writ petition.
15. Heard Mr. S. Natarajan, learned senior counsel appearing for the petitioner and Mr. Nedunchezhian, learned Government Advocate appearing for the respondents.
16. As regards the plea of limitation, during the hearing Mr. Natarajan, learned senior counsel fairly stated that such a plea is not sustainable in the light of the statutory provision and, therefore, he is not pressing the plea of limitation. The validity of The Tamil Nadu Act XIII of 1990 is no longer res integra as a Division Bench of this Court and the Supreme Court have upheld the validity.
17. The following points arise for consideration in this writ petition :-
“i) Whether payment of sales tax by the petitioner in respect of the transactions in question is a bona fide act ? And whether such payment should be given credit to towards levy of entry tax ?
ii) Whether the levy of penalty is warranted on the facts of the case ?
iii) Whether the imposition of penalty without affording an opportunity of hearing vitiates the penalty proceedings ?
iv) To what relief, if any ?”
18. The Entry Tax on entry of motor vehicles into local areas Act, 1990, replaced Tamil Nadu Ordinance 1 of 1990. The Act came into force with effect from 20.2.1990. Section 2 (d) defines the entry of motor vehicles into local areas. Section 2 (g) defines the expression “Importer”. Section 2 (h) defines the expression “Local Area”. Section 3 of the Act provides for levy and collection of tax on the entry of any motor vehicles into any local area for use or sale therein, which is liable for registration or for the assigning of a new registration mark. Section 4 of the Act provides that when an importer of a motor vehicle liable to pay tax under the Act, being a dealer in motor vehicles, becomes liable to pay tax under The General Sales Tax Act and the Additional Sales Tax by virtue of the sale of such motor vehicles, then his liability under this Act shall be reduced to the extent of tax liability under Act 13 of 1990.
19. Pointing out Section 4 of the Act, Mr. Natarajan, learned senior counsel contends that even in the converse case also, tax remitted has to be adjusted as the percentage of tax paid under The Tamil Nadu General Sales Tax Act is more than the rate of tax payable under Tamil Nadu Act 13 of 1990. This is one of the main contentions.
20. Section 8 of the Act provides for assessment. Section 9 provides for re-assessment. Section 10 provides for payment of tax. Chapter V provides for appeals. Chapter VI provides for penalty. Section 15 provides that when a person fails to comply with the provisions of the Act, the assessing authority may, after giving such a person a reasonable opportunity of being heard, by order in writing impose on him in addition to any tax payable, a sum by way of penalty not exceeding thrice the amount of tax.
21. The provisions of Tamil Nadu Act 13 of 1990 is compensatory in nature as has been held by the Apex Court in BHAGAT RAM VS. COMMISSIONER OF SALES TAX, M.P. & ORS., reported in 1995 SUPP. (1) SCC 673. In the said pronouncement, the Apex Court held that the levy of entry tax is compensatory in nature and it cannot be described as a purchase tax. The same view has been followed by the Supreme Court in STATE OF BIHAR & ORS. VS. BIHAR CHAMBER OF COMMERCE & ORS., .
22. In the present case, it is admitted that the petitioner has filed a return under The Sales Tax Act in respect of the very same vehicle transaction and sales tax has been paid. The authority, who assessed the sales tax is the same authority, who is also the assessing authority under the Sales Tax Act. It is rightly pointed out by Mr. Natarajan, learned senior counsel that it is not a case of suppression or concealment or failure to pay the tax with the intention, much less deliberate intention of concealing the transaction or evading to pay the tax payable, but it is a case of bona fide mistake committed by the petitioner and the respondents have also contributed for the same. There is not only merit but also substance in this contention advanced by the counsel for the petitioner, as seen from the correspondence exchanged between the petitioner and the Commercial Tax Officer concerned.
23. The petitioner in respect of the nine vehicles has admittedly paid the sales tax, additional sales tax as well as surcharge. In terms of Section 4 of the Act, if entry tax has to be paid, to that extent the sales tax liability under The General Sales Tax and Additional Sales Tax gets reduced to the extent of tax paid. A mistake has been committed by the petitioner and it is a bona fide mistake and by no stretch of imagination it could be said that it is a deliberate concealment or willful omission on the part of the petitioner. To infer concealment or evasion, there is no material at all. But on the other hand, from the fact that the petitioner has paid sales tax in respect of these nine vehicles and they were subjected to tax and tax has also been remitted, it cannot be said that the petitioner has deliberately or willfully omitted to bring the transaction under Tamil Nadu Act 13 of 1990. There is nothing in Section 4 of the Act, which says that converse cannot be adopted nor entries could be reversed and adjustment could be ordered.
24. That apart, the petitioner who is not liable to pay sales tax has paid higher rate of sales tax and what is the omission as pointed out by the respondents being failure to pay the entry tax. The rate of entry tax payable by the petitioner in respect of these nine vehicles concerned is lesser than the tax payable under The General Sales Tax Act. This would disclose that the petitioner has no intention of evasion or suppression or concealment of the tax liability under the Entry Tax Act. If such an intention has been the object, then the petitioner need not have paid the sales tax, which is a higher rate than the entry tax. This aspect cannot be brushed aside and the respondent has arbitrarily acted ignoring this material aspect, which makes all the difference on the facts of the case.
25. Concedingly, higher tax has been paid under the heading general sales tax, while actually the petitioner should have paid lesser amount towards entry tax. This will speak for itself. The first respondent is the same officer, who is the authority under The Tamil Nadu General Sales Tax Act as well as Tamil Nadu Act 13 of 1990. All that the first respondent has to do is pass an order amending the earlier assessment proceedings passed under The Tamil Nadu General Sales Tax Act and adjust the amount of tax paid towards the nine vehicles imported into the locality and credit the same towards the entry tax. In fact, there will be an excess payment, if such an adjustment is made. As stated by the senior counsel, the petitioner is not anxious to get refund of the excess payment made. This would demonstrate that the petitioner has not suppressed the import of vehicles, but there was a doubt, which prompted him to approach the Commercial Tax Officer for clarification, but the said authority kept silent and, therefore, the petitioner has filed a return as if it is a local sales. At any rate, the tax actually paid is higher than the rate of tax payable under the Entry Tax Act.
26. It may be that Section 4 of the Act provides for a converse case, but there is no rule or statutory provision, which bars the respondent from adjusting the amount already remitted towards general sales tax when import or the sales of vehicles in question are not liable to be assessed under The Tamil Nadu General Sales Tax and setting it off towards levy of entry tax. The levy, which is not authorised by law cannot be enforced nor the respondents could contend that they will keep the collection of tax, though they are not authorised to levy and collect. In the present case, levy and collection towards General Sales Tax Act, it is admitted, is not authorised as nine vehicles concerned are not liable for levy of tax under The Tamil Nadu General Sales Tax Act, 1959. Therefore, the said amount could very well be set off with respect to the entry tax payable in respect of the very same nine vehicles. It is not as if the petitioner has concealed or suppressed material facts, but has included the sales turnover in the return filed by the petitioner.
27. Instead of reopening the sales tax assessment of the concerned year, the respondents could very well pass a revised order of assessment under The Tamil Nadu General Sales Tax Act and pass consequential order under Tamil Nadu Act 13 of 1990, as the tax liability in respect of these nine vehicles is only under the Entry Tax. The respondents refusal to adopt such a course and procedure cannot be sustained.
28. Taking up the contention regarding levy of penalty, it is seen that the first respondent has imposed the penalty. By adopting a course of adjustment and set off, sales tax already paid by the petitioner towards entry tax, which is a legal course, there could be no room for levy of penalty. It is clear that the petitioner has remitted tax and, therefore, it cannot be assumed that the petitioner has failed to pay the entry tax. As a further consequence it follows the imposition of penalty is not called for at all. When tax has been paid, or deemed to have been remitted, no penalty could be imposed as proposed by the respondents. It is a bona fide mistake committed, which can be corrected even by an assessing authority or his controlling or supervising or statutory authority. The respondents, being public authorities, could always correct the bona fide mistakes or errors and they cannot arbitrarily mulct the assessee to pay the tax once over and also treat him as a defaulter or a person, who has failed to pay the tax and impose heavy amount as penalty. When the tax payable under the Entry Tax has already been remitted by the petitioner or deemed to have been remitted and has already reached the hands of the respondents in the form of general sales tax, which is not leviable in respect of the nine vehicles concerned. There is no reason at all not to adjust or set off the tax so remitted towards entry tax liability and there is every justification not to treat the petitioner as a defaulter as it is a deemed remittance. As a result, such arbitrary levy of penalty cannot be sustained.
29. One other technical contention advanced by Mr. Natarajan, learned senior counsel being, before levying penalty, an opportunity of hearing should have been afforded, though a notice was served and an objections has been submitted. Section 15 of the Act provides for imposition of penalty. The said section also provides that before imposing penalty, the assessing authority shall afford a reasonable opportunity of being heard apart from a notice in writing. In the present case, no opportunity of hearing has been afforded, but only a notice has been served on the petitioner, to which the petitioner has submitted his objection. There is force in the contention advanced by Mr. Natarajan, in that the respondent has imposed the penalty without affording reasonable opportunity of being heard.
30. In this respect, Mr. Natarajan, learned senior counsel relied upon the following pronouncements of this Court and the Karnataka High Court in support of his contention :-
“1) RAJAM OFFSET PRINTERS VS. THE COMMERCIAL TAX OFFICER, MADRAS (1995 (8) MTCR 55) ;
2) AZHAGAPPA COTTON MILLS VS. DY. COMMERCIAL TAX OFFICER & ANOTHER ( 1990 (11) SISTC 143) ;
3) M/S. GENERAL MECHANICAL WORKS VS. COMMISSIONER OF INCOME TAX (1984 TAX L.R. 1370).”
This Court is in respectful agreement with the said pronouncements.
31. The learned senior counsel also relied upon the Division Bench judgment of this Court in STATE OF T.N. VS. INDIAN SILK TRADERS reported in 1994 STC 157, where the Division Bench held that the bona fides of the assessee have to be taken into consideration before imposing the penalty. The Division Bench following the pronouncement in DEVENDRAN & COMPANY VS. STATE OF T.N. reported in 53 STC 223 held thus :-
“We are in respectful agreement with the view expressed in the last two judgments of this Court. In our view Section 12 (2) and 12 (3) of the Act operates in a particular field where the assessing authority resorts to best of judgment assessment. Section 12 (4) and 12 (5) operates in a different field where the assessment is made on the basis of the books of account rejecting the return submitted by the assessee as incorrect and incomplete. We have already indicated that once an assessment is made on the basis of the books of accounts the penalty under Section 12 (5) of the Act will be attracted. While the element of deliberateness, willfulness or a blameworthy conduct on the part of the assessee may not be necessary for invoking Section 12 (5) of the Act, we are clearly of the opinion that the bona fides of the assessee have to be gone into before imposing penalty. The guidelines given by the Supreme Court in Cement Marketing Co. of India Ltd. Vs. Assistant Commissioner of Sales Tax we have extracted above should be kept in mind by the assessing authority. At the risk of repetition we reiterate that the facts of each case have to be carefully analysed before coming to the conclusion whether a particular return is incorrect or incomplete and whether the assessee returned as incomplete or incorrect return, more with a view to postpone the tax legitimately due to the Government, or under a bona fide belief that his return was in accordance with law.”
32. The learned senior counsel also relied upon the pronouncement of the Apex Court in HINDUSTAN STEEL LTD. VS. STATE OF ORISSA reported in 25 STC 211. The Apex Court held that unless the conduct on the part of the assessee is contumacious or dishonest, or acted in conscious disregard of its obligations, penalty is not liable to be imposed. In this context, the Supreme Court held thus :-
“Under the Act penalty may be imposed for failure to register as a dealer: section 9(1) read with section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. As 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 judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”
33. The above pronouncement squarely applies to the facts of the case and concedingly in this case no opportunity of hearing has been afforded to the petitioner and there is no material at all to hold that the petitioner has contumaciously or deliberately failed to comply with the provisions of the Act and therefore there is no reasonable cause on the facts of this case for imposition of penalty. In the present case, tax has been actually paid under the General Sales Tax Act, while the tax should have peen paid under The Entry Tax Act and the respondent should have passed orders of adjustment instead of proposing to initiate action for refund of Sales tax and treating the petitioner as a defaulter in respect of Entry Tax. Such an act is arbitrary, unfair and liable to be interfered.
34. In the light of the above pronouncements, the act of the petitioner not being contumacious, not deliberate, not willful, but a bona fide, the first respondent should not have imposed the penalty. That apart, the petitioner has not been afforded an opportunity of hearing. This again vitiates the orders.
35. Mr. Natarajan, learned senior counsel nextly relied upon the pronouncement of Ramakrishnan, J., (as he then was) in ARUPDASWAMI CHETTIAR VS. DY. COMMERCIAL TAX OFFICER, NAGAPATTINAM reported in 24 STC 459, where the learned Judge ordered that the assessing authorities should give credit to the amounts collected from the assessee in the assessment made under The Tamil Nadu General Sales Tax Act when making a demand for the assessment of higher rate levied under The Central Sales Tax Act so that the assessee is not compelled to pay over any part of the sum twice. In this respect, the learned Judge issued the following directions :-
“Before parting with the cases, I will refer to a representation made by the learned counsel for the petitioner with, in my opinion, a great deal of justification, that this is an unfortunate case where the assessee who had been made to pay assessment on the concerned turnover under the Madras General Sales Tax Act at a lower rate, is being reassessed on the same turnover under the Central Sales Tax Act at a higher rate, but without any assurance being given to him of the necessary refund where there had been excess realisations, or adjustment as the case may be. In the counter affidavit of the department in these writ petitions, there is an averment for the purpose of meeting this complaint, that the assessment under the Madras General Sales Tax Act in respect of the turnover involved in these years will be “revised” by the appropriate authority suitably after the present assessment proceedings are finalised. It is not clear to me what is meant by the statement about “suitable revision”. It is a vague statement, and the petitioner feels apprehension about his relief. It will be much better for the assessing authorities to give credit to the amounts collected from the assessee under the assessment made under the Madras General Sales Tax Act when making a demand for the assessment at the higher rate levied under the Central Sales Tax Act so that the assessee is not compelled to pay over any part of the sum twice. But if he had already paid any and twice over the simplest way is to give credit to what has already been paid twice over and collect only the balance and make the necessary adjustment between the amounts due to be collected under the Central Sales Tax Act and the Madras General Sales Tax Act under the appropriate heads of account.”
With respect, this Court agrees with the above view expressed by Ramakrishnan, J., and there is every justification on the facts of this case to adopt an identical course.
36. The Supreme Court also issued identical directions in UNION OF INDIA & ANOTHER VS. K.G. KHOSLA AND CO. LTD. reported in 43 STC 467, wherein the Supreme Court held thus :-
“The High Court was, therefore, right in holding that the sales in question are inter-State sales and that the turnover of sales is assessable to sales tax under the Central Sales Tax Act, 1956, at the instance of the sales tax authorities at Faridabad. The amount of tax which the respondent has wrongly paid to the sales tax authorities at Delhi on such inter-State sales from April 1, 1961, to September 30, 1965, shall have to be transferred by the sales tax authorities at Delhi to the sales tax authorities at Faridabad, as directed by the High Court.”
37. In the circumstances, the writ petition is allowed. The impugned proceedings are quashed and liberty is given to the first respondent to set off the general sales tax already paid by the petitioner as against the Entry Tax payable for the nine vehicles concerned and issue appropriate orders in this respect within a period of four weeks from today. This writ petition is allowed quashing the entire proceedings including imposition of penalty. No costs. Consequently, connected miscellaneous petition is closed.