[Submitted by CA Pawan Kedia,
Jhunjhunu, Rajasthan]

April 25, 2014

Introduction: Since commencement, the penalty or late fees under RVAT for delay in filing of returns is linked with the category of tax payer, whether he is a monthly tax payer or non monthly tax payer. Under Section 20 of RVAT Act the State Govt. has issued various notifications from time to time and has notified who is liable to pay monthly tax and who is not liable. All the notifications issued under this section provides that all the dealer whose annual tax liability is rupees twenty thousand and above in the preceding year are liable to pay monthly tax. Now the problem begins with the term ‘annual tax liability’. What does it mean, because it has not been defined in the Act. Whether it means gross tax liability without giving effect to input tax credit, advance tax, TDS etc., or it means net tax liability i.e. gross tax minus input tax or it means tax deposited by the dealer after adjusting the ITC and TDS.

Meaning of Annual Tax Liability: Although the term ‘annual tax liability’ has not been defined in the Act as such, but its meaning can be drawn from various terms used at various places in the Act, Rules and Notifications. Basically VAT is a tax on Sales and the whole purpose of vat assessment is also to determine the total tax liability of a dealer which he is liable to pay. Out of the total tax liability so determined the dealer is given adjustment or credit in respect of ITC, TDS or advance tax etc. because ITC and TDS is nothing but is an advance payment of tax on his behalf. To such extent the payment of tax is treated to have been made in time but in spite of that if the return is delayed he is still liable to pay penalty or late fee for delay of returns. If no tax is payable by a dealer or if he does not have any tax liability the entire amount of ITC and TDS is refundable to him because it is an advance payment of tax by him. Therefore whatever tax which is payable by a dealer in a year without any adjustment of ITC and TDS should be his annual tax liability.

Now we draw inference from various terms used in the Act, Rule and Notifications. Section 3(1) provides that every dealer shall be liable to pay tax under this Act and Section 4 provides that the tax payable shall be levied on the taxable turnover at the specified rates. Both the charging section does not speak of tax which is payable after adjustment of ITC, TDS & Advance tax etc. It refers to the tax before adjustment means gross tax. Section 8(4) provides that the State Govt may notify grant of exemption from “whole of tax payable” under this act, here the term ‘whole of tax payable’ refers for ‘ gross tax payable’ not net tax payable because the exemption in this case shall be of gross tax not of net tax. Section 9(2) of the Act provides that no registered dealer shall collect any amount in excess of ‘tax payable’ by him. It indicates that the dealer shall not collect in excess of the output tax or it refers to output tax because the dealer is required to collect the output tax , not output minus input tax. Everywhere in the Act the term “tax payable” has been used and it refers to assessable tax or gross tax which a dealer is liable to pay under this Act. Section 17 of RVAT Act defines ‘net tax payable’. Net tax payable means gross tax minus ITC or in other words output tax plus reverse tax plus purchase tax minus ITC. It makes amply clear that the tax before adjustment of ITC, TDS etc. would be Gross Tax Payable. Thus the annual tax payable or annual tax liability means gross tax payable for the year and it will be equal to the aggregate of output tax, reverse tax and purchase tax of the year. Rule 19(1)(ii) prior to its substitution on 01.04.11 had defined the term “annual tax liability”. It provided that the return referred to in section 21(1) shall be submitted by a dealer within 30 days of end of quarter, other than the dealer whose annual tax liability (output tax + Purchase Tax + Reverse Tax) including liability under CST Act was rupees 20 thousand or less in the immediately preceding year. Rule 19A (1)(ii) also used the same terminology before its substitution. Thus it is very very clear that the term ‘annual tax liability’ referred in the notifications issued u/s 20 of the RVAT Act refers to aggregate of gross tax liability under VAT and CST both before any adjustment on account of ITC, TDS and Advance Tax because ITC, TDS and Advance tax are different modes of tax payment under vat and their credit is allowed u/s 18, u/s 40(4) or as the case may be under section 38(2) of the Act out of the gross tax liability. Thus in my opinion if the gross annual tax liability in the preceding year is rupees 20 thousand or above the dealer shall fall in the category of monthly tax payer otherwise it shall fall in a category other than monthly tax payer.

However RTB Ajmer in the case of CTO, Circle-I, Bhiwadi vs M/s Rustgi Plastic Industries P.L. Bhiwadi reported 2012 33 TUP 163 , relying on the decision of Jurisdictional RHC given in the case of RSWM Ltd. Vs State of Raj. (2012) 32 TUP 165, has held, that the “tax payable” is nothing but is “net tax payable” which is defined in section 17 of RVAT Act 2003. Thus according to these judgments the tax payable means (output tax+ purchase tax+ reverse tax –input tax). Hence in view of the Hon’be RHC and RTB tax payable means gross tax after reducing input tax credit. Although these judgments have been given in the matter relating to Sales Tax Incentive Schemes but still the case can be argued on this basis and annual tax liability may be interpreted to mean gross tax after reducing input tax.

Penal Consequences: After understanding the meaning of the term ‘annual tax liability’ we come to the issue, what are the penal consequences for delay in filing of its return ?. Till 31.03.11 there was a penalty under section 58 of RVAT Act for late filing of return. Since 01-4-11 provisions of section 58 were deleted and in its place provision of late fee has been inserted by way of Rule 19A. The basic difference in penalty u/s 58 and late fee u/r 19A is that penalty u/s 58 was discretionary, if there had been a reasonable cause behind the delay in filing of return the AO had powers not to impose the penalty. But it is not so under Rule 19A.

The late fee as provided in Rule 19A is mandatory and it has to be deposited along with the return. Although the Rule 19A providing for late fee was inserted w.e.f. 01-04-11 but the returns for the period relating to 2011-12 were allowed to be accepted even without depositing the late fee along with the return as there was no binding provision during this period to deposit the late fee along with the return itself. However, a sub-rule 10 was inserted into Rule 19 w.e.f. 1-4-12 which provided that the late fee shall be deposited along with the return otherwise it will be deemed to be a case of non filing. Thus the delayed returns for the period 12-13 filed after 1-4-12 are not being accepted by the department without depositing late fee and the late fee for the delayed returns for the period 2011-12 has been left upon the AO to impose at the time of assessment.

The criteria for levying penalty u/s 58 or late fee u/r 19A both are linked with the category of dealers whether they are monthly tax payer or non monthly tax payer. The relevant provisions at the relevant point were as under:

Penalty provisions u/s 58 were in force till 15-4-11

  1. In case the dealer is monthly tax payer u/s 20, a sum equal to Rs.100/- per day for fist 15 days of default and thereafter a sum equal to Rs. 500/- per day for the period during which default continues, but not exceeding in aggregate 30% of tax so assessed; and
     
  2. In all other cases a sum equal to Rs. 50/- per day subject to maximum limit of Rs. 5000/-, for the period during which default continues. 

Section 58 has been subjected to various amendments such as first amendment was made by Finance Act (4 of 2006) w.e.f. 1-4-06, then by Finance Act 2009 w.e.f. 08.07.09 finally this section has been deleted by Finance Act w.e.f. 15.04.11

Late fee for returns filed during 01-4-11 to 31-3-12

  1.  In case the dealer is monthly tax payer u/s 20, a sum equal to Rs.100/- per day for fist 15 days thereafter Rs. 500/- per day subject to maximum limit of Rs.50000/- or 30% of tax assessed whichever is lower; and
     
  2.  Rs. 50/- per day subject to maximum limit of Rs. 5000/-, for all other cases.

Late Fee for returns filed during 1-4-12 to 31-3-13

  1.  In case the dealer is monthly tax payer u/s 20, a sum equal to Rs.100/- per day subject to maximum limit of Rs.50000/-; and
     
  2.  Rs. 50/- per day subject to maximum limit of Rs. 5000/-, for all other cases 

Late Fee for returns filed after 31-3-13

  1.  In case the dealer is monthly tax payer u/s 20, a sum equal to Rs.100/- per day subject to maximum limit of Rs.25000/-;
     
  2.  Rs. 50/- per day subject to maximum limit of Rs. 1000/-, if there is no turnover during the period under return ; and
     
  3.  Rs. 50/- per day subject to maximum limit of Rs. 5000/-, for all other cases

Thus if the aggregate annual tax liability of a dealer in the preceding year including CST, before adjustment of ITC, TDS and advance tax, is rupees twenty thousand or more then he will fall in the category of monthly tax payer u/s 20 of the Act and the penalty or late fee will be levied at the rates applicable to that category at the relevant time. If the annual tax liability does not exceed rupees twenty thousand then the penalty or late fee shall be levied according to the category other than the monthly tax payer.

Now two question arise. Whether penalty u/s 58 will apply or late fee under Rule 19A will apply when the default falls in both period ? Whether penalty or late fee shall be levied under the amended law or old law when the default continues from the period before amendment to the period after amendment? The penalty or late fee for delay in filing of return is not linked with the year of assessment. It is linked with the period of default . Further the default in filing of return is a continuing default and continues from the last date of filing of return to the actual date of filing of return, therefore the penalty or late fee should be levied as per the law which is in force on the date on which default ends. The default ends on the date on which return is filed or where no return is filed on the date the assessment is made. If the default ends after the introduction of Rule 19A , penalty in the form of late fee shall be levied as per provisions of Rule 19A in force on that date. If the default ends prior to introduction of Rule 19A then the penalty shall be levied according to the provisions of section 58 which were in force on the date the default ends.

In this case reliance may be placed on the decision of ITAT Indore reported in (1987) 22 ITD 1 in the case of Wealth-Tax Officer Vs. Bhagwansingh Onkarsingh Court , Decided On 22-04-87. In this case the assessee was to file the WT Returns by 30th June for the AY 69-70 and by 30th June of each of subsequent years but all the returns were filed on 27.03.84. In between section 18(1) of WT Act regarding penalty was amended w.e.f. 1-4-76. The assessment were completed on 27-3-84 and the penalties for the period prior to amendment were levied as per old provision and as per amended provision for the period after amendment. On appeal the AAC relying on the decision of SC given in the case of of Maya Rani Punj and that of the Delhi High Court in the case of CWT v. Amolak Singh Jain [1987] 163 ITR 825 held that the penalty is leviable as per the law which is in force on the date of completion of default or say as per amended law as the default continued even after amendment. The objection of revenue is that the AAC has mis-interpreted and mis-applied the decision of the Supreme Court in the case of Maya Rani Punj v. CIT [1986] 157 ITR 330 while reducing the penalties levied under Section 18(1)(a) of the WT Act. Analysing the decision of SC, ITAT gave a finding that for imposition of penalty, it was not the assessment year or the date of filing of the return that was important but it was the satisfaction of the Income-tax authorities that a default had been committed by the assessee which attracted the provisions relating to penalty. The crucial date, therefore, for the purpose of penalty is the date of such completion and the satisfaction of the authority that proceedings for levy of penalty be initiated. In the last para their Lordships made the following observations : In the instant case, assessment was made on June 30, 1964, and proceedings for imposition of penalty were directed to be initiated that day. Provisions of Section 271(1)(a) of the 1961 Act were fully applicable and the demand of penalty was thus justified being within the limits of law. ITAT observed that their Lordships had further held that the default under Section 271(1)(a) of the Income-tax Act or for that matter under Section 18(1)(a) of the Wealth-tax Act is a continuing default. The default after having been commenced can be brought to an end either by filing a return under Section 15 of the WT Act or when assessment is made. Thus, after the assessment is made, no return can be filed. The imposition of penalty not confined to the first default but with reference to the continued default is obviously on the footing that non-compliance with the obligation of making a return is an infraction as long as the default continued. In the case in hand the default did commence after 30th June, remained a continuing default and came to an end only on March 27, 1984. As on 1-4-1976 when it was a continuing default and before it was complete, the amended provision brought about a qualitative change and added different colour to it. Before the default became 'continued', the new provisions had already come into force. In a way, the 'occurrence' continued right up to 27-3-1984. Thus, the penalty for the whole period during which the default continued is to be levied under the amended provision at 2 per cent of the assessed tax for each month. It is not permissible to cut and split the default on monthly basis. Anyway, the approach that default starting on 1st July came to an end with the end of the month and a new default started in the next month will make the default a 'non-continuing one'. For the above reasons, we hold that the AAC was right in holding that the penalties for defaults under Section 18(1)(a) were required to be computed in accordance with the provisions of amended law.

However, RTB in the case of ACTO, Sirohi, W-3 vs Charbhujha electric Enterprises Sirohi & others dt. 21-9-12 (2012)34 TUP 153, has interpreted the decision of hon’ble SC given in the case of Maya Rani Punj vs CIT [1986] 157 ITR 330, differently. It has held that the penalty for default falling in the period prior to 08.07.09 shall be levied according to the provisions of section 58 prevailing in that period and penalty for the default falling in period after 08.07.09 shall be levied according to the amended provision. In my opinion this is not a good law for the reason that in this method the calculation of maximum penalty will fail because the maximum limit prior to amendment is 20% and after it is 30%. If penalty for both period is calculated separately then the aggregate maximum penalty will become 50% of assessed tax, which is not permissible. Second reason for difference of opinion is that since penalty is not related with the assessment year, it should be levied as per provisions which are in force on the date the limit of default ends i.e. either on the date of filing of return or the date of assessment. Further, the revision in the rates of penalty indicates the intention of the government whether it wants to increase or reduce the penalty. So penalty should be levied in spirit of the intention of the government. In my opinion penalty for continuous default should be levied according to the provisions which are in force on the date the default ends in the absence of any specific direction to do otherwise.

Penalty or late fee for Works Contractor: Generally in case of contractors TDS is deducted by the awarders at the time of payment and the said TDS along with ITC is adjusted against the total tax liability of the contractor and normally the contractor is not required to pay tax while filing of the quarterly or annual return. In the case of contractor, in lieu of tax, tax is deducted at source by the awarder under Rule 40(2) and the awarder is liable to deposit the tax deducted in lieu of tax in the government account. Since the contractor is not obliged to deposit the tax it cannot fall into the category of monthly tax payer for the purpose of penalty u/s 58 or late fee u/r 19A. The provisions of section 20 and the payment interval notified u/s 20 does not apply on the contractor like any other dealers. This fact is further clarified by sub-rule 7 of Rule 40, which provides that where the amount is not deductible from the payment made to contractor under these rules or under order of court, the contractor shall deposit the tax like any other dealers in accordance with the notification issued u/s 20. Thus it is clear that when TDS is deductible from the payment to contractor the contractor is not liable to pay or deposit the tax as per payment interval and in that case the contractor shall never come under the category of monthly tax payer and therefore the provisions of penalty or late fee as applicable to other category will apply on him. But, in cases where TDS is not deductible, the contractor may fall either in the category of monthly tax payer or in category other than monthly tax payer according to his annual tax liability and the annual tax liability of the contractor shall be computed in the same manner in which annual tax liability of other dealer is computed. The penalty or late fee in such cases shall be levied according to the category in which the contractor falls.

In the case of CTO, Dungarpur v Navbharat Nirman Company, RTB has held that the contractor is not liable for payment of monthly tax as the awarder deducts tax at source. Therefore, he is liable for submission of annual return and maximum penalty upto Rs. 500/- can be imposed u/s 61(ii). RTB in case of CTO, L & WT, Jaipur vs Beniwal Construction Co. (2005) 12 Tax Update 25 has held that contractors are not covered under the category of monthly tax payer. Since it is a constant view of the Board that contractors are not covered under the category of monthly tax payers, the appeal of the department is liable to be rejected. (2013) 36 Tax Update 289.

Conclusion:
In nutshell assessed annual tax liability or the gross annual tax liability has to be considered for determining the category of dealer for the purpose of levying penalty u/s 58 or late fee u/r 19A. If the assessed annual tax liability or the gross annual tax liability of a dealer whether he is a contractor or any other dealer, is rupees twenty thousand or more then the penalty or late fee will be levied at the rate which is applicable to monthly tax payer. If the assessed tax liability or gross annual tax liability does not exceed rupees twenty thousand the penalty or fine shall be levied according to other category provided in section 58 or as the case may be in the Rule 19A, in which the dealer falls. But it should be noted that the contractor where TDS is deductible under rules shall not fall in the category of a monthly tax payer, he shall fall in other than monthly tax payer category and penalty shall be levied according to other category. Further, the default regarding non filing of return is a continuous default. It starts from the expiry of last due date for filing of return and ends on the actual date of filing of return and where no return is filed it ends on the date of assessment. Penalty is not confined to the first default but with reference to the continued default on the footing that the obligation of non filing of return is a infraction as long as the default continued. The penalty or as the case may be late fee for delay in filing of return shall be charged according to the law which is in force on the date of filing of the return or on the date of assessment. In other words if the default continues ever after the amendment in the penalty provisions, the penalty shall be levied according to the amended provisions. [SC decisions in the case of Maya Rani Punj’s case (supra)]. Returns filed after 31-3-11 shall be filed along with late fee according to Rule 19A. However, returns during the period 1-4-11 to 31-3-12 were allowed to be filed without depositing the late fee along with the return and it was left upon the AO to impose the same later on at the time of assessment and since 1-4-12 a check point was inserted in the system and no returns were allowed to be accepted without payment of late fee, if payable.