| Jul-28-2021

Penalty Cannot Be Imposed Merely Because It Is Lawful to Do So

In M/s Mangalore Refinery and Petrochemicals Limited v. the State of Karnataka [S.T.R.P. No. 433 of 2017 decided on July 1, 2021] M/s Mangalore Refinery and Petrochemicals Limited (“the Petitioner”) is engaged in the activity of manufacture and sale of petroleum products. The Petitioner filed petition against the order dated May 24, 2017 (“the Order”) by the passed by the Karnataka Appellate Tribunal denying the input tax credit (“ITC”) in respect of capital goods and imposing penalty stating that penal provisions are mandatory.

The Hon’ble Karnataka High Court analysed Section 12 of the Karnataka Value Added Tax Act, 2003 (“KVAT Act”) and stated the deduction of input tax must be allowed on fulfilment of one of the conditions namely:

1. after commencement of commercial production,
2. sale of taxable goods and
3. sale of any goods during export out of the territory of India by the registered dealer

Further, noted that none of the conditions prescribed in Rule 133 of the Karnataka Value Added Tax Rules, 2005 (“KVAT Rules”) provide that each unit of the petitioner must be an independent unit to avail of the benefit of input tax.

Held that, the Petitioner was affecting sale of taxable goods on payment of VAT / CST as applicable and was affecting sale of goods in the course of export out of the territory of India. Therefore, the Petitioner had satisfied the conditions laid down in Section 12(2) of the KVAT Act and is eligible to avail of the benefit of ITC.

The finding recorded by the Joint Commissioner of Commercial Taxes as well as by the Tribunal that the petitioner cannot be sustained in the eye of law as the expression "or" used in Section 12(2) of the KVAT Act is not conjunctive but is disjunctive.

Further, held that there is no element of any mens rea that the Petitioner had the intention to evade tax. The Petitioner had paid taxes according to the information furnished in the return and therefore, it should not have been penalized subsequently after the assessment proceedings are finalized and the amount of tax is determined. It is well settled in law that penalty cannot be imposed merely because it is lawful to do so. Since the Petitioner was entitled to ITC, therefore, the question of levy of penalty and interest does not apply.

Online GST Course by Bimal Jain

Recorded: Certified Advanced GST Course

Course Details: Certificate of Participation will be Provided, Free GST Updates on E-mail, WhatsApp, Telegram for 1 Year, Background Material and PPT will be Provided on the downloadable basis, Total 21 Recorded Sessions (60 Hours), will be available for 120 hours or 60 Days whichever expires earlier.

For Registration: https://cutt.ly/hxjl5Cu

Recorded: GST Course on Exports, Deemed Exports, SEZ, Imports, Merchandise Exports, Inverted Duty Structure (including Refunds)

Course Details: 6 Online Recorded Sessions of 2.30Hrs each with Background Material (BGM)

For Registration: https://cutt.ly/pvw7mzl

For more details,
Call: +91-8076563802 | E-mail: intern@a2ztaxcorp.com | Web: www.a2ztaxcorp.in

DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.