- (1.) The grievance of the petitioner is that upon the petitioner's input tax credit being reversed, a flat 25% penalty was imposed on the petitioner by the department without complying with Section 96 of the West Bengal Value Added Tax Act, 2003 or inquiring into the circumstances pertaining to the alleged evasion of tax by the petitioner.
(2.) In the returns filed for the financial year ended March 31, 2012, the petitioner claimed input tax credit in respect of purchases made from four dealers. The total value of the input tax credit claimed by the petitioner was Rs.19,55,036. For reasons that are not necessary to be gone into at this stage, particularly since a revision has been preferred by the petitioner, the department found that the claim on account of input tax credit was without any basis. It was then open to the department to seek the tax due after reversing the input tax credit claimed by the petitioner and, thereafter, make an inquiry as to the circumstances in which the input tax credit was claimed before imposing any penalty on the petitioner under Section 96 of the Act. Indeed, the penalty provision contemplates separate proceedings for such purpose.
(3.) In the present case, as the order - sheet and a notice dated June 9, 2014 reveal, the two processes of requiring the dealer to make good the tax covered by the input tax credit claimed and the penalty therefor were telescoped into one without the department assessing whether there was any element of malafides on the part of the petitioner in claiming the input tax credit or whether the input tax credit was disallowed on other grounds notwithstanding the transactions apparently being genuine. Ordinarily, it is not open to the department to adopt such procedure by which a flat amount of penalty is demanded from the dealer along with the tax in default on account of the disallowed input tax credit. Ideally, the tax in default should be realised and a further show -cause notice should be issued to ascertain whether there was any element of mens rea on the part of the dealer before imposing a penalty on such dealer. Section 96 confers wide discretion on the department to impose penalty upto 200% of the tax sought to be evaded by falsely claiming input tax credit.;