Aggarwal Cottan & General Mills vs. State Of Punjab

Held

The Court disposed of the appeals by setting aside the impugned orders. The Assessing Authority was directed to verify whether the matter had indeed become tax neutral. If it was found to be tax neutral, the Assessing Authority was to determine whether the liability for interest and penalty thereon was exigible. The Court directed the parties to appear before the Assessing Officer on 17.03.2020, and the Assessing Authority was instructed to pass a fresh order within two months of their appearance, given that the appeals were filed in 2011. The core principle derived is that tax authorities must consider the revenue neutrality of a case when determining the exigibility of interest and penalties, especially in older matters.

Facts

The appellant, Aggarwal Cotton and General Mills, challenged the Assessing Officer's determination of its liability for purchase tax. The appeals were filed in 2011, concerning assessment years 2005-2006 and 2006-07. The appellant contended that the case had become revenue neutral because the tax due from them on purchases was effectively paid upon the sale of goods, and had the tax been paid on purchase, they would have been entitled to input tax credit. The State's counsel conceded that this might be the case.

Key Issues

1. Whether the matter has become revenue neutral, thereby impacting the exigibility of interest and penalty, under the relevant provisions of the Punjab Value Added Tax Act, 2005 (or predecessor legislation). The appellant argued that the case is revenue neutral because the tax due on purchases was accounted for upon the sale of goods, and they would have received input tax credit if the tax had been paid at the purchase stage. The appellant implicitly argued that if the matter is revenue neutral, no interest or penalty should be levied. The revenue (State) did not contest this point, with the Additional Advocate General fairly stating that this may be so.