VAT - Railways are statutorily obliged to ensure timely TDS deduction; penalty reduced on account of bona fide reasons explaining delay: HC
By TIOL News Service
ALLAHABAD, FEB 20, 2019: THE issue before the High Court was whether the existence of mens rea is not a prerequisite for imposing penalty u/s 34(8) of the UPVAT Act and so bona fide reasons explaining delay in depositing TDS must be considered, before deciding as to whether or not to impose penalty. YES is the verdict. Nonetheless, the Bench also held that the quantum of penalty imposed for late deduction of TDS, merits being reduced, if the delay ranges from 24-94 days & where the defaulter is a Government Department.
Facts of the case
THE petitioner herein is the Assistant Material Manager, Rail Electrification under the Indian Railways. It is registered under the VAT Act for the relevant AY & it used to deposit TDS deducted by it on payments made in relation to works contracts. The TDS for five months in the relevant AY, was deposited after a delay of 94, 63, 55, 24 and 39 days respectively. Such delay was attributed to officials being busy in inspection & on account of staff shortages. On account of such delayed deposit of TDS, penalty of 200% of the TDS, amounting to about Rs 61.65 lakhs was imposed, u/s 34(8) of the Act. Of such amount, the petitioner claimed to have deposited about Ts 15.41 lakhs as well as 25% of the penalty imposed. Besides, the interest u/s 34(9) on such delayed deposit of TDS, was deposited after the date of passing the penalty order. The petitioner's appeal against such order was rejected by the Additional Commissioner. On further appeal, the Commercial Tax Tribunal reduced the quantum of the penalty to about Rs 3.08 lakhs, being 10% of the TDS amount. Hence the present petition for revision.
On hearing the revision, the High Court held that,
++ from a perusal of the provisions of Section 34(8), it is seen that any person responsible for making deduction of TDS if he fails to make the deduction or after making deduction fails to deposit the amount so deducted as required by Sub-section 6, the Assessing Authority may, after giving to such person an opportunity of being heard, by order in writing, direct that such person shall pay, by way of penalty, a sum not exceeding twice the amount deductible under this section but not so deducted and, if deducted, not so deposited into the Government Treasury. The imposition of penalty under Section 34(8) is in addition to and unaffected by the payment of interest under Section 34(8);
++ though the existence of mens rea or dishonest intent is not a prerequisite for imposition of penalty under Section 34(8) as is evident from a bare reading of the provisions and it is a civil liability, if there are bona fide reasons and mitigating factors which explain the delayed deposit of TDS they should be taken into account while taking a decision to impose or not to impose penalty or to determine its extent. Failure to make deduction would however stand on a different footing;
++ the delay in deposit of TDS for April, May, July, August and October, 2008 ranges from 24 days to 94 days. The Railways should have been conscious of its statutory obligations. Considering the fact that it is not a case of failure to make deduction but of failure to deposit TDS timely and also considering the fact that the matter relates to a Government Department, in the facts of the case, the penalty is reduced from Rs 3,08,296.40/- to Rs 1541248 i.e. 05% of the TDS. This will act as a deterrent for the future.
(See 2019-TIOL-392-HC-ALL-VAT)
