M/s Intex Technologies (India) Ltd. v. State of Punjab & Ors.

What happened

The appellant, a dealer in mobile phones and computer peripherals with its head office in Delhi, dispatched 900 mobile phones worth ₹26,37,600 under Stock Transfer Note No. 1040100105 of 9 April 2010 to its own godown in Sahnewal, Ludhiana. The consignment was intercepted in transit under section 51 of the PVAT Act. The driver produced the documents, but the authority concluded that the consignment included accessories taxable at 8% while phones attracted 5%, and treated this as an act to evade tax. A first penalty order of 26 April 2010 was set aside in appeal and remanded; on remand the Designated Officer imposed a penalty of ₹94,500 under section 51(7)(c) by an order of 23 August 2012, and the VAT Tribunal dismissed the appeal on 26 November 2015. The appellant relied on State of Punjab v. Nokia India Pvt. Ltd., 2015 AIR SC 1068 (decided 17 December 2014), which held that accessories are taxed separately at 12.5%, and said the invoice showed the phones included accessories. The State said the settled law of Nokia itself proves the intent to evade.

Questions before the court

• Does carrying phones with accessories on a stock transfer note show intent to evade tax, justifying a penalty under section 51(7)?

Why the court ruled this way

The statute in categorical terms requires an intent to evade tax before a penalty can be imposed, and the Division Bench in Makin Paper Mills, relying on Xcell Automation, set out the position that the exercise of check-post power must have a reasonable nexus with preventing evasion; Jain Steel Industries held that penalty under section 51(7) can be imposed only if there is sufficient material and a specific finding of an attempt to evade the tax due (paragraphs 11 and 12). That accessories are taxed separately, as settled in Nokia, did not by itself lead to an inference of intent to evade (paragraph 17). Matters of classification would ordinarily fall within the jurisdiction of the assessing authority and not the check-post authorities, and since the Nokia ruling came much later it could be acknowledged that the proposition was settled only later; also the accessories were clearly specified in the invoice as part of the phones (paragraph 18). There was no material to infer intent, and the penalty therefore failed (paragraph 19).

Controlling point

There was no material to establish an intent to evade, so the penalty was not called for.

Order and next steps

The orders dated 23 August 2012 and 26 November 2015 were set aside and the appeal was allowed. Pending applications were disposed of.

Practical implications

A dealer fined at a check-post over a rate or classification dispute should rely on clear invoicing and the absence of concealment to show no intent to evade, and argue that classification belongs to the assessing officer.

Limits of this ruling

• The ruling concerns a penalty at the check-post stage; it does not decide the tax payable on the accessories, which remained leviable at the rate settled in Nokia.