Contractee deducts tax erroneously; penalty cannot be imposed on contractor

No Comments

HC sets aside imposition of penalty u/s 40(2) of Tamil Nadu VAT Act on contractor (assessee) for erroneous education of tax at source (TDS) by contractee in respect of ‘zero-rated’ sales; Notes that assessee had executed a works contract with SEZ developer and the Assessing Authority had accepted the claim for exemption thereon; According to the Court, since it was the contractee viz. SEZ developer who deducted tax at source on the premise that works contract was taxable, assessee could not be brought within the ambit of Section 40(2) for contravening the provisions of Section 40(1) which require collection of tax by registered dealer in accordance with law; States, “even assuming there was an illegal collection of tax, then without an opportunity of being heard penalty cannot be imposed” while rejecting adjustment of TDS towards such penalty on assessee’s account; On the other hand, observes that Revenue should refund the amount as a consequence of holding that the assessee was eligible for exemption: Madras HC

Citation: [TS-71-HC-2018(MAD)-VAT]