Delhi Value Added Tax Act, 2004
Section 87: Automatic Mitigation and Increase of Penalties
Section 87 of the Delhi Value Added Tax Act, 2004 (DVAT Act) governs when a penalty is automatically cancelled, reduced or increased. It addresses relief after a tax reduction, voluntary disclosure of tax deficiency, reliance on official tax interpretations and repeated contraventions.
Meaning of important provisions
Tax deficiency: Under section 86(1), broadly the difference between tax properly payable and tax paid for a calendar month, subject to the statutory explanations. Section 86(12): Provides a penalty connected with tax deficiency. Section 84: Concerns determinations on specific questions. Section 85: Concerns rulings on general questions. Section 60: Governs inspection of records and related proceedings. These cross-references matter because relief under section 87 depends on their precise conditions.
87(1) - Cancellation following full tax reduction
Where proceedings wholly reduce the tax amount on which a penalty was levied, the corresponding penalty must be cancelled. Any amount already paid as that penalty must be refunded.
87(2) - Voluntary disclosure before audit intimation
A person liable under section 86(12) who discloses the tax deficiency voluntarily in writing to the Commissioner before being informed of an audit receives an 80% reduction of the otherwise payable penalty.
87(3) - Disclosure after audit intimation
If the written voluntary disclosure is made after the Commissioner has informed the person that an audit will be conducted, the reduction under this provision is 50% of the penalty otherwise payable.
87(4) - Reliance on an official determination or ruling
Where a section 86(12) tax deficiency arises from adopting a tax treatment in reliance on a determination issued to the person under section 84 or a ruling issued under section 85, the applicable penalty is reduced to nil, provided the statutory conditions are met.
87(5) - Increased penalty for repeated failures
Where an assessed penalty has not been fully remitted after objection, and another penalty is assessed for the same or substantially similar failure on a separate occasion, the specified penalty is increased by 50% for the first subsequent offence and by 100% for the second and later subsequent offences.
87(6) - Disclosure during section 60 proceedings
A person liable under section 86 who discloses a tax deficiency voluntarily in writing during proceedings under section 60 and pays the deficiency within three working days after those proceedings conclude receives an 80% reduction in the penalty attributable to the admitted and paid tax.
Practical effect of section 87
Penalty relief is not the same as cancellation of the underlying tax liability. A taxpayer claiming relief should preserve the written disclosure, audit-intimation date, relevant determination or ruling, proof of payment and any order modifying the underlying assessment. For a repeated default, the conditions of section 87(5) must be examined separately.
Official law and updates
Refer to the Delhi VAT Act text published by the Department of Trade and Taxes, the official notification register and the official circulars. The published Act compilation is dated 2014; later amendments and notifications should also be checked before relying on it as the consolidated law.