Case Law Details
Bajaj Hindusthan Sugar Ltd. Vs Commissioner Commercial Tax U.P. Lucknow And Anr. (Allahabad High Court)
Allahabad High Court held that imposition of penalty under section 10(d) of the Central Sales Tax Act [CST Act] in absence of mens rea is untenable in law. Accordingly, order of penalty is liable to be quashed.
Facts- The petitioner with an intent to set up a manufacturing facility in the State of U.P. were procuring various materials and keeping cement for construction of the premises and during the course of such construction used the cement after procuring the same within the State and outside the State in respect of part of the cement procured by the revisionist from outside the State, the petitioner claimed the benefit under Form C.
AO by means of an order dated 12.11.2012 held that as the assessee was consumed the cement for installation of plant and machinery, he was not entitled to get the benefit of Form C. While passing the said order, although the certificate issued by the Chartered Engineer was taken into consideration, however, the Deputy Commissioner held that total cement bags purchased were 1339650 and as there was no separate register maintained for consumption of the said cement for construction of the foundation and the balance for other purposes, it was presumed that 54.21% of the total cement purchased would be presumed to be used for foundational purposes and for the balance amount, penalty of Rs.8241985/- was imposed against the revisionist for the Financial Year 2005-06. The said order was challenged before the tribunal, however, the tribunal dismissed the appeals preferred by revisionist and upheld the penalty order.
Conclusion- Held that in the present case, the interpretation of Section 10(d) has come up for consideration before the Supreme Court in the judgment as recorded above, and the Supreme Court has after considering the statutory provisions has held that it is essential that the mens rea be Even otherwise on the plain reading of Section 10(d) the phrase “reasonable cause” has been duly discharged by the revisionist by producing the certificate of an Engineer, thus necessary ingredient for levy of penalty have neither been alleged established or proved in the present case, as such, for the reasons recorded above, the order of penalty cannot be justified and is quashed.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Shubham Agrawal, Advocate assisted by Sri Yogesh Chandra Srivastava, learned counsel for the revisionist, learned Standing Counsel for the State and perused the material available on record.
2. Present revision was admitted on the question no. 3, 4 and 5.
3. The facts in brief are that the petitioner with an intent to set up a manufacturing facility in the State of U.P. were procuring various materials and keeping cement for construction of the premises and during the course of such construction used the cement after procuring the same within the State and outside the State in respect of part of the cement procured by the revisionist from outside the State, the petitioner claimed the benefit under Form C. The Assessing Officer by means of an order dated 12.11.2012 held that as the assessee was consumed the cement for installation of plant and machinery, he was not entitled to get the benefit of Form C. Ultimately the matter travelled to the tribunal in respect of cases of four financial years. The tribunal remanded the matter holding that the certificate issued by the Chartered Engineer ought to have been considered and the same has not been considered, as such on the limited issue, the matter was remanded. It also bears from the record that a certificate was produced as being issued by the Chartered Engineer demonstrating the consumption of cement bags for setting up the foundation work for installation of plant and machinery. However, despite the said directions in the remand order, a penalty was imposed against the revisionist by means of an order dated 30.10.2014. While passing the said order, although the certificate issued by the Chartered Engineer was taken into consideration, however, the Deputy Commissioner held that total cement bags purchased were 1339650 and as there was no separate register maintained for consumption of the said cement for construction of the foundation and the balance for other purposes, it was presumed that 54.21% of the total cement purchased would be presumed to be used for foundational purposes and for the balance amount, penalty of Rs.8241985/- was imposed against the revisionist for the Financial Year 2005-06. The said order was challenged before the tribunal, the tribunal noticed the entire facts including the fact with regard to the production of the certificate by the Engineer, however, the tribunal recorded that the only argument advanced before the tribunal was that in purchasing the cement and consuming the same, there was no mens rea at the instance of the revisionist and as such, no penalty could be imposed against them. However, the tribunal dismissed the appeals preferred by revisionist and upheld the penalty order.
4. While arguing the present revision, the submission of the counsel for the revisionist is that entitlement of reduced rates of tax on sales in the course of inter state trade is available by virtue of Section 8(1) read with Section 8(3)(b) of the CST Act. Section 8(3)(b) of the CST Act is quoted herein below:
“8 (3) The goods referred to in {***} sub section (1)-
(b) {….} are goods of the class specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or {in the telecommunications network or} in mining or in the generation or distribution of electricity or any other form of power.”
5. He further argues that provision of penalty is prescribed under Section 10 and for the purposes of present revision, Section 10(d) is relevant provision empowering to impose penalty. The said provision is as under:
“10(d) after purchasing any goods for any of the purposes specified in {Clause (b) or clause (c) or clause (d) of sub section (3) or sub-section (6) of section 8 fails, without reasonable excuse, to make use of the goods for any such purpose.”
6. In the light of the said two submissions, the submission of the counsel for the revisionist is that admittedly the certificate issued by the Engineer, there was evidence produced at the instance of the revisionist with regard to the consumption of the cement and apart from the said, there was no material whatsoever produced by the Department to establish that the revisionist had obtained the benefits grantable under Section 8 in a malafide manner. He further argues that even if the entire case is presumed against the revisionist, there was no allegation, evidence or material produced at the instance of the Department, to establish the foundation for levying the penalty. He further argues that in terms of the provisions of Section 10(d), the revisionist had produced all the material to justify that there was a reasonable excuse by the revisionist and thus, in terms of the mandate of Section 10(d), the penalty ought not to have been imposed.
7. Reliance is placed by the counsel for the revisionist on the judgment of the Gujarat High Court in the case of Morvi Cotton Merchants Industrial Corporation Ltd. Vs. The State of Gujarat (Sales Tax Cases-Vol.36 page 347), wherein the Gujarat High Court interpreted the phrase “without reasonable excuse” and held that for imposing a penalty, it was necessary to have alleged and proved by the Department. He further argues that in the present case no such burden has been discharged by the Department prior to imposing a penalty. He further places reliance on the judgment of the Supreme Court in the case of The Commissioner of Sales Tax, U.P. Versus M/S Sanjiv Fabrics (V.S.T.I. 2010 Vol-9, October Part-19), wherein Section 10(b) read with Section 10A of the CST Act was interpreted by the Supreme Court and was held as under :-
“22. In view of the above, we are of the considered opinion that the use of the expression “falsely represents” is indicative of the fact that the offence under Section 10(b) of the Act comes into existence only where a dealer acts deliberately in defiance of law or is guilty of contumacious or dishonest conduct. Therefore, in proceedings for levy of penalty under Section 10A of the Act, burden would be on the revenue to prove the existence of circumstances constituting the said offence. Furthermore, it is evident from the heading of Section 10A of the Act that for breach of any provision of the Act, constituting an offence under Section 10 of the Act, ordinary remedy is prosecution which may entail a sentence of imprisonment and the penalty under Section 10A of the Act is only in lieu of prosecution. In light of the language employed in the Section and the nature of penalty contemplated therein, we find it difficult to hold that all types of omissions or commissions in the use of Form `C’ will be embraced in the expression “false representation”. In our opinion, therefore, a finding of mens rea is a condition precedent for levying penalty under Section 10(b) read with Section 10A of the Act.”
8. He further places reliance on the judgment of the Supreme Court in the case of Commissioner of Central Excise, Chandigarh Versus Pepsi Foods Ltd (2010 (260) E.L.T. 481 (S.C), wherein the Supreme Court had the occasion to interpret Section 11AC of the Central Excise Act and held that for attracting and levying penalty under Section 11AC, the criminal intent or mens rea was a necessary constituent. Paragraph 19, 20, 21 and 23 of the said judgment are quoted herein below:-
“19. From a perusal of the aforesaid section, especially the underlined portion, it is clear that in order to attract the penalty provision under Section 11AC, criminal intent or `mens rea’ is a necessary constituent. In the reply to the show cause notice the stand which has been taken by the respondent is that it has been paying the duty and there is no malafide intention on its part to evade the payment of duty. The further stand is that the goods were cleared from the factory only on payment of duty. This stand which has been taken in the reply to the show cause notices was not found to be incorrect in the order-in-original. As such the imposition of penalty of the equal amount of duty under the order- in-original cannot be sustained.
20. It is well settled that when the statutes create an offence and an ingredient of the offence is a deliberate attempt to evade duty either by fraud or misrepresentation, the statute requires `mens rea’ as a necessary constituent of such an offence. But when factually no fraud or suppression or mis- statement is alleged by the revenue against the respondent in the show cause notice the imposition of penalty under Section 11AC is wholly impermissible.
21. The Court in this connection may remind itself of the fundamental principle “that an accused person cannot be convicted without proof of mens rea, unless from a consideration of the terms of the statute and other relevant circumstances it clearly appears that that must have been the intention of Parliament.” [See the decision of the House of Lords in Vane v. Yiannopoullos, (1964) 3 All ER 820, and the opinion of Lord Reid at page 823].
23. The aforesaid dictum of Lord Reid has been followed by this Court also. A reference in this connection may be made to the decision in Union of India v. Rajasthan Spinning & Weaving Mills reported in 2009 (238) E.L.T. 3 (S.C.). This Court considering Section 11AC of the Act held in para 19 at page 12 of the report as follows:
“19. From the aforesaid discussion it is clear that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section.”
9. Similarly the Supreme Court had the occasioned to deal with the similar issue in the case of CIT Versus Reliance Petroproducts Pvt. Ltd, 2010 Vol-11, SCC Page 762.
10. In the light of the said submissions, the submission of the counsel for the revisionist is that order imposing the penalty as upheld by the tribunal is liable to be set aside in the absence of ingredient for levying the penalty under Section 10 (d) being absent.
11. The counsel for the respondent strongly opposes the revision by arguing that the scope of revision before this Court is very limited one and is confined to its jurisdictional error, perversity and procedural irregularities. He further argues that before the tribunal, the revisionist had only argued that the acts of the revisionist were not with a malafide intent and apart from the said argument, no other argument was raised and the revisionist cannot raise fresh ground while arguing the present revision considering the limited scope of revisional power conferred upon the High Court. He thus argues that the revision deserves to be dismissed.
12. Considering the submissions made at the Bar and the on the questions so framed and recorded above, what is to be seen is whether the imposition of penalty, is an act which is automatic upon there being a default of the conditions, enabling the levy of penalty as specified under Section 10 or whether it is incumbent upon the Department to establish a case for imposition of levy and the assessee can escape the levy of penalty by discharging the responsibilities/conditions, specified in Section 10 (d).
13. On perusal of the decision cited and referred above, it is clearly well settled that the provisions of penalty as prescribed in the various statutes have to be interpreted in the light of the language used in the said statutes. It is clearly well settled that where the penalty prescribed under a fiscal statute, is dependent on happening of particular act without anything else to be established, no necessity is to be established and the penalty is a natural consequence of the happening of that event, however, in the physical institute, if a penalty is prescribed dependent on factor as specified in the said statutes, the penalty can be imposed only on the happening of the said event and after observing the conditions as prescribed. In the present case, the interpretation of Section 10(d) has come up for consideration before the Supreme Court in the judgment as recorded above, and the Supreme Court has after considering the statutory provisions has held that it is essential that the mens rea be Even otherwise on the plain reading of Section 10(d) the phrase “reasonable cause” has been duly discharged by the revisionist by producing the certificate of an Engineer, thus necessary ingredient for levy of penalty have neither been alleged established or proved in the present case, as such, for the reasons recorded above, the order of penalty cannot be justified and is quashed. The question nos. 1, 2 3 are answered in favour of the revisionist.
14. The revision is disposed of finally in terms of the above.
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