Mens rea under CGST Act, 2017

Introduction

One of the most controversial and debatable issues under taxation law is, perhaps the application of mens rea while imposing penalty for violation of statutory provisions. The conflicting judgments in this matter have made it more confusing. But one should not forget to notice that such pronouncements have been made by the Hon’ble Courts on the basis of the material facts, circumstances and relevant enactments of a particular statue. The provisions relating to penalty should be construed strictly and there should not be any ambiguity in such provisions .As there are really some stringent provisions in the CGST ACT, regarding imposition of penalty, it will be pertinent to analyse the matter in details.

What is mens rea

A penal liability can arise either from a criminal or civil wrong. There are three aspects in penal liability and those are conditions, incidence and the measure of penal liability. As regards the conditions of penal liability, it is expressed in the maxim actus non facit reum, nisi mens sit rea. This means that the act does not constitute a guilt unless it is done with a guilty intention. The law deems a person fit subject for penal discipline when he has committed a prohibited or prescribed act with a guilty mind. There must be two conditions before fixing penal liability. The first condition is the actus reus or prescribed act. Salmond calls it physical or material condition of liability. If there is no act there can be no punishment. The second condition of penal liability is mens rea or guilty mind. An act is punishable only if it is done intentionally or negligently. Intention and negligence are the alternative forms in which mens rea can exhibit itself. When the law prohibits an act, it prohibits it in respect of its origin, its circumstances and its consequences. Out of numerous circumstances and endless chain of consequences, law selects some as material and they alone constitute the wrongful act, the rest being irrelevant. Mens rea must extend to the three parts of the act viz. the physical doing or not doing, the circumstances and the consequences. If mens rea does not extend to any part of the act, there should be no guilty mind behind the act and obviously no penal provision can be invoked.

Act

There is no textbook on criminal law which does not begin with, or early make, the assertion that every crime is composed of an act and intent. By itself such a statement is misleading. For even in ordinary parlance we do not refer to that which is not the result of some sort of mental activity, popularly referred to as intent or voluntariness, as an act. Thus, if I am engaged in the activity of writing words on paper I do so because I intend to do so, which is to say that the event of writing would not have resulted but for my brain’s command to my hand to bring about the event. Thus, intent is not something separate or in addition to the act, it is rather a part thereof. An act, therefore, is a psycho-physical event. But not every psycho-physical event is an act because we know of human behaviour which does not result from any conscious order of the brain, which is, rather, the result of an unconscious mental drive, perhaps the result of disease -though not necessarily so-in any event, of forces emanating from the unconscious mind over which the individual has no instantaneous control.

Thus, we can truly talk of an act, as embodying the element of a conscious functioning of the mind; a willed muscular contraction, which incurs moral or legal liability only by virtue of the circumstances in which it is committed or the consequences it produces. An act may be mischievous in two ways- either in its actual results or in its tendencies. The first consists in those in which the act is wrongful only by reason of accomplished harm which in fact ensues from it. The second consists of those in which the act is wrongful by reason of its mischievous tendencies, as recognised by the law, irrespective of the actual issue.

Mens rea (guilty mind)

The conditions of penal liability are sufficiently indicated by the maxim, actus non facit reum, nisi mens sit rea. One of the greatest contributions of the Penal Code is restricting mens rea elements to four clearly defined types of culpability (blameworthiness). The four types of culpability were “purposely”, “knowingly”, “recklessly” and “negligently”. Almost all the statues largely adopted this same format but some have replaced “purposely” with “intentionally” and “negligently” with “criminal/ gross negligence”. It is important to note that these forms of mens rea, intent or culpability never stand alone. They all apply to or modify some other element of the offence, such as the act element.

Culpable mental states are classified according to relative degrees, from highest to lowest, as follows:

(1) Intention

(2) Knowing

(3) Reckless

(4) Negligence

Intention

Intention is the purpose or design with which an act is done. It is foresight of the act, coupled with the desire of it. Such foreknowledge and desire are the cause of the act. A person acts intentionally, or with intent, with respect to the nature of his conduct or to a result of his conduct, when it is his conscious objective or desire to engage in the conduct or cause the result. This is a subjective form of culpability. Intention requires something more than mere foresight of the consequences, namely the purposeful doing of a thing to achieve a particular end. A man’s intention ought to be judged by his act and not from what may be in his mind. It should be ascertained by taking into consideration the entire transaction.

Knowing

A person acts knowingly, or with knowledge, with respect to a result of his conduct when he is aware that his conduct is reasonably certain to cause the result. Like intentionally, knowingly is a totally subjective state of culpability. It must be proved that the person was aware of the relevant elements. Knowledge applies to or modifies (1) the nature of the conduct (2) the existence of certain circumstances (3) the result or harm. Knowingly and intentionally are frequently grouped together in an offence.

Reckless

A person acts recklessly, or is reckless, with respect to circumstances surrounding his conduct or the result of his conduct when he is aware of but consciously disregards a substantial and unjustifiable risk that the circumstances exist or the result will occur. The risk must be of such a nature and degree that its disregard constitutes a gross deviation from the standard of care that an ordinary person would exercise under all the circumstances as viewed from the actor’s standpoint.

Recklessness is both subjective and objective. The subjective portion is in the language “is aware of but consciously disregards.” The objective portion is indicated by the language “its disregard constitutes a gross deviation from the standard of care that an ordinary person would exercise under all the circumstances”.

Negligence

Negligence is culpable carelessness. It is the absence of such care as it was the duty of a person to use. Definitely carelessness excludes wrongful intention. These two are contrasted and mutually inconsistent mental attitudes of a person towards his acts and their consequences. A person acts with negligence, or is negligent, with respect to circumstances surrounding his conduct or the result of his conduct when he ought to be aware of a substantial and unjustifiable risk that the circumstances exist or the result will occur. The risk must be of such a nature and degree that the failure to perceive it constitutes a gross deviation from the standard of care that an ordinary person would exercise under all the circumstances as viewed from the actor’s standpoint. “Care” under the theory of negligence or obligation means the conduct demanded of a person in a given situation. As carelessness varies in degree, what degree of it is necessary to constitute culpable negligence? The law demands the amount of care which is reasonable in the circumstances of a particular case. Negligence, therefore, is the omitting to do something that a reasonable man would do, or the doing something which a reasonable man would not do.

Strict liability

These are the set of acts for which a man is responsible irrespective of the existence of either wrongful intent or negligence. They are exceptions to the general requirement of fault. The law does not enquire whether a person has committed the wrong intentionally, negligently or innocently. It merely presumes the presence of the formal conditions of liability. The main reason is the difficulty of secure adequate proof of intention or negligent of the wrong-doer. Therefore, whenever the strict doctrines of mens rea would too seriously interfere with the administration of justice by reason of the evidential difficulties involved in it, the law tends to establish a form of strict liability.

The most important wrongs of strict liability fall into three categories:-

A. Mistake of fact—an erroneous mental condition, conception or conviction induced by ignorance, misapprehension or misunderstanding of a fact.

B. Mistake of law – an erroneous conclusion to the legal effect even having full knowledge of the facts

C. Accident – every act which is not done intentionally is done either accidentally or by mistake. It is done accidentally when the consequences are unintended. It is done by mistake when the consequences are intended but the actor is ignorant of some material circumstances.

Court pronouncement

In assessing whether a mens rea element should attach to a certain offence, the courts primarily focus on legislative intent: did legislature intend to include a mens rea element when a statute is silent or, alternatively, did legislature intend to apply an existing mens rea element to every element of the offence? Whether an offence requires proof of a mens rea element is primarily a question of statutory interpretation: did legislature intend to include a mens rea element when drafting the statute? This is so, because the “definition of an offence is entrusted to the legislature, solely a creatures of statute. However, the express language of a statute is not always clear (1) which mental element should apply to a particular statute; or (2) to which elements of the crime a mens rea element should apply. To remedy this lack of textual clarity, the Court has applied a set of mens rea presumptions, which can be rebutted by evidence that legislature intended otherwise.

There have plethora of judgements both from the Hon’ble Supreme Court and different Hon’ble High Courts regarding this matter – e.g. C.A. Abraham vs. Income Tax Officer (1961) 41 ITR 425, Commissioner of Income Tax vs. Bhikaji Dadabhai & Co. ( 1961 ) 42 ITR 123 , Paras Nath Jaiswal vs. Commissioner of Sales Tax [ 1981 UPTC 1197 ], Hindustan Steel Ltd. vs. State of Orissa ( 1970) 25 STC 211 (S.C.), Hindustan Import Export Corporation vs. State of Tamil Nadu [ (1988) 69 STC 195 ( Mad. H.C. ) ], (Wide Terevelyan ‘s Life Macaulay ) had collected the surcharge inadvertently and not with any motive, the above observations have been necessitated., Kishorilal Rakesh Kumar vs. Commissioner Sales Tax ( 1885 ) 59 STC 323 (All. ), Rajam Textile vs. State of Tamil Nadu [ (1977) 39 STC 124 ( Mad. H.C. ), Jwala Industries , Nainital vs. Commissioner of Sales Tax , 1995 UPTC 1218 etc.

The essence of all the judgements is that mens rea is an essential ingredient of an offence but it is the legislative prerogative to exclude mens rea expressly or by necessary implication. The application of mens rea in fiscal law shall be only in such cases where the related penal provisions are so constructed that they warrant such application. The Legislature in its legal competence can always enact such provisions in fiscal law that the penalty may be imposed without the application of mens rea.

Provisions under CGST ACT.2017

Penal provisions as embodied in CGST ACT, 2017 are to be applied in the light of the aforesaid discussion and judicial pronouncements. Penalty is imposed for certain offences under CGST ACT, 2017. But “offence” has not been defined in the Act. Therefore its meaning can be explored from other Acts; e.g. in section 3(38) of the General Clauses Act has to be applied in different enactments. It is pertinent to note that section 3(38) of the General Clauses Act, 1897 embodies following provisions:

“Offence” shall mean any act or omission made punishable by any law for the time being in force. ”

To analyse the CGST ACT, the maxim actus non facit reum, nisi mens sit rea, has however no application to the offences under CGST ACT in its purely technical sense because the ingredient of various offences contain “expressed propositions” as to the “state of mind” of the wrong-doer. The provisions state whether the act must have been done “falsely”, “intentionally”, “fraudulently” or the like. So mens rea will mean one thing or another according to the particular offence. The guilty mind may thus be a fraudulent mind, or a dishonest mind, or a negligent or rush mind.

Below a table is given for various penal provisions where mens rea is required or not

Section	Ingredients of offence		Comment
	Act	Mens rea
73	i. Non-payment or short payment of tax ii. erroneous refund of tax iii. Wrong availment utilisation of input tax for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax.	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
74	i. Non-payment or short payment of tax ii. erroneous refund of tax iii. Wrong availment utilisation of input tax iv. Evasion of tax by reason of fraud or any wilful misstatement or suppression of facts	i. Fraud ii. Wilful misstatement iii. Suppression	i. Fraud — Criminal deception, dishonest artifice or trick, a false representation of a matter of fact. Fraud arises out of deliberate active role of representator about a fact which he knows to be untrue yet he succeeds in misleading the representee by making it belief it to be true. ii. Wilful— deliberate or intentional act and not accidental or inadvertence. A statement will not be misstatement only because full facts were not disclosed. Wilful means ‘with intent to evade tax’. iii. (A) Suppression – defined in section 74, explanation 2. (B) Suppression means a failure to disclose full and true information with the intent to evade tax. (C) no suppression of facts if assessee had a bona fide belief (D) no suppression if department knows the facts
122(1)(i)	i. Supply without issuance of invoice ii. Issue an incorrect or false invoice for any supply	i. No mens rea ii. false	i. strict liability ii. False means untrue, not according to the fact. A person is said to make a false document or false electronic record if he dishonestly or fraudulently— (a) makes, signs, seals or executes a document or part of a document (b) affixes any electronic signature on any electronic record
122(1)(ii)	i. issuance of invoice or bill without supply in violation of the provisions of this Act or the rules made there under	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(iii)	i. collection of tax ii. failure to pay the same to the Government beyond a period of three months from the date on which such payment becomes due	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(iv)	i. collection of any tax ii. collection of tax contravenes the provisions of this Act iii. fail to pay the same to the Government beyond a period of three months from the date on which such payment becomes due	No mens rea	i. Strict liability ii. Fail here means non-performance of duty or obligation
122(1)(v)	i. failure to deduct the tax in accordance with the provisions of sub-section (1) of section 51 ii. deduct an amount which is less than the amount required to be deducted under sub-section (1) of section 51 iii. Failure to pay to the Government under sub-section (2) of section 51, the tax deducted.	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(vi)	i. failure to collect tax in accordance with the provisions of sub-section (1) of section 52 ii. collection an amount which is less than the amount required to be collected sub-section (1) of section 52 iii. failure to pay to the Government the amount collected as tax under sub-section (3) of section 52	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(vii)	i. taking or utilizing input tax credit ii. no actual receipt of goods or services or both either fully or partially iii. taking or utilizing contravenes the provisions of this Act or the rules made there under	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(viii)	i. obtain refund of tax under this Act ii. fraudulent intent	fraudulent intent	Something done, made, or effected with a purpose or design to carry out a fraud.
122(1)(ix)	i. taking or distributing input tax credit in contravention of section 20, or the rules made there under	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(x)	i. falsification or substitution of financial records ii. production of fake accounts or documents iii. furnish false information or return with an intention to evade payment of tax due under this Act	i. Falsify or substitute ii. False iii. Intention to evade tax	i. falsify means to counterfeit or misrepresent esp. to tamper with a document, record etc. by interlineation, obliteration or some other mens substitution means replacement; the act, process, or result of substituting one thing for another ii. False means untrue, not according to the fact. A person is said to make a false document or false electronic record if he dishonestly or fraudulently— (a) makes, signs, seals or executes a document or part of a document (b) affixes any electronic signature on any electronic record
122(1)(xi)	fail to obtain registration	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(xii)	furnish false information with regard to registration particulars, either at the time of applying for registration, or subsequently	False	False means untrue, not according to the fact. A person is said to make a false document or false electronic record if he dishonestly or fraudulently— (a) makes, signs, seals or executes a document or part of a document (b) affixes any electronic signature on any electronic record
122(1)(xiii)	obstruction or prevention of any officer in discharge of his duties under this Act	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(xiv)	Transportation of any taxable goods without the cover of specified documents	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(xv)	i. suppress turnover ii. suppression results evasion of tax	Suppression	Already explained
122(1)(xvi)	fail to keep, maintain or retain books of account and other documents in accordance with the provisions of this Act or the rules made there under	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(xvii)	i. fail to furnish information or documents called for by an officer in accordance with the provisions of this Act or the rules made there under ii. furnish false information or documents during any proceedings under this Act	i. No mens rea ii. False	i. Strict liability — Breach of provisions of law is enough to impose penalty
122(1)(xviii)	Supply, transportation or storage of any goods which a person has reasons to believe are liable to confiscation under this Act	Reason to believe	A person is said to have “reason to believe” a thing, if he has sufficient cause to believe that thing but not otherwise [ sec 26, IPC 1860] It contemplates an objective determination based on intelligent care and deliberation involving judicial review as distinguished from purely subjective considerations.
122(1)(xix)	i. issue any invoice or document ii. using of the registration number of another registered person	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(xx)	tampering with, or destroying any material evidence or documents	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(1)(xxi)	disposing off or tampering with any goods that have been detained, seized, or attached under this Act	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty
122(2)	Same as section 73 and 74		Same as section 73 and 74
122(3)	i. Aids or abets any of the offences specified 122(1) ii. Possesses, transports, stores, supplies , purchases etc. goods iii. Receives or deals with supply of services iv. Fails to appear before the officer of central tax when summoned v. Fails to issue invoice as per provisions or invoice is not accounted in the books	i. Aid or abatement ii. Knowing and reason to believe iii. Knowing and reason to believe	i. Aid mens to assist or facilitate the commission of an offence. Abatement – A person abets the doing of a thing, who— First.—Instigates any person to do that thing; or Secondly.—Engages with one or more other person or persons in any conspiracy for the doing of that thing, if an act or illegal omission takes place in pursuance of that conspiracy, and in order to the doing of that thing; or Thirdly.—Intentionally aids, by any act or illegal omission, the doing of that thing. Explanation 1.—A person who, by wilful misrepresentation, or by wilful concealment of a material fact which he is bound to disclose, voluntarily causes or procures, or attempts to cause or procure, a thing to be done, is said to instigate the doing of that thing [ sec.107; IPC 1860] ii. Knowing and reason to believe — already explained.
129	Transportation any goods or storage any goods while they are in transit in contravention of the provisions of this Act or the rules made there under,	No mens rea	Strict liability Breach of provisions of law is enough to impose penalty

But one should not forget the general disciplines in imposing penalty as provided in section 126. The general principles are:-

1. No penalty for minor breaches of tax regulations or procedural requirements.
2. No penalty an omission or mistake in documentation which can be easily rectifiable if the same is an error apparent on the face of record.

(Here documentation means official or legal documents that are needed in order to prove something or the activity of recording facts relating to a particular subject.)

3. The penalty imposed under this Act shall depend on the facts and circumstances of each case and shall commensurate with the degree and severity of the breach
4. An opportunity of being heard should be given.
5. Voluntary disclosure may be a mitigating factor when quantifying penalty.
6. The provisions of section 126 shall not apply in such cases where the penalty specified under this Act is either a fixed sum or expressed as a fixed percentage.

Conclusion

Where a statute creates an offence, no matter how comprehensive and absolute the language of the statute is, it is usually understood to be silently requiring that the element of mens rea be imported into the definition of the offence so defined, unless a contrary intention is express or implied. Mens rea is an essential ingredient of an offence unless the statute expressly or by necessary implication excludes it. The mere fact that the object of the statute is to promote welfare activities or to eradicate a grave social evil is by itself not decisive of the question whether the element of guilty mind is excluded from the ingredients of an offence. Mens rea by necessary implication may be excluded from a statute only where it is absolutely clear that the implementation of the object of the statute would otherwise be defeated.

Opinion is extremely personal.