Madras High Court
Bhuvaneshwari Traders vs State Of Tamil Nadu on 12 August, 1997
Equivalent citations: [2006]143STC608(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
ORDER R. Jayasimha Babu, J.
1. The assessee is registered under the Central Sales Tax Act, 1956 as a dealer. In the registration certificate obtained by him on November 25, 1975 the assessee was authorised to purchase "paints, varnish, turpentine, coal tar and pitch recin, chalk powder, brush, hardware materials, flint sand paper, emery sand paper and emery cloth". Grease, and adhesive were not included in the certificate. The assessee nevertheless purchased grease and adhesive in the assessment year 1981-82 by using the "C" forms for that purpose. The assessee had also purchased key chains worth about Rs. 2,100 during that period though the assessee had not been authorised to make use of "C" forms for that purpose. The Commercial Tax Officer by his order dated June 4, 1983 in a proceeding under Section 10-A of the Central Sales Tax Act, held that the purchase of grease, adhesive and key chain by using "C" forms and availing of the concessional rate of tax at 4 per cent in respect of those purchases was violative of Section 10(b) of the Act as these items "are distinct and separate items of goods and cannot be categorised as falling under the goods mentioned in the CST certificate". He, therefore, levied penalty of Rs. 26,670 being 1V6 times the tax payable at the rate of 10 per cent on the turnover of Rs. 1,77,801.75 in relation to these three items. The assessee's case before the Commercial Tax Officer was that these goods are allied or similar to the goods mentioned in the certificate of registration and, therefore, were covered by the registration certificate. That plea was rejected by the Commercial Tax Officer.
2. Before the Appellate Assistant Commissioner, the assessee contended in addition to what had been contended before the assessing officer, that they had got grease and distemper included in the registration certificate on July 12, 1982 and this conduct was sufficient proof of their bona fides. The appellate authority accepted the assessee's case that it had issued the "C" forms under bona fide belief that the items were deemed to have been included in the registration certificate. Therefore, it allowed the appeal in respect of penalty that had been imposed relating to the purchase of grease and adhesives.
3. The State having filed an enhancement petition before the Sales Tax Appellate Tribunal, the Tribunal, after considering the facts and law, held that the assessee could not equate the hardware materials to hardware machines and claim that grease is incidental to the use of machinery and, therefore, deemed to have been covered by the entries in the certificate. Regarding the adhesives, the Tribunal held that adhesive is not a chemical, and it does not fall within any of the entries in the certificate of registration, and cannot be said to be incidental to the use of any of the items mentioned therein. The Tribunal, after recording these findings, observed that the appellant should, therefore, have known that they cannot use the "C" forms for the purchase of grease, adhesive and key chains which are not included in the certificate of registration. The Tribunal examined the claim of the assessee that it had acted bona fide, but rejected that claim. The Tribunal, while rejecting the claim, referred to a decision of this Court in Coimbatore District Central Co-operative Supply and Marketing Society Ltd. v. State of Tamil Nadu [1980] 45 STC 21 wherein it was laid down that "bona fide" is not an expression of art, but is a positive circumstance which has to be established by relevant and acceptable materials. The court found that the assessee had not placed any such material. The Tribunal concluded by holding that the appellants had illegally used "C" forms and had to pay the penalty. It however, reduced the amount of penalty to 50 per cent of the tax due on the turnover of Rs. 1,77,801.75 at the rate of 6 per cent which is the difference between 10 per cent tax to be collected and 4 per cent already paid, as in their opinion that would meet the ends of justice.
4. Learned counsel for the assessee submitted before us, that the ingredients of Section 10(b) of the Act have not been established on the facts of this case and, therefore, the Tribunal was in error in allowing the enhancement petition and imposing a penalty. Counsel submitted that the essential ingredient of Section 10(b) of the Act is false representation. Counsel submitted that the representation should have been untrue to the knowledge of the maker, and had been deliberately made with a view to evade the payment of tax at the higher rate. It was further submitted that in a case where an assessee had acted bona fide by ignorance, inadvertance or even negligence, such conduct on the part of the assessee would not amount to false representation. The further submission was that the authorities are bound to record a specific finding that the representation by the dealer was false, before any penalty is imposed on the dealer for the use of "C" forms, in respect of goods not specifically mentioned in the certificate of registration.
5. Before considering these submissions of the learned Counsel, it is useful to first examine the scheme of Sections 10 and 10-A of the Act.
6. Section 10 of the Act deals with penalties. It consists of seven categories of violations of the provisions of the Act, and provides for punishment for such violation which could be simple imprisonment which may extend to six months, or fine, or both, and in case of continuing offence, a daily fine which may extend to Rs. 50 for every day during which the offence continues.
7. The violations enumerated in Clauses (b), (c) and (d) of Section 10 of the Act are not necessarily to result in prosecution, with the possible imposition of sentence of imprisonment or fine or both. An alternative is provided in respect of these violations in Section 10-A of the Act.
8. Section 10-A of the Act provides for imposition of penalty in lieu of prosecution. It provides that if any person purchasing goods is guilty of an offence under Clause (b) or Clause (c) or Clause (d) of Section 10 of the Act, the authority who granted, or is competent to grant to that person, a certificate of registration under the Act, may, after giving him a reasonable opportunity of being heard, by order in writing, impose upon him by way of penalty a sum not exceeding 11/2 times the tax which would have been levied under Sub-section (2) of Section 8 of the Act, in respect of the sale to him of the goods if the sale had been a sale falling within that Sub-section. The proviso to Section 10-A(1) of the Act bars prosecution for an offence in respect of which a penalty is imposed. Section 10-A(2) of the Act provides that the penalty imposed under Section 10-A(1) is to be collected in the manner provided in Sub-section (2) of Section 9 of the Act. That provision provides that procedural provisions in the State Act are to be applied in respect the Central sales tax as well, unless a different intention is disclosed in the Central Act.
9. The violations specified in Clauses (b), (c) and (d) of Section 10 of the Act are the following :
10(b) being a registered dealer, falsely represents when purchasing any class of goods that goods of such class are covered by his certificate of registration ; or
(c) not being registered dealer, falsely represents when purchasing goods in the course of inter-State trade or commerce, that he is a registered dealer ; or
(d) after purchasing any goods for any of the purposes specified in Clause (b) or Clause (c) or Clause (d) of Sub-section (3) of Section 8 fails, without reasonable excuse, to make use of the goods for any such purpose ;
The violations mentioned in Clauses (b) and (c) are acts which result in loss of revenue to the State inasmuch as those goods, not covered by registration certificate can only be purchased by paying the higher rate of tax at 10 per cent if obtained by a person who is either not registered as a dealer, or though registered has not included in the certificate of registration, the goods obtained by him at a concessional rate. The result of such action of obtaining goods at concessional rate, even though not eligible to enjoy such the concession is loss of revenue to the State to the extent of difference between the tax properly payable, viz., 10 per cent and the tax actually paid which is 4 per cent. Clause (d) of section 10 of the Act deals with a situation where a dealer who has obtained goods at a concessional rate of tax fails to make use of the goods for the purposes for which it was allowed to be obtained at concessional rate, without reasonable excuse for such failure.
10. The violation of law spelt out in Clause (a), Clause (aa), Clause (e) and Clause (f) of Section 10 of the Act must necessarily be dealt with by prosecuting the offender, and such offender cannot avoid prosecution by paying penalty as these violations are excluded from the purview of Section 10-A of the Act.
11. A proceeding under Section 10-A of the Act being an alternative to prosecution, cannot be treated as equivalent to a prosecution, and the standard of proof required in a prosecution need not be imported into a proceeding under Section 10-A of the Act. The procedure under Section 10-A of the Act is simple and speedy. The penalty that is imposed is monetary, and there is no possibility of a sentence of imprisonment, or a conviction which could possibly cast slur on the offender, i.e., the person violating the provisions of Clauses (b), (c) or (d) of Section 10 of the Act.
12. Section 10-A of the Act exclusively deals with tax delinquency and it does not require the application of the standards of criminal justice into a proceeding under Section 10-A of the Act. It is necessary to keep this distinction in view while considering the legality or otherwise of a penalty imposed under Section 10-A of the Act. It is also necessary to keep in view the fact that Clauses (b) and (c) of Section 10 of the Act deal with cases where the action of the dealer, has deprived the State of the revenue properly receivable by reason of the dealer having paid a lesser rate of tax, than the rate properly payable. Section 10-A of the Act does not make the imposition of penalty at the rate of 150 per cent of the tax mandatory. That is only the ceiling, and discretion is vested in the authority to impose a penalty which can be at a rate below 150 per cent. The extent of the penalty imposed will depend upon the gravity of the conduct subject however to any violation of the provisions of Clauses (b) and (c) of Section 10 of the Act being penalised normally atleast to the extent of the amount of tax which has not been paid.
13. We shall now advert to the decisions relied upon by the learned Counsel for the petitioner in support of his submissions. In Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211, the court dealt with a penal provision under the Orissa Sales Tax Act, 1947 and held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law, or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. The court also observed that the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
14. In the case of State of Tamil Nadu v. Kodaikanal Motor Union (P.) Ltd. [1986] 62 STC 271, the apex Court held that the penalty to be levied under Section 10-A of the Act, is on the basis of the normal tax and not the concessional rate of tax. The court held that Section 10-A(1) of the Central Sales Tax Act, 1956, as amended in 1973, makes it clear that, penalty should be worked out at the rate of tax which would have been levied if the offence had not been committed. The assesses would not have committed any offence only if, he had carried out the undertaking given by him in his declaration in form "C", or if he purchased the goods without giving any declaration, thereby incurring liability to pay normal rate of tax as contemplated by Sub-section (2) of Section 8. One who commits default cannot be said to have carried out the undertaking given by him. The court also referred to the scheme of Section 8 of the Act, and held that the scheme indicates that concessional rates contemplated by Sub-section (1) thereof would be available only with reference to those goods which are covered by the declarations in form "C", and the moment it is found that in respect of a particular quantity of goods, the undertaking given by the assessee in form "C" declaration has not been carried out, the goods are presumably goods in respect of which no undertaking was existing.
15. In Commercial Taxes Officer v. Foreign Import & Export Association [1994] 95 STC 101, the apex Court declined to interfere with the order of the High Court which had held that the assessee cannot be said to have acted deliberately in contravention of law without any reasonable excuse in undertaking on job basis the work of processing goods belonging to other dealers meant for sale.
16. In State of Rajasthan v. Jaipur Udyog Limited [1972] 30 STC 565, it was held by the apex Court that it was impossible to say that the registered dealer was guilty of making false representation, when it was found by a Member of a Board and by two Judges of the High Court that assessee was entitled to the preferential rate of tax, having regard to the manner in which goods were described in the registration certificate. The dealer in that case was engaged in the manufacture of cement and the certificate of registration merely set out its business as "wholly manufacture of cement". The purchase of bull-dozers, dumpers and tipping wagons paying tax at the preferential rate of tax, by the dealer, having regard to the description of the goods of which he was entitled to obtain for the purpose of manufacture of cement, was held as falling within the class of goods which the dealer was entitled to obtain at the preferential rate of tax.
17. The decisions of this Court under Section 10-A of the Act have not always been consistent, while in some of the decisions such as, State of Tamil Nadu v. Betala Industries [1993] 88 STC 328, Sri Lakshmi Machine Works v. State of Madras [1973] 32 STC 407 and in Dharmapuri District Co-operative Sugar Mills Limited v. State of Tamil Nadu [1991] 82 STC 296, it was held that it was necessary to find out whether the act or omission of the assessee resulting in commission of the violations of the Act and dealt with in Clauses (b), (c) and (d) of Section 10 of the Act, mens rea was present, in Kumudham Printers (P) Ltd. v. State of Tamil Nadu [1994] 95 STC 453, State of Tamil Nadu v. Lakshmi and Co. [1992] 87 STC 345 and in Vijaya Electricals v. State of Tamil Nadu [1991] 82 STC 268, it was held that there was nothing in Section 10-A of the Act which requires that mens rea must be established before penalty can be levied under that provision.
18. The High Court of Kerala in the case of P.K. Varghese and Sons v. Sales Tax Officer, Special Circle, Ernakulam [1964] 16 STC 323 and in Rajalakshmi Textiles Finishing Mills v. Sales Tax Officer [1976] 38 STC 302, has taken the view that mens rea is an essential ingredient of an offence under Section 10(b) of the Act.
19. Having given our anxious consideration to the object and the scheme of Sections 10 and 10-A of the Act in the light of the other provisions of the Act, we find it difficult to accept the submission that mens rea is an essential ingredient of the violations of the Act referred to in Sections 10(b), (c) and (d) of the Act. As already pointed out, a proceeding under Section 10-A of the Act is not a prosecution, and it is a proceeding primarily meant to recoup the amount of tax lost to the Revenue by reason of the wrongful conduct of the person committing the violations enumerated in Clauses (b), (c) and (d) of Section 10 of the Act and to a limited extent penalise that conduct. While imposing the penalty under the section, the standards required to be met in a criminal prosecution are not to be imported into the proceeding under Section 10-A of the Act. The words used in Clauses (b), (c) and (d) of Section 10 of the Act are to be construed in a manner understood by the businessmen who are required to conform to the requirements of this Act. The purchase of goods by using "C" forms which may only be used in respect of goods included in one's registration certificate, can only be with the object of availing the concession, and to avoid paying the higher rate of tax. The person using the form in that manner is conscious of the purpose for which "C" form is being used. Such person is also equally aware of the need to register oneself as a dealer, and to have the items in respect of which "C" forms are to be used, included in that certificate. The use of these forms even when the goods are not mentioned in the certificate of registration, or in cases where a person has not even registered himself, has to be normally regarded as resulting in false representation that the goods are included in the certificate even when they are not included. Such an act is an act in conscious disregard of the obligation of the person to conform to the requirements of the Act, and falls within the ambit of law laid down by the apex Court in Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211.
20. We are in respectful agreement with what has been stated in the case of Vijaya Electricals [1991] 82 STC 268 (Mad.), in the judgment delivered by Dr. A.S. Anand, C.J. (as he then was) that, if a dealer knowing what was contained in the certificate of registration, used the "C" form declarations in respect of goods not mentioned in the certificate, the representation made by the dealer is "false". We are also in agreement with the view expressed therein, that the subsequent attempt by a dealer to have the goods in respect of which the violation has been committed, included in the certificate of registration, would be indicative of the fact that the dealer had not acted in good faith when it had used "C" forms, in respect of those goods which had not been included in the certificate.
21. Bona fide conduct which can be put forth as a mitigating circumstances in rare cases for avoiding the imposition of penalty must be established by the assessee ; the burden is not on the Revenue. It is only in cases where there is a reasonable possibility of the goods not included in the certificate, and obtained at concessional rates being covered by the goods described in the certificate of registration, the conduct of the dealer can be regarded as bona fide, the benefit of any ambiguity in the description of goods being given to the dealer. In cases where the goods purchased by the use of the "C" forms are not, and cannot be regarded as covered under any of the classes of goods mentioned in the certificate of registration, there is no scope for a dealer claiming to have acted bona fide. A subsequent action on the part of such a dealer to have included in the registration certificate, such goods would not establish bona fides. Such an act performed by a dealer after he had been caught in his violation of the law, cannot be regarded as proof of his bona fide conduct. It is also necessary that the dealer who claims to have acted bona fide should be able to show, in addition to the goods being relatable to those mentioned in the certificate, that it was permissible for such a dealer to have those goods included in his certificate. It is only when these tests are met simultaneously that a dealer can be said to have acted bona fide.
22. The facts of this case which have already been adverted to, show in no uncertain terms that grease and adhesive obtained by the dealer by using "C" forms were not covered under any of the heads mentioned in the registration certificate. The conduct of the dealer in including grease in his registration certificate subsequently, does not establish the bona fides of the dealer. The amount of penalty levied by the Tribunal is less than the tax which the dealer should have paid had the dealer bought the goods without the use of the "C" forms. The Tribunal has been lenient to the extent to which it has imposed the penalty. Even after the penalty is paid, the State would have still not realised 10 per cent of the value of the goods as tax, which it otherwise would have realised, on goods purchased without the "C" forms.
23. The "penalty" referred to in Section 10-A is in fact in part compensatory, to the extent it enables the State to receive the amount of tax payable on purchases made without the "C" forms, and it is only the amounts if any directed to be recovered under this section, in excess of four plus six per cent, that is penal. It is not the object of this section to reward those who violate the law by imposing as "penalty" an amount which taken along with the amount paid with "C' forms would still be less than the amount payable had "C" forms not been used. "C" forms can only be used by those who are eligible and authorised to do so, under the Act.
24. Recovery of the balance amount, i.e., the difference between the normal rate and the concessional rate, must be the norm in all cases where the forms have been used by a person who is not authorised to do so, unless such use is by a person who was eligible to have such goods included in his certificate of registration, and the goods already included in the certificate were so described as to justify the dealer reasonably regarding the same as including the goods in question. Such recovery would only be compensatory and not penal. The "penal" element in the penalty imposed under Section 10-A of the Act is only the amount in excess of the compensatory part. The extent of the penalty to be imposed is a matter of sound judicial discretion regard being had to the conduct of the assessees and the surrounding circumstances.
25. We do not find any merit in this revision petition. Petition is dismissed.