Kerala High Court
Apollo Tyres Limited vs Assistant Commissioner (Assmt.) Sales ... on 5 March, 1999
Equivalent citations: [2003]131STC350(KER)
Author: J.B. Koshy
Bench: J.B. Koshy
JUDGMENT J.B. Koshy, J.
1. Petitioner is a company incorporated under the Companies Act. It has got a factory in Kerala State engaged in the manufacture of automobile tyres and tubes. Petitioner is a registered dealer under the Kerala General Sales Tax Act, 1963 and the Central Sales Tax Act, 1956. For the purpose of manufacture of automobile tyres and tubes, petitioner purchased raw rubber, carbon black and other chemicals.
2. Section 5 of the Kerala General Sales Tax Act, 1963 (hereinafter referred to as "the KGST Act") was amended by Section 2(d) of the Amendment Act 3 of 1983. Section 5(7) was inserted with effect from October 14, 1982. As per this sub-section the rate of tax of the goods which arc taxable at a rate higher than four per cent when sold to industrial units for use in the production of finished products inside the State for sale shall be at the rate of only four per cent. For getting the benefit declaration under form 18 from the purchaser is to be given. The above sub-section reads as follows :
"(7) Notwithstanding anything contained in Sub-section (1) or Sub-section (2), the tax payable by a dealer in respect of any sale of industrial raw materials or packing materials, which is liable to tax at a rate higher than four per cent, when sold to industrial units for use in the production of finished products inside the State for sale, or for packing of such finished products inside the State for sale, as the case may be, shall be at the rate of only four per cent on the taxable turnover relating to such industrial raw materials or packing materials, as the case may be :
Provided that this sub-section shall not apply where the sale of such finished products is not liable to tax either under this Act or under the Central Sales Tax Act, 1956 (Central Act 74 of 1956), or when such finished products are exported out of the territory of India :
Provided further that the provisions of this sub-section shall not apply to any sale unless the dealer selling the goods furnishes to the assessing authority in the prescribed manner a declaration duly filled in and signed by the dealer to whom the goods are sold, containing the prescribed particulars in the prescribed form."
3. In view of the above section petitioner purchased raw materials from the State itself and filed declaration. In view of the above declaration only four per cent sales tax was collected by the selling dealer and paid to the Government. A reading of the above subsection shows that for getting the benefits following conditions are to be satisfied : (1) It should be used for the production of finished products inside the State ; or for packing of such finished products inside the State; (2) the finished products should be for sale; (3) sale of such finished products is liable to tax either under the KGST Act or under the Central Sales Tax Act (first proviso); and (4) a declaration should be filled in and signed by the dealer to whom the goods are sold. As per Rule 28, declaration should be filed in form 18. In the declaration the purchasing dealer should state that the raw materials purchased are intended to manufacture inside the State for sale and finished products are liable to tax under the KGST Act, 1963 or under the Central Sales Tax Act.
4. Part of the petitioner's products were removed to branches situated outside the State by way of stock transfer and such finished goods did not suffer any sales tax under the KGST Act or under the Central Sales Tax Act. During the period from December, 1982 to March, 1983, petitioner has effected the following transactions :
Sale within Kerala : Rs.
123.33 lakhs Inter-State sales : Rs. 247.97 lakhs Transferred to branches outside Kerala : Rs. 1697.89 lakhs
Since no sales tax as per the KGST Act or Central Sales Tax Act was levied on the stock transfer, the assessing authority was of the view that the benefit of the above section, concessional rate of duty at four per cent cannot be granted to the petitioner to the corresponding quantity. Therefore, there is tax evasion and declaration under form 18 also was not correct. Because of the wrong declaration the selling dealer has collected only four per cent tax and there is loss of revenue. Therefore, it proposed penalty under Section 45A(1)(g). Section 45A(1)(g) provides as follows :
"45A. Imposition of penalty by officers and authorities.--(1) If the assessing authority or the Appellate Assistant Commissioner is satisfied that any person,--
(a) to (f)........
(g) has acted in contravention of any of the provisions of this Act or any rule made thereunder, for the contravention of which no express provision for payment of penalty or for punishment is made by this Act;
such authority or officer may direct that such person shall pay, by way of penalty, an amount not exceeding twice the amount of sales tax or other amount evaded or sought to be evaded where it is practicable to quantify the evasion or an amount not exceeding five thousand rupees in any other case."
After hearing the petitioner, maximum penalty, that is twice the amount of tax alleged to have evaded, was imposed by exhibit P1 order which was confirmed in revision by exhibit P2 order which was further confirmed by exhibit P5 order in the second revision by the Board of Revenue (Taxes). Exhibits P1, P2 and P5 are under challenge in this original petition.
5. The contentions of the petitioner are: (1) Section 5(7) of the KGST Act is not applicable to the purchasing dealer as liability to pay tax is only on the selling dealer. Consequently, penalty cannot be imposed under Section 45A(1)(g) of the KGST Act. Since there is no statutory liability on the purchasing dealer to pay tax, there is no evasion of tax or violation of the provisions of the Act. (2) There is no violation of the provisions of the Act by the petitioner as the goods purchased were utilised for manufacturing inside the State and it is for sale. There is no provision in the Act that it should be sold only in the State of Kerala. Therefore, there is no violation of the provisions of the Act or declaration made thereunder resulted no evasion of tax. (3) Imposition of penalty under Section 45A is illegal in nature. Unless there is deliberate intention on the part of the petitioner to violate any of the provisions of the Act, no penalty can be imposed and even if there is technical violation of the Act the quantum of penalty need not be fixed at the maximum and there is no discussion regarding this aspect. The imposition of penalty at twice the amount of tax alleged to have been evaded is arbitrary and without application of mind, I may consider these three grounds in seriatim.
6. It is not disputed that the petitioner has filed declaration under form 1.8 for obtaining the benefit of concessional sales tax. Only because of the declaration filed the selling dealer has collected four per cent sales tax, which resulted in non-collection of tax in full. In other words, but for the declaration full sales tax would have been payable by the petitioner. Under Section 45A any person can be imposed with penalty. It need not be on the selling dealer alone or dealer who is liable to pay tax directly to the Government. In view of the wrong declaration only four per cent tax (concessional rate) was collected and paid and there is loss to the Revenue. Whether the selling dealer is liable to pay penalty, etc., was considered by a division Bench of this Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Bharat Refineries Limited [1978] 42 STC 225. Following the Supreme Court decision in Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner, Sales Tax [1978] 41 STC 409 this Court held as a result of the purchasing dealer's declaration if lesser tax is collected by the selling dealer no penalty can be imposed on the selling dealer. This Court held as follows :
"When once the declaration in the prescribed statutory form is obtained from the purchasing dealer and furnished to the authorities, the selling dealer satisfies the requirements of the statute and he is entitled to claim the concessional rate of one per cent, irrespective of the correctness of the declaration or the manner in which the declarant subsequently acts. Form 18 shows that the declarant need not even specify the goods he intends to manufacture or the nature of the use. The selling dealer is entitled to act on the meagre particulars furnished, and there is no legislative intention to put him on an impossible enquiry as to the correctness of the declaration. The taxing event is the sale to the purchasing dealer. If the purchaser misrepresents or subsequently misbehaves, the 'legislative wrath' falls upon him, as Section 46(2)(d) of the Act provides for his imprisonment and for fine."
In view of the above decision the first contention of the petitioner that purchasing dealer cannot be imposed with penalty even though lesser tax was paid only on the basis of his declaration, cannot be accepted merely because liability to pay tax to the Government is on the selling dealer.
7. It is true that in the sub-section under question or in the declaration there is no obligation to the purchasing dealer to sell the finished goods manufactured by utilising the raw materials purchased by getting benefit of this sub-section in the State. Duty is to utilise the above raw materials for the manufacture of finished products within the State. The petitioner had used the raw materials purchased on the basis of the declaration in Kerala State only for the manufacture of finished products. The second condition is that it should be for sale. It is not disputed that the finished products were finally sold. There is no condition that sale should be made only in Kerala State. But there is another condition in the first proviso which is incorporated in the declaration also that such finished products should be liable to tax either under the KGST Act or under the Central Sales Tax Act. It is not disputed that majority of the finished goods manufactured in the petitioner's factory using these raw materials during the period from December, 1982 to March, 1983 were transferred to outside the State by way of branch transfer without paying tax either under the KGST Act or under the Central Sales Tax Act. Only in that proportion the finished goods which were transferred to branches outside Kerala without payment of sales tax either under the KGST Act or under the Central Sales Tax Act, tax was alleged to have evaded, violating the provisions of the declaration. It is clearly mentioned in the declaration which was duly verified and certified as correct and complete to the best of the knowledge and belief of the authorised person of the petitioner-company that finished products are liable to tax under the KGST Act or under the Central Sales Tax Act. Since major part of the finished goods were transferred on the basis of branch transfer to other States, it was not liable to pay sales tax either under the KGST Act or under the Central Sales Tax Act. Therefore, the petitioner is not entitled to the benefit of the above section and there is violation of the declaration. Therefore, second contention of the petitioner also cannot be accepted.
8. The last ground urged by the petitioner is regarding quantum of penalty imposed on the petitioner. It is submitted that imposition of penalty under Section 45A is a proceeding penal in nature, and there is no deliberate intention to evade payment of sales tax. It is further contended that even if there is violation of the declaration filed by the party and consequently, there was loss to the Revenue, there was no intentional act on the part of the petitioner to evade tax. As such no penalty should have been levied and even if penalty is levied there is no case for imposition of maximum penalty. According to the petitioner, before amendment of the section, petitioner was purchasing raw materials through its branches outside the State, and bringing to the factory after paying Central sales tax and in that process Kerala Government was not getting any tax at all. In view of the amendment petitioner started to purchase locally. Therefore, at least four per cent tax was payable to the State and there is no loss to the State. It is further submitted that at the time of filing declaration petitioner only meant that the raw materials purchased as per the declaration will be used for manufacturing saleable finished goods in the State and only because of the market contingencies part of the goods so manufactured were transferred to branches by way of branch transfer and in the over all circumstances, there is no case for imposition of maximum penalty. It was also contended that the Supreme Court in the decision in Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 held that liability to pay penalty does not arise merely upon a technical default. The Supreme Court held as follows :
"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. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, 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. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer......"
9. The learned Government Pleader has pointed out explanation I to Section 45A which is as follows :
"Explanation I:--The burden of proving that any person is not liable to the penalty under this section shall be on such person."
It was further pointed out that here there is a definite false declaration under form 18 that finished goods will be liable either under the KGST Act or, under the Central Sales Tax Act. But goods were removed on branch transfer basis without paying the same. So unlike the case decided by the Supreme Court, here there is no bona fide mistake and the solemn declaration filed was wrong. On the basis of the declaration the selling dealer collected only four per cent sales tax. Prior to the amendment of the section, whether petitioner purchased raw materials from outside the State or inside the State is not a question, but the question is whether due to declaration loss to the Revenue was caused. It was further pointed out that the company is a public limited company with large turnover with educated officers. It cannot be accepted that company committed a bona fide error and company was not aware that if the finished goods are not likely to be sold under the KGST Act or the Central Sales Tax Act, they are not entitled to the benefit, At least when the circumstance arose that depending upon the market conditions the goods were removed by way of branch transfer, before issuing notice under Section 45A the company should have paid the difference in tax.
10. In the decision in K.P. Davis v. Assistant Commissioner (1997) KLJ (TC) 416 it was held by this Court that what is required is an independent application of mind by the Board of Revenue while dealing with the question of quantum of penalty. The Board is bound to examine the entire materials and to evaluate the gravity of the offence before exercising the power of discretion and such discretion should be exercised reasonably and not mechanically or arbitrarily. It was held that the section is penal in nature intended to be an effective deterrent which will put a stop to practices of evasion of revenue. Even if penalty is imposable, what will be the quantum of penalty, whether maximum penalty should be imposed or not is also a matter to be considered independently by the Board of Revenue. In exhibit P5 order with regard to the quantum of penalty the following considerations were made :
"The Apollo Tyres Ltd. is a very well equipped establishment with every machinary to be advised about the legal position that would be in force day to day. It was not an isolated case of purchase on misapprehension of the provisions of the Act and the Rules. There is a series of purchases knowing fully well that it benefited by making declarations and fully knowing that it was not going to act on the declarations. As would appear from the records, the company had a full fledged system of accounting and reporting. Ignorance of the law or rules or procedure cannot be pleaded in this case. The damages suffered by the State on account of the sellers of the raw materials acting on the applicant's declaration is huge. As such the company cannot genuinely plead for reduction in the quantum of penalty. The circumstances justified the demand equal to twice the tax due on the value of goods involved. Quantum wise also, therefore the penalty as upheld by the Deputy Commissioner, Ernakulam is retained......"
11. On going through exhibit P5 order it can be seen that while disposing of the revision application Board of Revenue has applied its mind regarding the question of imposition of penalty, reasonableness of quantum of penalty imposed, etc. Even though the proceedings are penal in nature it was found that there is violation of solemn declaration. It is not a bona fide mistake resulting in technical violations. Since there is proper application of mind, I see no ground to interfere with exhibit P5 order on this ground. There is no lack of jurisdiction or perversity of findings. There is application of mind in the contentions raised by the petitioner. No valid grounds are urged for setting aside the three concurrent orders passed in the subject which is finally culminated in exhibit P5 order. Therefore, I see no ground to set aside the orders by invoking provisions under Article 226 or 227 of the Constitution of India.
The original petition is, therefore, dismissed.
C.M.P. No. 2816 of 1992 in O.P.No. 1614 of 1992 P dismissed.