Karnataka High Court
Larsen And Toubro Limited vs Additional Commissioner Of Commercial ... on 4 January, 2001
Equivalent citations: [2001]124STC321(KAR), 2002 AIR - KANT. H. C. R. 2790, (2001) 124 STC 321 (2001) 2 KANTLJ(TRIB) 216, (2001) 2 KANTLJ(TRIB) 216
Author: D.V. Shylendra Kumar
Bench: D.V. Shylendra Kumar
JUDGMENT M.F. Saldanha, J.
1. These appeals involve a common point and are hence being disposed of through a common order. The brief facts giving raise to these appeals which have been preferred by Larsen & Toubro Limited (hereinafter referred to as "the appellants") are that the appellants had purchased certain consignments of MS plates from the Steel Authority of India at Bhilai and these consignments were being transported by truck to Bangalore. We are concerned with five truck loads which were stopped at the Ballary Road check-post, two of them on April 15, 1995 ; two of them on April 17, 1995 and one on April 18, 1995. The common feature, as pleaded by the department is that, in the case of all the five trucks at the initial point of scrutiny that no bill of sale or delivery note was forthcoming. It emerges from the material on record that on April 20, 1995 the appellant's company wrote a letter in which it was contended that the requisite documents had "inadvertently not been produced by the transporter" and along with that letter, the appellant produced the form No. 39. The appellant had contended that there was some urgency with regard to the consignment but effectively they had contended that the lapse in question should be condoned and enclosed copies of the sale invoice as proof of payment of taxes along with the form No. 39. The department however held the appellants liable for penalty and imposed penalties of Rs. 18,704 ; Rs. 18,821 ; Rs. 16,242 ; Rs. 14,961 and Rs. 29,412, all the orders being dated April 21, 1995.
2. The appellants preferred appeals against the order in question to the Deputy Commissioner of Commercial Taxes (Appeals), City Division-1, Bangalore. The appellants succeeded in the appeal but the revisional authority reversed this order on the ground that the appellate authority was in error in having set aside the orders imposing penalty. It is against his last order that the present appeals have been preferred.
3. We need to prefix this order with the observation that we are totally appreciative of the research done and the relevant case law that has been placed before us by the two learned counsel who have represented the appellants and the department because undoubtedly, this is an area that has been the subject-matter of several decisions wherein different shades of opinions have been expressed and having regard to the fact that the law is a living entity and the development of the law with the passage of time is also a necessary feature, we do feel the exigency to iron out some of the grey areas which manifest themselves. The basic submission canvassed by the appellants' learned counsel is to the effect that as will be presently pointed out by us, the scope and ambit of Section 28-A is essentially for the purposes of ensuring certain preventive measures and the learned counsel submitted that it is now well-settled law that this section is not to be misconstrued as being synonymous with other provisions which are essentially revenue yielding. His submission was that more times than not the impression created is that because certain powers are vested in the officers who man the check-post, that these are to be utilised for purposes of mopping up of additional revenue and that consequently, penalties are imposed in situations which are totally unjustified. Coming to the facts of the case, what the learned counsel submitted was that, even though the reply dated April 20, 1995 from the appellants does use the expression lapse, that this was nothing more than a technical error which would not justify a penalty because the appellants did, within the permitted period of time, produce the requisite documents and what was repeatedly emphasised by the learned counsel was that these documents in terms establish that there was neither an attempt nor actual evasion of any tax. He thereafter drew our attention to the fact that as Section 28-A is worded, the law itself makes provision for a situation in which a party may for valid reason has not produced the supporting documents at the check-post and that the law permits production of the requisite documents within the time prescribed. The submission proceeds on the footing that in those of the situations where the authorities are fully satisfied that there is neither any evasion nor any attempt at that, a penalty is wholly and totally unjustified. In this regard, reliance was placed on the decision of the Supreme Court (Hindustan Steel Ltd. v. State of Orissa) wherein the Supreme Court had occasion to apply some of the finer points of the law and the Supreme Court did observe that unless it is demonstrated that there is a definite intention to evade the law, unless the conduct is contumacious and unless the authority is satisfied that the party would have, but for detection achieved some illegal benefits a penalty would be unjustified. In other words to summarise the reasoning of the Supreme Court, the observations boil down to the aspect of the requirement of mens rea which concept is more applicable in criminal law and which would have some application in these situations. The learned counsel thereafter drew our attention to a decision [Prakash Roadlines (P) Ltd. v. Commissioner of Commercial Taxes in Karnataka] wherein once again, the judgment emphasised that the main aim of Section 28-A is prevention of evasion of tax. Our attention was then invited to another decision (Mahaveer Fancy Stores v. Commissioner of Commercial Taxes in Karnataka) wherein, in extension of the law as laid down in the Hindustan Steel case the court observed that the ultimate conclusion that emerges before a penalty could be justified, must be to the effect that there was intention to evade. In this view of the matter, what the learned counsel contended was that the law as enunciated has laid down a settled position that a technical infringement such as non-production of documents on the first occasion namely at the point of checking would only be a procedural technical infringement and that it does not always call for a penalty.
4. The learned counsel then drew our attention to another decision (Nath Steel & Non-Ferrous Re-rolling Mills v. Additional Commissioner of Commercial Taxes) in support of his subsidiary submission which is to the effect that even in those of the cases where a strict view was taken that lapse or a breach is not straightaway punishable but that even if it is viewed as a technical infringement that some nominal penalty would be justified ; the court had imposed a penalty of only Rs. 1,000 and the plea canvassed before us was that if for any reason the first submission does not find favour, then, a very nominal penalty would be in conformity with the circumstances and would meet the ends of justice in the present case. The learned counsel placed heavy reliance on an earlier division Bench decision of this High Court reported in [1997] 107 STC 568 (WS Tele Systems Ltd. v. Additional Commissioner of Commercial Taxes in Karnataka, Zone-II, Bangalore) wherein the division Bench after reproducing the observations of the Supreme Court in Hindustan Steel case watered them down and accepted the position that in a situation where the lapse has virtually been accounted for or in other words where the party has satisfied the authority that there was neither tax evasion nor attempt that the non-imposing of penalty would be justifiable. Lastly, the appellants' learned counsel drew our attention to one more decision (Saral Kumar v. State of Haryana) wherein, though some documents were produced in the first instance, that the necessity of production of records thereafter need not be insisted upon in so far as the materials produced should be sufficient to justify the view that it is not a case of attempt or actual evasion.
5. The learned Government Advocate submitted that it is not open to the appellants to canvass the plea that they must be totally exonerated because he has raised two-fold contentions firstly that, admittedly the requisite documents did not accompany the consignments and therefore were not available for production at the Ballary road check-post where the vehicles were checked. It is his submission that this is a strict requirement of law, which cannot be by-passed, more so because the appellants themselves have admitted the non-production though they have contended that it was inadvertent. The second submission canvassed was that in the reply dated April 20, 1995 the appellants themselves have admitted their lapse and even though they have produced relevant documents within the permitted period of time that they themselves have requested the authorities to condone the lapse and take a lenient view. He further submitted that he totally opposes, on the facts of the present case, any situation in which the appellants can be totally exonerated. As far as the main submission canvassed by him is concerned, what he contended was that where there is a duty cast on the party by law, to follow a certain procedure and where there is a breach, that it is not permissible merely because corrective action is taken at the subsequent point of time to contend that the initial breach must be totally ignored. In extension of his argument, proceeding on the footing that the law undoubtedly does envisage a situation whereby it is open to the defaulting party to still satisfy the authority within the prescribed period of time from the normal conclusion that emerges from the non-production of the documents which would be that at that point of time there appeared to be a case made out justifying the conclusion that the tax has been evaded is wholly permissible ; the learned counsel submitted that the purpose behind the Legislature making provision for corrective action is only in order to save those of the parties who for good reason have only committed the lapse of not having produced the documents along with the consignment and having in fact paid the tax from the harsher consequences as provided in that section. The thrust of the argument put forward by the learned Government Advocate is really to the effect that there are two types of consequences that could emerge from the breaches contemplated under Section 28-A, the first of them being whether the parties satisfy the authority and would therefore be only be penalised to a lesser extent for the lapse on the first occasion and the second of them, where the party fails to do so and where much harsher consequences ensue. We do consider that there is much substance in the contention put forward by the learned Government Advocate wherein he has demonstrated that these are two distinct cases, which cannot be intermixed. We need to observe here that while the courts often emphasise the fact that Section 28-A is not to be misconstrued as being a revenue yielding measure what needs to be now highlighted, and very effectively and strongly, is that the principal purpose of having enacted Section 28-A is in order to ensure compliance. It was the intention of the Legislature and obviously that of the department also, to ensure that in situations whereby goods are moved from one place to the other that they are accompanied at all times by the relevant documents that would indicate all the relevant particulars to any of the checking authorities most important of which is that the movement is not for the purpose of evading tax or conversely that no evasion or an attempted evasion has taken place in the course of such movement. What we need to highlight very strongly and effectively is that the letter and sprit of Section 28-A must be understood to project that the section is mainly for enforcing compliance and that the penalty aspect is only understandable and acts as a deterrent. Undoubtedly, unless an element of fear is introduced in so far as is necessary and unless the consequences of a breach turn into a penalty of sufficiently effective dimensions, there would be no real method of ensuring compliance. Once this view is understood and accepted, then, the two-fold submission canvassed by the learned Government Advocate would effectively demonstrate that the view canvassed by the appellants' learned counsel which is that subsequent production of the relevant document would totally purge the initial lapse would not hold good. We need to qualify that this is not an absolute rule because the law itself has made provision for a small category of cases where the party concerned may be able to satisfy the authority that there was very just and valid cause for the lapse that has taken place and if the authority is satisfied from the material produced that this was the honest position, then only, the non-imposition of a penalty would be justified.
6. As indicated by us earlier, the appellants' learned counsel has laid strong emphasis on the observations of the Supreme Court in the Hindustan Steel case . We need to qualify that the facts of that case were not parallel to the present case that the Supreme Court was dealing with the provisions of the Orissa Sales Tax Act but more importantly and above all, that on the peculiar facts before the Supreme Court what dominated was that the court was more than satisfied that the imposition of the penalty was unjustified, though, it is not readily ascertainable as to what ultimately or finally happened in that case because it was remanded to the authority with certain directions by the Supreme Court. In this background, all that we need to reiterate is that the observations in the earlier division Bench judgment reported in WS Tele Systems Ltd. v. Additional Commissioner of Commercial Taxes in Karnataka which baldly reproduces the observations of the Supreme Court in the Hindustan Steel case, are not to be misconstrued as an absolute proposition of law that holds good in all situations. We have therefore heard the learned counsel on both sides at considerable length and have culled out the principles that emerge from the various decisions and have also interpreted the section as is required to be done.
7. One of the submissions canvassed by the appellants' learned counsel was that, it was wholly unjustified for the department to have penalised the appellants because admittedly, the material gate pass was produced at the time of checking. This position is factually correct. What was emphasised by the learned counsel was that even though the law prescribes production of certain documents if the party produces material before the checking authority from which the name of the consignor or name of the consignee the description of the goods and the other relevant particulars that the departmental officers require are ascertainable, then it would be technically wrong on the part of the department to insist that the actual bills, invoices, delivery notes, etc., must also be produced. In our considered view, this argument though a good one is not sufficient to take the appellants totally out of the aspect of culpability for the reason that where the procedural requirement is prescribed, it is not open to the party or to the court to condone those and accept that there is compliance through means other than the manner which the law prescribes. Secondly, what cannot be lost sight of is the fact that it is not so much the question of where the goods have come from and where they are going or the description of the goods that the department is concerned with, but the other aspect namely, the question as to whether the goods have escaped taxation and this last ingredient would certainly not be ascertained from the material gate pass, which is the principal reason why we find it impossible to accept this submission.
8. The appellants' learned counsel had submitted before us that the subsequent production of the documents in this case would be sufficient to obliterate the initial lapse and it was his submission that taking into account all factors including the status of the parties involved, this is not a case in which the revisional authority was justified in having interfered with the appellate order. What we need to observe is that, the learned counsel is justified in pointing out that the status or track record of the parties is a relevant factor, but that is not an absolute parameter because there could be situations where even a person with a blemishless record does commit a lapse and infraction. The requirement as far as Section 28-A is concerned, comes within the statutory obligation which is mandatory and in our well considered view while interpreting the section, the court is required to uphold the essential sprit and intention of that section which is to ensure compliance. This object cannot be lost sight of and in this background, while the appellants' learned counsel may be justified in his submission that the penalties contemplated for breaches of Section 28-A cannot be and should not be arbitrarily or unreasonably imposed, we are unable to accept his submission that on the facts of the present case the appellants deserve to be totally exonerated. The requirements of law are meant to be strictly construed, particularly in areas of the present type, and the court cannot lose sight of the fact that judicial notice must be taken that there are often attempts to evade statutory obligation or requirement for oblique reasons and, the subsidiary aspect which this Court needs to again reiterate is that the consequences of what happens when a breach is detected and goes unpunished. If there is a tendency to show undue indulgence and leniency and if there is a tendency to take a very lenient and light view of breaches then it would be nothing more than an encouragement to those of the parties who take advantage of such situations. This is an aspect of the law which again this Court needs to bear in mind while interpreting the section because it is well-settled law that such interpretation is not to be done in a vacuum but that it must bear a rational nexus to realities and objectives.
9. The last aspect of the case which we need to deal with is the submission canvassed by the appellants' learned counsel that as the law then stood, there was no minimum penalty prescribed and that what the officer has done is that he has calculated the prevalent rate of the tax on the goods and equated that sum with the penalty. The learned counsel submitted that this procedure adopted is thoroughly unjustified and even if one accepts the position that the penalty should not be totally set aside as per law, that it should be reasonable and the present quantum is unjustified. The learned Government Advocate was quick to submit that the amount in question is modest and that no interference is called for, but we are unable to accept this last submission. We do agree with the appellants' learned counsel that in any situation where the appellants have satisfied the authority that there is no evasion of tax and that no loss would occur to the exchequer, if the penalty is still to be equated to the normal tax payable that the methodology of computation would be faulty. Under these circumstances, we are of the view that the penalty amount imposed on the appellants on the facts of the present case would require to be scaled down. Taking into consideration of the relevant factors, we are of the view that a penalty in a sum of Rs. 10,000 in each of the cases would meet the ends of justice.
10. The appeals partially succeed and stand disposed of. In the circumstances of the case, there shall be no order as to costs. The appellants would be entitled to the consequential refund or adjustment.