Karnataka High Court
Gujarat Co-Operative Milk Marketing ... vs State Of Karnataka on 15 December, 1995
Equivalent citations: ILR1996KAR2560
Author: Tirath S. Thakur
Bench: Tirath S. Thakur
JUDGMENT Tirath S. Thakur, J.
1. These two S.T.R.Ps. are directed against a common order passed by the Karnataka Appellate Tribunal, Bangalore, dismissing S.T.As Nos. 801 and 802 of 1990 and upholding the penalty imposed upon the petitioner under section 18A of the Karnataka Sales Tax Act, 1957. The facts in brief need be stated first :
2. The petitioner-federation is engaged in the manufacture and marketing of various milk products such as milk powder, baby foods, butter, cheese, ghee etc. One of these products is sold under the brand name "Amul spray" which according to the petitioner is used both as a baby food as well as milk powder. The product was during the relevant period covered by entry 98-A of the Second Schedule to the Act inserted by Karnataka Act No. 9 of 1986. The entry ran thus :
"98-A. Baby foods including milk powder 8 per cent."
By a notification dated March 26, 1986, issued under section 8A of the Act, by the Government the rate of tax payable on the sale of milk powder was reduced to 4 per cent regardless whether the product was sold loose or in sealed containers. The relevant portion of the Government order is extracted below :
"From the 1st day of April 1986, the rate of tax payable by a dealer under section 5 of the Act, on the sale of milk powder whether sold loose or in sealed containers is reduced to 4 per cent."
The petitioner claims that the issue of the above notification gave rise to a genuine doubt as to whether sale of "Amul spray" would be exigible to tax at the reduced rate albeit the same could be used as baby food also. A clarification was accordingly sought from the Commissioner of Commercial Taxes in terms of section 3A of the Act. The clarification did come but only on October 16, 1986, stating that "Amul spray" would attract only 4 per cent tax on sales. The petitioner had during the interregnum collected sales tax at 8 per cent ostensibly with a view to guard against a situation where the product may be held to be disentitled to the benefit of the reduced rate of tax in which event it would have been impossible for it to chase the customers to recover the shortfall.
3. Assessment proceedings for the years 1985-86 and 1986-87 were completed by the assessing authority subjecting the sales to tax at 4 per cent and holding the petitioner entitled to the refund of the excess amount paid by it. Close on the heels came penalty proceedings under section 18A of the Act which culminated in the issue of two separate orders of penalty for the assessment years in question. The assessing authority was not impressed by the argument of the petitioner that since the collection of the excess amount of tax by it was due to a lurking doubt about the rate of tax actually applicable no penalty was leviable or that guilty mind was a sine qua non for attracting the penal provisions of section 18A. The amount of penalty was however restricted to the amount collected by the petitioner in excess of the permissible rate of tax. Appeals preferred by the petitioner against the above orders before the Deputy Commissioner of Commercial Taxes (Appeals) proved abortive and so did the further appeals before the Karnataka Appellate Tribunal. The present revision petitions are in the circumstance a last ditch attempt on the part of the petitioner to avoid the levy.
4. Mr. Narayan, learned counsel for the petitioner, mounted a two pronged attack against the impugned orders. He argued that the provisions of section 18A of the Act, being penal in nature, a legally sustainable order, could be passed by the assessing authority only upon proof positive of the fact that the assessee concerned had the mens rea to illegally collect the excess amount as tax though not otherwise recoverable. Guilty mind, contended the learned counsel, was a sine qua non for the imposition of any penalty under the above provisions, and since the facts of the instant case did not according to the learned counsel, disclose any intention on the part of the petitioner to make any undue profit for itself by collecting tax at a rate higher than what was permissible the orders of penalty were liable to be quashed. Alternatively it was urged that the penalty in question had been imposed in disregard of what Mr. Narayan termed a bona fide and sincere offer made by the petitioner to refund to the customers concerned, the excess amount recovered from them. This offer contended Mr. Narayan had been ridiculed by the Tribunal for no good reasons thereby rendering the impugned orders liable to be set aside.
5. We have given our anxious consideration to the submissions made at the Bar and propose to deal with the same seriatim.
6. Actus non facit reum nisi mens sit rea, i.e., an act does not itself constitute an offence unless done with the guilty mind, is one of the most familiar maxims known to criminal jurisprudence. It implies that an evil intention or a knowledge of the wrongfulness of the act is an essential ingredient of every offence. The principle has universal application and is recognised by both English courts as well as courts in India.
7. The presumption arising under the maxim however has a significant exception. The exception comprises cases in which the Legislature has either specifically or by necessary implication dispensed with the requirement of proof of mens rea in the commission of an offence under a given statute. The maxim has to that extent undergone a modification owing to the greater precision of modem statutes making it impossible to apply the same generally to all statutes. The substance of the reported cases is that it is necessary to look at the object of each Act that is under consideration to see whether and to what extent knowledge is made the essence of the offence created.
8. The leading case on the subject is Sherras v. De Rutzen (1895) 1 QB 918. There the court was dealing with the provisions of section 16 of the Licensing Act, 1872, which prohibited the licensee from supplying liquor to a police constable while on duty. It was held that the provision had no application to a case where the licensee bona fide believed that the police officer was off duty. Wright, J., dealing with the requirement of proof of mens rea observed thus :
"There is a presumption that mens rea, an evil intention, or a knowledge of the wrongfulness of the act, is an essential ingredient in every offence; but that presumption is liable to be displaced either by the words of the statute creating the offence or by the subject-matter with which it deals, and both must be considered."
The court went on to identify the following three exceptions in which the doctrine would have no application :
(1) Cases not criminal in any real sense but which in the public interest are prohibited under a penalty, such as Revenue Acts; (2) public nuisance; and (3) cases, criminal in form but which are really only a summary mode of enforcing a civil right.
9. In Srinivas Mall v. Emperor AIR 1947 PC 135, the Privy Council cautioned that in view of the importance of the protection of the liberty of the subjects the court must always bear in mind that unless the statute either clearly or by necessary implication, rules out mens rea as a constituent part of a crime, an accused should not be found guilty of an offence against the criminal law in the absence of a guilty mind.
10. In State of Maharashtra v. Mayer Hans George , the accused was prosecuted for importing gold into India in contravention of section 8(1) of the Foreign Exchange Regulation Act, 1947 read with the notification issued thereunder and was eventually convicted under section 23(1-A) of the Act. One of the contentions urged on behalf of the accused before the Supreme Court was that the notification in question being merely a subordinate or delegated legislation could be deemed to be in force not from the date of its issue or publication in the Gazette but only when it was brought to the notice of the persons likely to be affected by it. It was urged that the notification had been published only on November 24, 1962, whereas the accused having left Zurich on November 27, 1962, could not possibly have had any knowledge in regard to the new restrictions imposed by the Indian authorities on the import of gold into the Indian territory. Repelling the contention, the Supreme Court by majority held that the accused had been rightly convicted and that the knowledge of the existence or content of a law by an individual would not always be relevant, save on the question of the sentence to be imposed on its violation. The following passage from the judgment is illustrative as well as instructive :
"But if the bringing into India was a conscious act and was done with the intention of bringing it into India the mere 'bringing' constitutes the offence and there is no other ingredient that is necessary in order to constitute a contravention of section 8(1) than that conscious physical act of bringing. If then under section 8(1) the conscious physical act of 'bringing' constitutes the offence, section 23(1-A) does not import any further condition for the imposition of liability than what is provided for in section 8(1). On the language, therefore, of section 8(1) read with section 24(1) we are clearly of the opinion that there is no scope for the invocation of the rule that besides the mere act of voluntarily bringing gold into India any further mental condition is postulated as necessary to constitute an offence of the contravention referred to in section 23(1-A)."
11. The court further held that the Act was designed to safeguarding and conserving foreign exchange which was essential to the economic life of a developing country and that the provisions have therefore to be stringent and so framed as to prevent unauthorised and unregulated transactions which might upset the scheme underlying the controls. Their Lordships quoted with approval the following passage from R. v. Tolson (1889) 23 QBD 168 :
"Although, prima facie and as a general rule, there must be a mind at fault before there can be a crime, it is not an inflexible rule, and a statute may relate to such a subject-matter and may be so framed as to make an act criminal whether there has been any intention to break the law or otherwise to do wrong, or not."
12. In Pyarali K. Tejani v. Mahadeo Ramchandra Dange , the court was dealing with the provisions of the Food Adulteration Act. It was argued that in order that an act may constitute an offence under the Act, mens rea was an essential ingredient. Rejecting the contention the court held that what constitutes the offence under the Act was nothing more than actus reus and that mens rea need not be separately established. The ratio of the judgment is manifest from the following passage :
"Nothing more than the actus reus is needed where regulation of private activity in vulnerable areas like public health is intended. In the words of Lord Wright in McLeod v. Buchanan (1940) 2 AER 179 at 186 (HL) 'intention to commit a breach of statute need not be shown. The breach in fact is enough.' Social defence reasonably overpowers individual freedom to injure, in special situations of strict liability. Section 7 casts an absolute obligation regardless of scienter, bad faith and mens rea. If you have sold any article of food contrary to any of the sub-sections of section 7, you are guilty. There is no more argument about it. The law denies the right of a dealer to rob the health of a supari consumer. We may merely refer to a similar plea overruled in the case (Andhra Pradesh Grain & Seed Merchants' Association v. Union of India)."
13. To the same effect is the view taken by the apex Court in Dinesh-chandra Jamnadas Gandhi v. State of Gujarat , where also the court was dealing with the provisions of the Food Adulteration Act, 1954, and was considering whether a guilty mind was an essential condition for constituting an offence under the Act. Repelling the submission made, the court observed thus :
"The offences under the 'Act' are really acts prohibited by the police-powers of the State in the interests of public health and well being. The prohibition is backed by the sanction of a penalty. The offences are strict statutory offences. Intention or mental state is irrelevant.
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The statute we are concerned with prescribes a strict liability, without need to establish mens rea. The actus reus is itself the offence. There might be cases where some mental element might be a part of the actus reus itself. This is not one of those cases where anything more than the mere doing of the prescribed act required to be proved. There is thus no merit in the second point either."
14. The court also referred to with approval the following passage from Criminal Law by J. C. Smith and Brian Hogan :
"The courts are greatly influenced in their construction of the statute by the degree of social danger which they believe to be involved in the offence in question. They take judicial notice of the problems with which the country is confronted. The greater the degree of social danger, the more likely is the offence to be interpreted as one of strict liability. Inflation, drugs, road accidents and pollution are constantly brought to our attention as pressing evils; and in each case the Judges have at times invoked strict liability as a protection for society."
15. The case which is closest to the case in hand is R. S. Joshi, Sales Tax Officer v. Ajit Mills Limited wherein a Constitution Bench of the Supreme Court was examining the Constitutional validity of sections 37(1)(a) and 46(2) of the Bombay Sales Tax Act, 1959. One of the questions that arose for consideration was whether the Legislature could provide for a penalty or punishment in absolute terms excluding from application the doctrine of mens rea. Rejecting the contention urged on behalf of the assessees that any such provision could not be validly enacted, the court made the following significant statement of law :
"The notion that a penalty or a punishment cannot be cast in the form of an absolute or no-fault liability but must be preceded by mens rea must be rejected. The classical view that 'no mens rea, no crime' has long ago been eroded especially regarding economic crimes. Therefore, the contention that section 37(1) fastens a heavy liability regardless of fault has no force in depriving the forfeiture of the character of penalty."
16. In Commissioner of Sales Tax v. Prakash Trading Co. [1982] 51 STC 342, the High Court of Allahabad held that while mens rea was not necessary for imposition of a penalty under the taxing statutes, yet it was incorrect to suggest that whereever mens rea was excluded the authorities were left with no discretion in the matter. It was held that before a penalty could be imposed the assessing authority had to be satisfied that the breach contemplated by the penalty provision had been committed. Such a satisfaction had to be arrived at after making an enquiry and notice to the assessee concerned. There was no statutory compulsion for the assessing authority to necessarily impose a penalty, and that the matter vested in the discretion of the authority concerned although exercise of such discretion could not be arbitrary.
17. The legal position can therefore be summarised thus : That the presumption that mens rea is an essential ingredient in every offence, gets displaced both by the words used in the relevant statute creating the offence as also by subject-matter with which the same deals. For a correct view on the question whether mens rea is essential for the imposition of a penalty, not only the language used in the statute but also the subject with which it deals ought to be considered. In so far as the fiscal statutes are concerned, the acceptance of the non-application of the doctrine has been recognised more readily by the courts. As observed by their Lordships in Joshi's case , the classical view that "no mens rea no crime" has been long ago eroded especially regarding economic crimes. Absence of mens rea would be relevant only in the matter of fixing the quantum of penalty and the imposition of the penalty as also the quantum thereof is in the discretion of the authority concerned which has to be exercised fairly and reasonably and not arbitrarily or whimsically.
18. Let us then examine the provisions of the Karnataka Sales Tax Act, in the context of the above and in particular those of section 18 thereof which creates the prohibition against collection of tax by a registered dealer at a rate exceeding the rate at which it is recoverable under the Act. Section 18 reads thus :
"Section 18 : (1)(a) A person who is not a registered dealer liable to pay tax shall not collect any amount by way of tax or purporting to be by way of tax under this Act; nor shall a registered dealer collect any amount by way of tax or purporting to be by way of tax at a rate or rates exceeding the rate or rates at which he is liable to pay tax under the provision of this Act."
(b) No person shall collect any amount by way of tax or purporting to be by way of tax in respect of sales of any goods on which no tax is payable by him under the provisions of this Act.
(2) Notwithstanding anything contained in sub-section (1), a dealer who has been permitted to pay any amount by way of composition (under sub-section (1) or sub-section (4) of section 17] or a dealer who is exempted from sales tax by virtue of recognition granted under the provisions of this Act, shall not collect any amount by way of tax or purporting to be by way of tax on the sales or purchases of goods made during the period to which such composition or recognition applies.
(3) Notwithstanding anything contained in sub-sections (1) and (2), no dealer who is liable to pay turnover tax under section 6B shall collect any amount by way of such turnover tax or purporting to be by way of such turnover tax payable by him."
19. A plain reading of the provision shows that the prohibition against collection of taxes in excess of the prescribed rates by registered dealers as in the present case is in absolute terms. This is true even about the other situations covered by sub-sections (2) and (3) supra. The legislative intent behind the enactment of the provision is clear, namely, that no registered dealer shall collect any amount by way of tax which is in excess of what is otherwise recoverable. The absence of words like "intentionally", "knowingly", "deliberately" from the language employed by the Legislature in prescribing the prohibition, even though not conclusive in itself, all the same gives room for the assumption that the prohibition contained was total and absolute in terms. Super-added to this is the fact that the provisions of section 18 appear in a taxing statute, and the object behind the prohibition, inter alia, is to prevent in absolute terms the recovery of any amount by a registered dealer, which is in excess of what is otherwise recoverable under the Act. The provision is manifestly aimed at protecting the consumers at large against dealers, recovering from them more than what is otherwise legally recoverable in the garb of sales tax. It serves the purpose of preventing undue and undeserved enrichment of the dealers at the expense of the gullible and unsuspecting consumer public a phenomenon which is not uncommon in the existing fiscal system. The subject-matter with which the enactment deals and the language employed in the provision containing the prohibition apart, the nature of penalty envisaged by the provisions of section 18A also lends itself to the interpretation that the strict rules of mens rea were never meant to be included as an essential ingredient of an offence (if one may use that expressions) of contravention of the Act. The penalty provisions reads thus :
"Section 18A : If any person contravenes any of the provisions of section 18, the assessing authority may, after giving such person reasonable opportunity of being heard, by order in writing, impose upon him by way of penalty a sum not exceeding one and a half times such amount :
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Provided further that no prosecution for an offence under section 29 shall be instituted in respect of the same facts on which a penalty has been imposed under this section."
20. A careful reading of the provision brings into focus two significant features. First, is the use of the expression "if any person contravenes any provisions of section 18 ". As in the case of section 18, so also in this provision the Legislature has not used any word which may indicate that existence of a guilty mind or criminal intention is an essential requirement. The word used is "contravenes" the provisions of section 18. A contravention can take place even when the person contravening has, strictly speaking, no criminal intention to commit an act in derogation of the provisions of the law. There is nothing in the language of section 18A, to suggest that a contravention in order to attract penalty must necessarily be accompanied by mens rea or a guilty mind. Secondly, the punishment prescribed for any such contravention does not extend to imprisonment. It is in the nature of penalty restricted to a sum not exceeding 1 1/2 times the excess amount collected. The proviso makes it clear that once the penalty is imposed no prosecution can follow on the basis of same set of facts. Taking the totality of the above circumstances into consideration the general rule applicable to commission of offences attracting penalty or other punishment as to the existence of mens rea is displaced both by the words used in the statutes as also by the nature of the subject-matter dealt with by it. It follows that sections 18 and 18A create what is called an absolute liability or a statutory offence the commission whereof would not require the proof of mens rea as an essential ingredient.
21. We however hasten to add that the non-application of the doctrine would not mean that once a contravention is made out, the same must necessarily result in the imposition of a penalty upon the defaulter. The language employed by section 18A leaves no manner of doubt that penalty does not follow as an inexorable consequence of a contravention. The use of the expression "may by order in writing impose by way of penalty" leaves the matter entirely in the discretion of the assessing authority, whether or not to impose any penalty upon the defaulting party in the peculiar facts and circumstances of each case. In other words there is nothing like an automatic penalty upon proof of a contravention. It is significant to note that the Supreme Court in Joshi's case , while dealing with the provisions of section 37 of the Bombay Act, interpreted the forfeiture clause to be only directory in nature notwithstanding the mandatory language employed in the provision. The following passage from the judgment is in this connection relevant :
"The expression 'forfeiture' may now be examined. For one thing, there is authority to hold that 'shall be forfeited' means 'liable to be forfeited', depending on the setting and the sense of the statute. Lord Porter, in Attorney General v. Parsons (1956) AC 421 observed, in the context of language suggestive of automatic forfeiture, negativing such inference :
The strength of the opposite opinion rests upon the fact that 'forfeiture' in section 1(1) must, on the construction which I have adopted, mean 'liable to forfeiture', whereas, as my noble and learned friend Lord Morton of Henryton points out in his opinion, which I have had an opportunity of reading, it bears the meaning of 'forfeited' and not liable to 'forfeiture' in sub-section (2)(iv). This is true, but the collocation is different. Admittedly the word 'forfeited' may bear the meaning 'liable to forfeiture' at the will of the person to whom the right of forfeiture is given and does not, in every case, imply automatic forfeiture." (page 443) Lord Cohen, in the same judgment, considered it appropriate to read 'forfeiture' as meaning 'liable to be forfeited'. Although there was a conflict of opinion on this point, it is sufficient to state that such a construction is tenable. Moreover, section 37 itself contains a clear clue indicative of the sense in which 'shall be forfeited' has been used. Section 37(2) directs the Commissioner to issue notice to the assessee to show cause why a penalty, with or without forfeiture, should not be imposed on him. Such a notice, with specific reference to forfeiture, points to an option in the Commissioner to forfeit or not to forfeit or partly to forfeit. This is made plainer in section 37(3), which reads : 'The Commissioner shall, thereupon, hold an enquiry and shall make such order as he thinks fit'. This order embraces penalty and forfeiture. Therefore, the Commissioner is vested with a discretion to forfeit the whole or any lesser sum or none at all. We limit the sense of 'shall be forfeited' as meaning 'shall be liable to be forfeited'.
22. In the case of section 18A of the State Act however there is no need for reading down the provision as was done by the Supreme Court, for the provision is couched in a language which lends itself to only the interpretation namely, the imposition of the penalty is left to the discretion of the assessing authority. Discretion howsoever wide can never be exercised arbitrarily. On the contrary the wider the discretion, the more careful and objective has its exercise to be. And yet it is difficult for any court to enumerate let alone place in a strait jacket formula, as to what would be an appropriate penalty in a given case or class of cases. All that can be said is that the assessing authorities, shall be bound to take into consideration all the circumstances relevant to the question of imposition and the quantum of penalty imposed. Of these circumstances two factors shall have to be particularly kept in view, these are - the bona fides of the dealer in making the excess collection and his conduct after having done so. An order imposing penalty which is passed for no better reason than the proof of a contravention or is demonstrably oblivious of the relevant consideration would be liable to be interfered with in appeal, revision or even writ jurisdiction under article 226 of the Constitution. Assessing authorities exercising the statutory powers of imposing penalties would therefore do well to act fairly and objectively and let not their exuberance in collection of taxes overtake their onerous obligation of discharging their statutory powers along judicial lines. Ample support for this view is available from a Division Bench judgment of this Court in Manilal Monaji Somayya v. Commercial Tax Officer [1973] 32 STC 541; where this Court observed thus :
"The Act provides for imposition of penalty for failure to pay every month the advance tax on the dealer's taxable turnover during the preceding month. But the liability to pay penalty does not arise merely upon proof of default in payment of tax in advance every month. As observed by the Supreme Court in Hindustan Steel Ltd. v. State of Orissa , 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."
23. To the same effect is the view expressed in Elestone Estates and Industries Ltd. v. State of Karnataka , where the court was dealing with the nature of penalty provided by section 12-B(3) of the Karnataka Sale Tax Act. The legal position was reiterated by the court in the following words :
"The power conferred under section 12-B(3) is penal in nature. The authority should exercise the power judicially and on a consideration of all the relevant circumstances. In each case, the authority must first examine after a reasonable opportunity to the party whether there was good or sufficient cause for the default committed and if not, whether the party has acted in conscious disregard of its obligation and acted deliberately in defiance of law. If the party is guilty of such conduct, then the authority must examine the question as to the amount to be levied as penalty. Section 12-B(3) provides for the levy of maximum penalty. In the very nature of the power conferred, there cannot be any set formula to govern every case. Nor there could be any such formula to cover the defaults in different months of a single case. The power must be exercised reasonably depending upon the circumstances of each case."
24. Mr. Narayan however placed heavy reliance upon three Division Bench decisions of this Court in State of Karnataka v. Subramanian [1992] 84 STC 230, Southern Founders v. State of Karnataka [1992] 87 STC 349 and State of Karnataka v. Begees Foods (P) Ltd. [1993] 88 STC 451, all delivered by Shiva Shankar Bhat, J., as his Lordship then was. It was urged that the view taken by this Court in the aforesaid cases was in favour of reading mens rea as a necessary ingredient of an offence under section 18A of the Act. We do not find it to be so.
25. In Subramanian's case certain observations have no doubt been made suggesting that a guilty mind is necessary for the imposition of a penalty under section 18A of the Act, but with utmost respect to the honourable Judges who decided the said case, their Lordships attention does not appear to have been drawn to the judgment of the apex Court in Joshi's case , which has taken a contrary view and dispelled the impression that mens rea is necessary even in cases involving penalties under the fiscal laws of the land. In the face of the said judgment Subramanian's case must be held to have been decided per incuriam.
26. In Southern Founders v. State of Karnataka the Supreme Court decision in Joshi's case has been noticed but a careful reading of the judgment shows that this Court did not hold the doctrine of mens rea to be applicable to a contravention of a fiscal provision like those of section 18 of the Karnataka Sales Tax Act. What this Court observed was that the imposition of a penalty under section 18A was not automatic. On a comparison of provisions of section 37 of the Bombay Act, with which the Supreme Court was dealing in Joshi's case and section 18A of the Karnataka Sales Tax Act, the Court observed that unlike the Bombay Act, the penalty under section 18A of the State Act did not follow as a matter of course. It was held that the power to impose a penalty under section 18A of the Act was entirely discretionary giving rise to the inference that by enacting the said provision the Legislature did not intend to forfeit as a matter of course the excess amount that the dealer may have unlawfully collected.
27. There is nothing in the judgment which can support the argument of Mr. Narayan that before resort can be had to section 18A by the assessing authority it must as a condition precedent be proved that the contravention of the provision committed by the dealer was with a guilty mind. It is one thing to say that the penalty does not flow automatically upon the commission of a contravention and an entirely different thing to say that for the imposition of a penalty mens rea is a necessary ingredient. The bona fides of the dealer in making the collection, and his sincerity in attempting to refund the amount improperly collected to the customers are certainly relevant considerations to be kept in view by the assessing authority while exercising his discretion, in imposing or not imposing a penalty under the said provision as also in the matter of determining the quantum of penalty to be imposed, but the same cannot make, proof of mens rea or guilty mind an essential requirement at the threshold.
28. In State of Karnataka v. Begees Foods (P.) Ltd. [1993] 88 STC 451 this Court following Southern Founders case [1992] 87 STC 349 and Ajit Mills case reiterated that a dealer cannot be held to have collected the tax illegally if he had made serious attempts to refund the excess collected by him to the customers. The conduct of the dealer it was observed would in such a situation be a very relevant factor while considering the question of imposing the penalty. There is no quarrel with this proposition nor can it be disputed that the conduct of a dealer before and after the illegal collection of the excess amount as tax would be a relevant factor for deciding as to whether any penalty should at all be imposed and if so the quantum thereof.
29. Mr. Narayan however placed particular reliance upon the following para in the above judgment :
"Section 18A being a penal provision it is attracted only when the conduct of the person charged with the contravention actually requires to be dealt with by penalising him; the bona fides and the conduct of the assessee are certainly very relevant factors. This aspect also has been referred in the aforesaid decision rendered in Southern Founders' case ."
There is no substance in the submission that the above lines are an authority for the proposition canvassed by Mr. Narayan, that mens rea is an essential requirement for a legally sustainable order of penalty under section 18A of the Act.
30. Coming then to the alternative submission made by Mr. Narayan, it is pertinent to note that the entire edifice of the argument is the offer made by the petitioner before the Tribunal to refund the amount to the customers from whom the same was recovered. It was urged that the offer made was bona fide and ought to suffice for showing that the petitioner had at all material times acted honestly and its conduct was enough to entitle it to a reprieve from the penalty imposed. The submission made deserves to be noticed only to be rejected for more than one reason which are not far to seek. The first and the foremost is the belated nature of the offer. The so-called offer came only at the stage the matter was pending with the Appellate Tribunal after the penalty had been imposed by the assessing authority. In order that a dealer should escape penalty or be entitled to a lenient view, it is necessary that its conduct of making an attempt to refund the amount collected should be sincere. It is not enough for a dealer to make an offer or simply do lip service to the cause of the customer who has been wronged by his illegal act of making collections beyond what was legally due from him. This is so particularly in a case like the present, where the amount of excess collections runs into over rupees eleven lacs, which would mean that any attempt to reach the customers would be a herculean job, and in the absence of any material to show that the petitioner could or had actually identified them, the offer made by it was but a ruse. As a matter of fact in the course of the hearing Mr. Narayan was asked as to how the petitioner proposed to effectuate his proposed refund, to which he had no satisfactory answer except that the petitioner would disburse the amount to its distributors who would in turn identify and refund the amount to the individual customers. This was sufficient to show that the belated offer made by the petitioner was more with the intention of avoiding the penalty rather than making any serious effort to redeem the promise contained in the same.
31. Secondly, the bona fides of the offer made were totally absent and this was conclusively shown to be so by the fact that after the petitioner was held entitled to the refund of the excess amount recovered and paid by it, instead of making any sincere attempt to refund the amount, the same was sought to be adjusted against the tax dues of the petitioner. This meant that the amount was utilised by the dealer for its own benefit rather than that of the customers. As if that was not enough the petitioner filed Writ Petitions Nos. 9580 and 9581 of 1989 in this Court, to force the tax authorities to adjust the amount refunded to it towards the tax dues from it for the subsequent period. Having acted thus qua the amount in question, any offer for refund when the penalty had already been imposed was anything but bona fide, and was rightly held by the Tribunal to be insufficient to escape the penalty.
32. Thirdly, the offer or the efforts, made by a dealer to refund the excess amount collected, to the customers concerned is at best one of the circumstances that may weigh with the assessing authority in the matter of imposition of a penalty or the quantum thereof. Such a circumstance is not by itself conclusive and would not in itself make the penalty if any imposed for wrongful collection unsustainable in law. The assessing authority while passing an order under section 18A is entitled to take into consideration the totality of the circumstances, and impose an appropriate penalty considered just and proper in the circumstances of the case It is not therefore as though the offer made by the petitioner even if the same was treated to be bona fide would have settled the issue regarding the penalty in conclusive terms in its favour.
33. There is yet another aspect to which we must advert at this stage. The penalty imposed upon the petitioner, it is significant to note, is restricted to the amount improperly collected by the dealer from the customers. What has been recovered from the petitioner is in the circumstances nothing beyond the amount that was collected by it from the customers. Strictly speaking, therefore the penalty order issued by the assessing authority has not resulted in any financial burden upon the petitioner so as to give rise to any genuine grievance on the part of the petitioner against the said order. Looked at from another angle, the penalty imposed is confined only to the forfeiture of the amount improperly collected. It was not disputed before us by Mr. Narayan, that a penalty under section 18A of the Act could include a forfeiture of the amount improperly collected. As a matter of fact, the question is no longer res integra in view of the judgment of the Supreme Court in Ajit Mill's case where their Lordships have not only accepted the forfeiture as a part of the penalty but also held that merely because the amount of penalty is arithmetically the same as the amount unlawfully collected, would not amount to extraction of money otherwise than by way of penalty imposed under a penalty provision the power to enact which has been recognised as a power incidental to the power to levy tax. The following passage from the judgment in Joshi's case sets the issue at rest :
"This word 'forfeiture' must bear the same meaning of a penalty for breach of a prohibitory direction. The fact that there is arithmetical identity, assuming it to be so, between the figures of the illegal collections made by the dealers and the amounts forfeited to the State cannot create a conceptual confusion that what is provided is not punishment but a transference of funds. If this view be correct, and we hold so, the Legislature, by inflicting the forfeiture, does not go outside the crease when it hits out against the dealer and deprives him, by the penalty of the law, of the amount illegally gathered from the customers. The Criminal Procedure Code, Customs and Excise Laws and several other penal statutes in India have used diction which accepts forfeiture as a kind of penalty."
34. It is also noteworthy that after the introduction of section 18-AA with effect from April 1, 1992 the deposit or the forfeiture of the excess amount collected by the dealer absolves the dealer of his obligation to refund the excess amount to the customers concerned. By reason of the provisions of section 18-AA(4) any such customer would be entitled to claim a refund of the excess amount to him by making an application to the Commissioner, no matter the collection was made before the insertion of section 18-AA in the statute book. This appears to be so, because of the provisions of sub-section (5) of section 18-AA which makes sub-sections (3) and (4) applicable even to collections made prior to April 1, 1992 as is the position in the present case.
35. Suffice it to say that the order passed by the sales tax authorities and the view taken by the Tribunal, restricting the penalty amount to the amount collected improperly cannot be said to be suffering from any error of law or jurisdiction nor can it be said to be so arbitrary, or irrational as to warrant interference with the same by this Court in exercise of its revisional jurisdiction.
36. In the result these petitions fail and are hereby dismissed but in the circumstances of the case without any orders as to costs.
37. Petitions dismissed.