2008 (3) TMI 450 - SC - VAT and Sales Tax

Whether penalty should be imposed for failure to perform a statutory obligation? Whether the contravention was made by the defaulter with any guilty intention or not? Held that - Appeal dismissed. As a finding of fact has been arrived at that the dealer had not furnished any proof in regard to its inability to use it for manufacturing purposes, it was obligatory on the part of the appellant as it has special knowledge in regard thereto to show as to why the entire quantity of goods could not be utilised. A finding of fact has also been arrived at by the assessing authority that the vendee had utilised the self-same goods for manufacturing. Ten per cent of the purchased goods, namely, 2532.989 M.T. is not such which could be ignored by the assessing authority. Although duty was payable thereon, it may be that the auction of lots was on as is where is basis, the same would not mean that a part of it could not be melted for manufacturing the ingots. If that was the position, it could have informed the authorities in that behalf even prior to effecting the sale to a third party. Moreover, the assessing authority as also the appellate authority had held that the appellant sold the goods knowingly and, it must, therefore, be inferred that the finding in regard to mens rea had also been arrived at.

Summary

Issues Involved:
1. Imposition of penalty under Section 4B(5) of the U.P. Sales Tax Act, 1948.
2. Applicability of mens rea for the imposition of penalty.
3. Interpretation of Section 4B(5) concerning the use of goods for purposes other than those specified in the recognition certificate.

Issue-Wise Detailed Analysis:

1. Imposition of Penalty under Section 4B(5) of the U.P. Sales Tax Act, 1948:
The case revolves around the imposition of a penalty on the appellant for selling 239.966 metric tons of iron scrap, which was purchased under a recognition certificate without payment of tax, but not utilized for manufacturing as stipulated. The assessing authority imposed a penalty of Rs. 85,619, which was upheld by the first appellate authority but set aside by the Tribunal. The Tribunal's decision was based on the finding that the scrap was purchased on an "as is where is" basis, and unusable scrap was sold without any mala fide intention. However, the High Court overturned the Tribunal's decision, emphasizing that the appellant violated Section 4B(5) by disposing of the goods for purposes other than those specified in the recognition certificate.

2. Applicability of Mens Rea for the Imposition of Penalty:
The appellant argued that the principle of mens rea should apply, meaning that penalties should not be imposed for technical or venial breaches without a guilty intention. The Tribunal initially found no mala fide intention on the appellant's part, thus setting aside the penalty. However, the High Court, referencing the case of Sai Electricals (P) Ltd. and other Supreme Court judgments, held that mens rea is not essential for imposing penalties under economic laws and departmental penalties. The Supreme Court upheld this view, stating that the plain language of Section 4B(5) does not require mens rea for the imposition of penalties.

3. Interpretation of Section 4B(5) Concerning the Use of Goods for Purposes Other Than Those Specified in the Recognition Certificate:
Section 4B(5) stipulates that if a dealer uses goods for purposes other than those specified in the recognition certificate or disposes of them otherwise, a penalty can be imposed. The High Court found that the appellant violated this provision by selling the scrap without using it for manufacturing, as required by the recognition certificate. The Supreme Court agreed, noting that the appellant did not provide sufficient evidence to prove that the sold scrap was unusable for manufacturing. Additionally, the appellant did not notify the authorities about its inability to use the scrap for manufacturing purposes, which could have mitigated the penalty.

Conclusion:
The Supreme Court dismissed the appeal, upholding the High Court's decision to impose a penalty. The Court emphasized that the appellant's failure to use the purchased scrap for manufacturing, as required by the recognition certificate, and the lack of evidence regarding the unusability of the scrap justified the penalty. The Court also clarified that mens rea is not a necessary element for imposing penalties under Section 4B(5) of the U.P. Sales Tax Act, 1948.