1972 (4) TMI 86 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. False return allegation.
2. Reasonable opportunity to show cause.
3. Imposition of penalty before assessment.
4. Requirement of mens rea for penalty.

Detailed Analysis:

1. False Return Allegation:
The dealer filed a return showing purchases as "nil" and provided reasons for non-liability for tax. The Assessing Authority issued a notice under section 10(7) of the Punjab General Sales Tax Act, alleging that the return was false and inaccurate. The dealer reiterated his grounds, including that purchases were made through commission agents and not in the normal course of business. The Assessing Authority concluded that the dealer made significant purchases, totaling Rs. 33,44,368, and thus filed an incorrect return. The court noted that the dealer's plea regarding the relationship with commission agents required further investigation, as per the Supreme Court's ruling in Bhawani Cotton Mills case.

2. Reasonable Opportunity to Show Cause:
The dealer argued that no reasonable opportunity was given to show cause against the penalty. The Assessing Authority issued a notice on 10th February, 1969, and the dealer was asked to bring accounts on 14th February, 1969. The dealer requested an adjournment, but the penalty was imposed ex parte as the request did not reach the Assessing Authority in time. The court found that the dealer was not given adequate time to present his case, which was a procedural lapse.

3. Imposition of Penalty Before Assessment:
The dealer contended that the penalty could not be imposed before the assessment for the quarter was completed. The court acknowledged that the penalty under section 10(7) should relate to the amount of tax "to which he is assessed or is liable to be assessed." The court found the method of imposing penalty without proper assessment unsatisfactory but did not delve further into this issue due to the conclusion reached on the requirement of mens rea.

4. Requirement of Mens rea for Penalty:
The court emphasized that penalty proceedings are quasi-criminal and the burden is on the department to prove mens rea, i.e., deliberate concealment or furnishing of inaccurate information. Citing the Supreme Court's decision in Commissioner of Income-tax v. Anwari Ali, the court held that merely finding the dealer's explanation unacceptable was insufficient to impose a penalty. The department needed to provide adequate evidence of deliberate concealment. The court also referenced Hindustan Steel Ltd. v. The State of Orissa, highlighting that penalties should not be imposed for technical or venial breaches or where there is a bona fide belief of non-liability.

Conclusion:
The court accepted the appeal, reversed the single judge's order, and quashed the penalty order due to the lack of evidence of deliberate concealment and the procedural lapses in providing a reasonable opportunity to the dealer. The department may initiate fresh penalty proceedings in accordance with the law, considering the observations made by the court. The appeal was allowed with no order as to costs.