1987 (1) TMI 472 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Disallowance of exemption on goods returned.
2. Levy of penalty for illegal collection of surcharge.
3. Applicability of mens rea in fiscal penalties.
4. Interpretation of Section 3(2) of the Tamil Nadu Sales Tax (Surcharge) Act, 1971 in conjunction with Section 22(2) of the Tamil Nadu General Sales Tax Act, 1959.

Detailed Analysis:

1. Disallowance of Exemption on Goods Returned:
The appellant contested the disallowance of exemption claimed on goods returned amounting to Rs. 4,736.31 taxed at 3 1/2 percent. The Appellate Assistant Commissioner allowed the exemption for Rs. 4,308.28 based on the precedent set in Madras Radiators and Pressings v. State of Tamil Nadu [1976] 37 STC 123. However, the Board of Revenue overturned this decision, citing the Full Bench ruling in Traders and Traders v. State of Tamil Nadu [1977] 40 STC 289, which mandates that claims for deduction on returned goods must be made within the same assessment year as the sale. Since the sales occurred in 1972-73 and the returns in 1973-74, the Board deemed the exemption improperly granted.

2. Levy of Penalty for Illegal Collection of Surcharge:
The appellant was penalized for collecting Rs. 3,276.67 as surcharge in Sivakasi, where the Surcharge Act does not apply. The assessing officer imposed a penalty of Rs. 4,914, which was later canceled by the Appellate Assistant Commissioner on the grounds of bona fide belief and absence of mens rea. The Board of Revenue reinstated the penalty but restricted it to the actual surcharge collected, i.e., Rs. 3,277. The appellant argued that the collection was not illegal as per a combined reading of Section 3(2) of the Surcharge Act and Section 22(1) and (2) of the Sales Tax Act. The Board, however, relied on Joshi, Sales Tax Officer v. Ajit Mills Ltd. [1977] 40 STC 497 (SC), which held that proving mens rea is unnecessary for imposing penalties for illegal tax collection.

3. Applicability of Mens Rea in Fiscal Penalties:
The appellant argued that the penalty should not apply due to the absence of mens rea, citing State of Tamil Nadu v. Mathurai Veerasamy & Co. [1983] 52 STC 131 (Mad.). The court clarified that mens rea, a criminal law concept, has limited applicability in fiscal matters. The imposition of penalties in fiscal laws serves as a deterrent and ensures compliance with statutory provisions, irrespective of the taxpayer's intent. The court emphasized that penalties under fiscal laws are not punitive but corrective, aimed at ensuring adherence to tax laws.

4. Interpretation of Section 3(2) of the Tamil Nadu Sales Tax (Surcharge) Act, 1971:
The appellant contended that Section 3(2) of the Surcharge Act does not extend all provisions of the Sales Tax Act, particularly the penalty provisions. The court examined Section 3(2) of the Surcharge Act, which states that the provisions of the Sales Tax Act apply to surcharge as they do to tax. The court held that this inclusion extends to all relevant provisions, including penalties under Section 22(2) of the Sales Tax Act. The absence of explicit terms like "all provisions" or "penalty" in Section 3(2) does not exclude the applicability of the penalty provisions.

Conclusion:
The court dismissed the appeal, affirming the Board of Revenue's decision to reinstate the penalty imposed by the assessing officer. The court held that the penalty was correctly imposed under the applicable statutory provisions, and the appellant's arguments regarding the non-applicability of penalty provisions and the necessity of mens rea were not sustainable. The appeal was dismissed with costs, and the penalty was upheld as per the law.