1992 (12) TMI 202 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Delay in imposing the penalty.
2. Absence of mens rea (guilty mental state).
3. Liability of the transferee for the offences committed by the transferor.
4. Non-amendment of the registration certificate.
5. Non-application of mind by the respondent.

Detailed Analysis:

1. Delay in Imposing the Penalty:
The petitioner argued that the penalty imposed in 1988, 10-12 years after the earlier petitions against similar orders were allowed and 16 years after the alleged offences, was unreasonable. The court noted that discretionary actions such as imposing penalties must be initiated within a reasonable time. Judicial consensus indicates that delays beyond a reasonable period without justified circumstances are unreasonable. The respondent failed to provide a valid explanation for the delay, leading the court to quash the impugned orders due to the unreasonable delay.

2. Absence of Mens Rea:
The petitioner contended that the essential ingredient of the offence under section 10(b) of the CST Act, which is the guilty mental state (mens rea), was absent. The court explained that "false representation" implies a fraudulent, deceptive state of mind, which was not present in this case. Therefore, the requisite mental state for the offence was missing, and no offence was committed by the dealers.

3. Liability of the Transferee:
The petitioner, being the transferee of the business, argued that they could not be penalized for offences committed by the transferor. The court held that the CST Act does not impose penalty liability on the transferee for offences committed by the dealer. Section 26 of the KGST Act, which deals with the recovery of tax when the business is transferred, does not include penalty under section 10A of the CST Act as "other amount." The court concluded that the transferee is not liable for penalties for offences committed by the dealer.

4. Non-Amendment of the Registration Certificate:
The petitioner argued that no offence was committed by KDHP as the registration certificate was not amended by the authority during 1967-1973. The court found that the dealer, aware of the order disallowing certain goods, continued to use the certificate, thus representing a fact known to be false. However, since the petition succeeded on other points, this argument was not decisive in the final judgment.

5. Non-Application of Mind:
The petitioner claimed that the impugned orders suffered from non-application of mind by the respondent. The court did not find it necessary to decide on this point as the petition succeeded on the first three points.

Conclusion:
The court allowed the petition, quashing the impugned orders and directing the respondent to refund the entire amount of penalty recovered from the petitioner with interest at the rate of 6% per annum from the date of payment till the date of refund. The court emphasized that discretionary actions must be initiated within a reasonable time and that the transferee of a business cannot be penalized for offences committed by the transferor.