1999 (4) TMI 595 - HC - VAT and Sales Tax

Summary

Issues Involved
1. Applicability of Section 5(3) and (7) of the Kerala General Sales Tax Act, 1963 to the purchasing dealer.
2. Violation of the provisions of the Act by the petitioner regarding the use of raw materials and declaration.
3. Legality of the imposition of penalty under Section 45A without mens rea.

Issue-wise Detailed Analysis

1. Applicability of Section 5(3) and (7) to the Purchasing Dealer
The petitioner argued that Section 5(3) and (7) of the Kerala General Sales Tax Act, 1963 does not apply to the purchasing dealer as the liability to pay tax is on the selling dealer. The court, however, found that the petitioner filed a declaration in form 18 to obtain the benefit of concessional sales tax, which led to the selling dealer collecting only 4% sales tax instead of the full amount. The court held that under Section 45A, any person can be imposed with a penalty, not just the selling dealer. The court referenced a previous decision in *Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Bharat Refineries Limited* [1978] 42 STC 225, which established that the legislative wrath falls upon the purchasing dealer if a false declaration is made. Therefore, the first contention of the petitioner was dismissed.

2. Violation of the Provisions of the Act
The petitioner contended that there was no violation of the Act as the raw materials were used for manufacturing within the State and the finished products were for sale, even if sold outside the State. The court noted the first proviso of Section 5(7) and the declaration in form 18, which required that the finished products be liable to tax either under the Kerala General Sales Tax Act or the Central Sales Tax Act. Since the majority of the finished goods were transferred outside the State on a consignment basis, they were not liable to tax under either Act. The court found that this constituted a clear violation of the declaration, leading to a loss of revenue. The second contention was thus rejected.

3. Legality of Imposition of Penalty Without Mens Rea
The petitioner argued that the imposition of penalty under Section 45A was illegal as there was no deliberate intention to evade tax (mens rea). The court referred to the Supreme Court decision in *Hindustan Steel Ltd. v. State of Orissa* [1970] 25 STC 211, which held that penalty should not be imposed for technical or venial breaches without deliberate intention. However, the court found that the petitioner made a false declaration under form 18, resulting in tax evasion. The petitioner, a public limited company with well-educated officers, could not claim a bona fide error. The court held that the petitioner should have paid the difference in tax when they decided to transfer the goods on a consignment basis. The third contention was therefore dismissed.

Conclusion
The court upheld the findings of the lower authorities and the learned single Judge, confirming that there was evasion of tax and the imposition of maximum penalty was justified. The court dismissed the writ appeals, affirming the modified order which calculated the penalty based on the tax sought to be evaded, not the entire tax payable on the raw materials. The appeals were dismissed, and the judgment emphasized that the petitioner had evaded tax by misusing the form 18 declaration and transferring goods without making them subject to sales tax.

Final Judgment
The writ appeals were dismissed, and the court found no grounds to interfere with the impugned judgment. The petitioner was held liable for the imposition of penalty under Section 45A due to the false declaration and subsequent tax evasion.