2002 (10) TMI 759 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the penalty imposed under section 5(3) and (7) of the Kerala General Sales Tax Act, 1963.
2. Jurisdiction to initiate proceedings under section 45A.
3. Evasion of tax and the applicability of section 45A(1)(f) and (g).
4. Requirement of mens rea for imposing penalty.
5. Appropriateness of the quantum of penalty imposed.

Detailed Analysis:

1. Validity of the Penalty:
The appellant, a manufacturer of automobile tyres and tubes, purchased raw materials locally on payment of 4% tax using form No. 18 declarations under the Kerala General Sales Tax Rules, 1963. The products manufactured using these raw materials were transferred to branches outside the state without paying sales tax, violating section 5(3) and (7) of the KGST Act. The original authority imposed a penalty of Rs. 11,86,150, which was affirmed by the first revisional authority and the Board of Revenue.

2. Jurisdiction to Initiate Proceedings:
The appellant contended that as a purchasing dealer, it was not liable to pay tax, and hence, there was no evasion or violation warranting proceedings under section 45A. It was argued that section 5(3)(ii), which imposes liability on the purchasing dealer, was introduced only in 1993, and thus, there was no obligation to pay tax during the financial year 1982-83.

3. Evasion of Tax:
The court noted that the appellant's wrong declaration resulted in a substantial loss of tax to the government. Despite the appellant not being liable to pay tax directly under section 5(3) and (7) as it stood then, the wrong declaration under form No. 18 led to tax evasion. Section 45A(1)(f) and (g) were applicable as the appellant failed to use the goods for the declared purpose and acted in contravention of the Act and Rules. The term "evasion" was interpreted based on its dictionary meaning, indicating the appellant's act of avoiding a legal obligation.

4. Requirement of Mens Rea:
The appellant argued that there was no contumacious conduct, and thus, no mens rea to attract penalty under section 45A. However, the court found that the appellant knowingly transferred products out of state without paying tax, which constituted a conscious act warranting penal consequences. The Board of Revenue's detailed consideration of this aspect was upheld.

5. Appropriateness of the Quantum of Penalty:
The appellant contended that the maximum penalty was arbitrary and unjust. The court, however, found the Board of Revenue's decision plausible and within its discretion. The court emphasized that it could not substitute its decision for that of the competent authority unless the latter's decision was clearly wrong. The learned single Judge's decision to uphold the penalty was found to be in accordance with legal principles, and no interference was warranted.

Conclusion:
The writ appeal was dismissed, affirming the penalty imposed on the appellant for violating the conditions under section 5(3) and (7) of the KGST Act. The court upheld the jurisdiction to initiate proceedings under section 45A and found that the appellant's actions constituted tax evasion. The requirement of mens rea was deemed satisfied, and the quantum of penalty was considered appropriate. The judgment emphasized the limits of appellate interference with decisions of competent authorities.