2003 (8) TMI 490 - HC - VAT and Sales Tax

Manufacture and sale of handloom cloths - Imposition of penalty u/s 10(b) - false representation regarding purchases of cotton waste polythene sutli and tat covered by form C - HELD THAT - As soon as penalty notice dated October 15 1985 was issued to the dealer it applied for amendment of certificate of registration for inclusion of cotton waste in the certificate. The department granted the said amendment on October 15 1985 and the dealer-applicant became entitled to purchase cotton waste against form C. The case of the dealer in reply to the show cause notice was that it bona fidely believed that cotton waste is also covered in cotton . As soon as the mistake was realised necessary application for amendment was filed. This action of the dealer itself shows its bona fide. The representation in order to attract section 10(b) should be false representation to the knowledge of the assessee. If the assessee bona fidely believes that the goods are covered by certificate of registration but it ultimately turned out to be incorrect it will not attract the provisions of section 10(b) of the Act. The use of the word falsely implies that the persons making representation knew that certificate of registration does not cover the item but knowingly fully well that it does not represents that issuing form C covers it. It is also submitted that mens rea is necessary ingredients for imposition of penalty under the aforesaid section. However this plea has been repelled by this Court in case of Commissioner of Sales Tax v. Rama and Sons. I am bound by the aforesaid judgment. When tax laws are so complex the administration should proceed specially in the penalty matter from the view of ordinary citizen who is always willing to comply with the conditions of law. The assessee as soon as it came to know about its fault filed application for amendment of registration certificate. Some fault was on the part of the department also for maintaining silence over the period of about eight years. The upshot of the above discussion is that in the facts of the present case the finding of the Tribunal that it was a case of false representation cannot be sustained. The Tribunal while recording the said finding has failed to consider relevant facts which were available on record and as such this finding is vitiated. All the revisions are allowed. The penalty orders are hereby set aside so far as it relates to cotton waste . In respect of other items the penalty order having not been challenged is maintained. Petitions allowed.

Summary

Issues involved: Penalty under section 10(b) of the Central Sales Tax Act for the assessment years 1979-80, 1981-82, 1982-83, and 1983-84 based on the controversy of false representation regarding purchases of cotton waste, polythene, sutli, and tat covered by form C.

Summary:

Issue 1: Penalty under section 10(b) of the Central Sales Tax Act
- The revisions concern the penalty order under section 10(b) of the Central Sales Tax Act for the mentioned assessment years.
- The applicant, a registered dealer, imported various items including cotton waste, polythene, sutli, and tat against form C.
- The department issued a show cause notice for penalty under section 10(b) for misrepresentation regarding the purchases.
- The Tribunal previously set aside the penalty for cotton waste, considering it a case of bona fide error.
- The Tribunal in the present revisions found false representation in issuing form C for items not covered by the registration certificate.
- The applicant argued that the long-standing practice of issuing form C for cotton waste without objection from the department indicates no false representation.
- The Court emphasized the distinction between false and wrong representation, requiring deliberate action for false representation.
- The applicant promptly applied for an amendment to include cotton waste in the registration certificate upon realizing the mistake, demonstrating good faith.
- The Court rejected the argument that mens rea is necessary for penalty under section 10(b) based on precedent.
- The Court highlighted the complexity of tax laws and the need for leniency towards ordinary citizens striving to comply.
- The Tribunal's finding of false representation was deemed unsustainable due to overlooking crucial facts on record.
- The revisions were allowed, setting aside the penalty for cotton waste while maintaining it for other items not challenged.

This judgment clarifies the criteria for imposing penalties under section 10(b) of the Central Sales Tax Act, emphasizing the importance of deliberate false representation and good faith actions by the dealer.