2006 (11) TMI 589 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Entitlement to purchase machinery and equipment for captive power plant using "C" forms.
2. Contravention of provisions under Section 10A of the CST Act.
3. Validity of penalty imposed in the absence of mens rea.
4. Limitation period for initiating penalty proceedings.

Issue-wise Detailed Analysis:

1. Entitlement to Purchase Machinery and Equipment for Captive Power Plant Using "C" Forms:
The petitioner, a registered company, established a plant for manufacturing paper and pulp and faced erratic power supply, leading to the establishment of a captive power generation plant. The petitioner argued that the machinery and equipment for the power plant were purchased under "C" forms as per their registration certificates under the Orissa Sales Tax Act, 1947, and the Central Sales Tax Act, 1956. However, the Sales Tax Officer alleged that these goods were not used in the manufacturing process of paper but for constructing the power plant, thus violating the CST Act. The court examined whether the petitioner could purchase machinery for the captive power plant using "C" forms and concluded that such machinery was not integrally connected with the manufacturing process of paper, thus not permissible under the registration certificate.

2. Contravention of Provisions Under Section 10A of the CST Act:
The Sales Tax Officer issued a show cause notice under Section 10A of the CST Act, alleging that the petitioner misused "C" forms to purchase machinery for purposes other than manufacturing paper. The court reviewed Section 8(3)(b) and Rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957, and concluded that the goods purchased were not intended for use in manufacturing paper but for generating electricity, which is a separate process.

3. Validity of Penalty Imposed in the Absence of Mens Rea:
The petitioner argued that the penalty under Section 10(d) of the CST Act required proof of mens rea, which was not established. The court referred to previous judgments, including NALCO [1994] 93 STC 529 (Orissa), which held that mens rea is a condition precedent for imposing penalty. The court found that the petitioner had a reasonable excuse and bona fide belief that the machinery was connected to the manufacturing process. Consequently, the penalty imposed was not justified as the Revenue failed to establish mens rea.

4. Limitation Period for Initiating Penalty Proceedings:
The petitioner contended that the penalty proceedings initiated in 1988 for the period 1984-85 were barred by limitation. The court did not specifically address this issue in the judgment but focused on the procedural and substantive aspects of the penalty imposition.

Conclusion:
The court quashed the penalty imposed by the Sales Tax Officer and the revisional authority, citing procedural infirmities and the absence of mens rea. However, it directed the petitioner to pay the differential tax at the prevailing rate along with interest. The writ petition was allowed to the extent indicated, and both the assessment and revisional orders were quashed accordingly.