2010 (9) TMI 461 - SC - VAT and Sales Tax

Penalty requirement of mens rea is an essential ingredient for the levy of penalty under Section 10(b) read with Section 10A of the Central Sales Tax Act 1956 - object of Section 10(b) of the Act is to prevent any misuse of the registration certificate but the legislature has in the said Section used the expression falsely represents in contradistinction to wrongly represents Held that - burden would be on the revenue to prove the existence of circumstances constituting the offence - mens rea is a condition precedent for levying penalty under Section 10(b) read with Section 10A of the Act Furnishing of C Forms - certificate of registration - Held that High Court has deleted the penalty on the ground that apart from the fact that on earlier occasions the department had not raised any objection while issuing Form C to the dealer the dealer filed an application for amendment of the registration certificate as soon as he learnt about his fault. It is evident from the impugned judgment that the High Court has lost sight of the fact that the dealer had used Form C to import items like sutli tat etc. in addition to the cotton waste. Assuming that the dealer was of the bona fide belief that cotton included the cotton waste it is hard to believe that there was some confusion in the mind of the dealer in so far as other items were concerned. - Matter remanded back for fresh reconsideration.

Issues Involved:
1. Levy of penalties under Section 10(b) read with Section 10A of the Central Sales Tax Act, 1956.
2. Requirement of mens rea for the imposition of penalties under the Act.
3. Examination of bona fide belief and false representation by the dealer.

Issue-wise Detailed Analysis:

1. Levy of Penalties under Section 10(b) read with Section 10A of the Central Sales Tax Act, 1956:

The appeals were directed against the judgments of the High Court of Allahabad, which reversed the orders of the Sales Tax Tribunal, Meerut. The Tribunal had affirmed the levy of penalties on the respondent in one set of appeals and had set aside the penalties in another set. The penalties were imposed for using Form 'C' for purchasing items not covered by the dealer's certificate of registration. The High Court allowed the revision petitions on the ground that the department had not raised any objections earlier, indicating a bona fide belief by the dealer.

2. Requirement of Mens Rea for the Imposition of Penalties under the Act:

The primary issue was whether mens rea is an essential ingredient for the levy of penalty under Section 10(b) read with Section 10A of the Act. The court noted that the expression "falsely represents" indicates that the offence comes into existence only when a dealer acts deliberately in defiance of law or is guilty of contumacious or dishonest conduct. The court emphasized that a finding of mens rea is a condition precedent for levying penalty under Section 10(b) read with Section 10A of the Act.

3. Examination of Bona Fide Belief and False Representation by the Dealer:

The court examined whether the dealers had purchased the goods and furnished Form 'C' knowing that the goods were not covered by their certificates of registration. In the first set of appeals, the High Court deleted the penalty, noting the dealer's bona fide belief and immediate application for amendment of the registration certificate. However, the Supreme Court noted that the dealer used Form 'C' for items like sutli and tat, in addition to cotton waste, suggesting a lack of bona fide belief for these items. In the second set of appeals, the High Court did not adequately examine the dealer's explanation of a bona fide belief that oil seeds were covered under the registration certificate.

Conclusion:

The Supreme Court allowed both appeals, set aside the impugned judgments, and remitted the cases back to the adjudicating authority for fresh consideration. The authority was instructed to re-evaluate whether penalties under Section 10(b) read with Section 10A of the Act were leviable, considering the bona fide belief and mens rea of the dealers. The fresh decisions should be made on the merits of each case, without being influenced by the previous judgments or the Supreme Court's observations in this judgment.

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