2019 (7) TMI 145 - HC - VAT and Sales Tax

Imposition of penalty - requirement of mens rea - levy of Luxury tax - Section 4E of the Kerala Tax on Luxuries Act, 1976 - bonafide belief or not - HELD THAT - In examining whether mens rea is an essential element to impose penalty under a taxing statute, regard must be had to the following factors (i) the object and scheme of the statute; (ii) the language of the section and; (iii) the nature of penalty - Penalty is attracted simpliciter on violation of statutory provisions of civil law. When it is provided in the statute that the act which attracts levy of penalty shall be committed 'knowingly', 'falsely', 'intentionally', 'fraudulently', 'wilfully' etc, then it can be found that it requires mens rea for imposing penalty. The use of such expressions indicates the intention of the legislature in clear terms that mens rea is an essential element. On a close scrutiny of the provisions contained in Section 17A of the Act, we are of the considered opinion that mens rea on the part of the assessee is not an essential element to be proved for imposing penalty under that provision. The scheme of the Act in imposing penalty is very clear. The defaults and failures which attract penalty are nothing but violations or failures or defaults of statutory civil obligations provided under the Act. The proceedings for imposing penalty under the Act are neither criminal nor quasi-criminal - The penalty is leviable in cases of default or failure of obligations under the Act which are civil in nature. There is nothing in the provisions contained in Section 17A of the Act which indicates that guilty intention of the assessee is required to be established before imposing penalty. Thus there is no question of proof of guilty intention or mens rea by the assessee and it is not an essential element for imposing penalty under Section 17A of the Act. However, we take note of the fact that, for evasion of payment of luxury tax, penalty cannot be imposed under Section 17A of the Act. This is for the reason that the provision contained in Section 17(2)(b)of the Act takes care of that situation by providing punishment for such act. Evasion of luxury tax is not an act specifically mentioned under Section 17A of the Act - Since punishment is provided under Section 17(2)(b) for evasion of payment of luxury tax, in view of the provision contained in Section 17A(d) of the Act, penalty cannot be levied under Section 17A for committing such act. The failure to get registration under the Act and failure to file monthly returns under the Act attract levy of penalty. But, we take note of the fact that the assessee has not collected luxury tax from the patients - We also take note of the fact that the assessee immediately paid the luxury tax due pursuant to the order passed by the assessing authority. Considering these circumstances, we find that the amount of penalty payable by the petitioner can be reduced to ₹ 1,00,000/-. Revision petition allowed in part.

Summary

Issues Involved:
1. Whether 'mens rea' is essential for imposing a penalty under the Kerala Tax on Luxuries Act, 1976.
2. Validity of the penalty imposed on the petitioner for non-registration and non-payment of luxury tax.
3. Quantum of penalty imposed on the petitioner.

Issue-wise Detailed Analysis:

1. Whether 'mens rea' is essential for imposing a penalty under the Kerala Tax on Luxuries Act, 1976:

The primary issue was whether mens rea (guilty mind) is a sine qua non for imposing a penalty on an assessee under the Kerala Tax on Luxuries Act, 1976. The petitioner argued that the non-registration and non-payment were not intentional and that mens rea is essential for imposing penalties. However, the court referred to the Supreme Court's decision in Union of India v. Dharamendra Textile Processors, which held that mens rea is not an essential element for imposing penalties for breach of civil obligations. The court also noted that the language of Section 17A of the Act does not indicate the necessity of proving mens rea. Therefore, the court concluded that mens rea is not required for imposing penalties under Section 17A of the Act.

2. Validity of the penalty imposed on the petitioner for non-registration and non-payment of luxury tax:

The petitioner, a hospital, did not register under Section 4E of the Act, did not file returns, and did not pay luxury tax for the specified period. The assessing authority imposed a penalty twice the amount of the unpaid tax. The petitioner challenged this, arguing that they were unaware of the amendment bringing hospitals under the Act's purview. However, the court rejected the plea of ignorance of law, stating that ignorance of law is not an excuse. The court confirmed the imposition of the penalty, noting that the petitioner’s obligations to register, file returns, and pay the tax were undisputed.

3. Quantum of penalty imposed on the petitioner:

The assessing authority initially imposed a penalty of ?6,18,740/-, which was later reduced to ?3,09,370/- by the appellate authority. The court noted that while the penalty for evasion of luxury tax cannot be imposed under Section 17A due to specific provisions under Section 17(2)(b), penalties for non-registration and non-filing of returns are valid under Section 17A. The court acknowledged that the petitioner did not collect luxury tax from patients and promptly paid the due tax following the assessing authority's order. Considering these factors, the court reduced the penalty to ?1,00,000/-.

Conclusion:

The court partially allowed the revision petition, confirming the imposition of the penalty but reducing the quantum to ?1,00,000/-. The court emphasized that mens rea is not required for imposing penalties under the Act and upheld the validity of the penalties for non-registration and non-filing of returns.