2022 (7) TMI 712 - HC - VAT and Sales Tax

Levy of penalty under Section 10-A of the Central Sales Tax Act, 1956 - existence of mens rea (Guily mind/intent to evade) or not - Whether in absence of finding of mensrea, which is condition precedent for levying penalty under Section 10(b) read with Section 10A of the Central Sales Tax Act? - HELD THAT - The penalty order cannot be sustained as the essential condition for imposition of penalty under Section 10-A of the Act is issuance of false declaration. In the present case, all that the revenue has been able to establish in the penalty order is - though the applicant was authorized to furnish Form C to purchase Furnace Oil and Light Diesel Oil, it wrongly made purchases of High Speed Diesel Oil by utilizing Form C. Whether the explanation furnished by the assessee to entertain bonafide belief that the goods High Speed Diesel Oil were similar to and, therefore, covered under the list of items appended to its registration certificate has not been considered and no discussion exists as to that - Perusal of the reply furnished by the assessee indicates, plea of bonafide belief had been raised. The merits of that explanation apart, it was incumbent on the assessing authority to consider the same and pass appropriate order especially with respect to allegation of false declaration. Unless that finding had been returned by the assessing authority, it is difficult to sustain the penalty under Section 10-A of the Act. In view of the absence of any finding recorded on the essential issue, the question of law is answered in negative i.e. in favour of the assessee and against the revenue.

Summary

Issues:
Levy of penalty under Section 10-A of the Central Sales Tax Act based on false declaration without mens rea.

Analysis:
The judgment pertains to a revision filed against the Commercial Tax Tribunal's decision confirming a penalty order under Section 10-A of the Central Sales Tax Act. The Tribunal upheld a penalty of Rs. 5,91,788 against the assessee. The primary question raised in the revision was whether the penalty could be imposed in the absence of mens rea, a crucial element for levying penalties under Section 10(b) read with Section 10A of the Act.

Upon review, the High Court found that the penalty order lacked merit as it did not establish the essential condition for imposing penalties under Section 10-A, which is the issuance of a false declaration. The revenue's case only proved that the assessee, authorized to use Form C for certain goods, mistakenly used it for High Speed Diesel Oil instead of the correct goods. The court emphasized that without a false declaration, sustaining the penalty under Section 10-A was challenging.

Furthermore, the court noted that the assessing authority failed to consider the assessee's explanation regarding a genuine belief that High Speed Diesel Oil fell under the registered items. The court highlighted that even if the explanation's merits were debatable, the authority should have addressed it before concluding on the false declaration allegation.

The court referenced a previous case to distinguish between "false representation" and "wrong representation," emphasizing that deliberate acts are necessary for penalties under Section 10(b). It highlighted that mens rea is a prerequisite for levying penalties under Section 10(b) read with Section 10-A of the Act.

Drawing from a Supreme Court ruling, the High Court reiterated that penalties under Section 10-A require proof of deliberate defiance or dishonest conduct, indicating mens rea as a crucial element. The court clarified that not all errors in using Form C constitute "false representation," underscoring the importance of intent in penalty imposition.

Ultimately, due to the absence of findings on essential issues and the necessity of mens rea for penalties under Section 10(b) read with Section 10-A, the court ruled in favor of the assessee, allowing the revision and setting aside the penalty. No costs were awarded in this decision.