2023 (4) TMI 761 - SC - VAT and Sales Tax

Waiver of penalty and interest levied under subsection (6) of Section 45 of the Gujarat Sales Tax Act 1969 - classification of services - contract of coating of pipes - civil works contract or not - case of Revenue is that the composition amount is payable not at the rate of 2% as deposited by the respondent but it falls under Residuary Entry8 to the notification dated 18.10.1993. The High Court has set aside the penalty and interest on the ground that the assessee was under the bonafide opinion and following the advice paid the tax at 2% and that thereafter when the enhanced tax as imposed has already been paid by the assessee the penalty and interest is not required to be paid by the assessee. HELD THAT - On a fair reading of Section 45 of Gujarat Sales Tax Act 1969 it can be seen that as per subsection (2) of Section 45 of the Act 1969 penalty is leviable if it appears to the Commissioner that a dealer has concealed the particulars of any transaction or deliberately furnished inaccurate particulars of any transaction liable to tax. In the present case it cannot be said that the dealer has concealed the particulars of any transaction or deliberately furnished inaccurate particulars of any transaction liable to tax. However in so far as penalty leviable under subsection (6) of Section 45 of the Act 1969 is concerned the penalty leviable under the said provision is as such a statutory penalty and there is no discretion vested with the Commissioner as to whether to levy the penalty leviable under subsection (6) of Section 45 of the Act 1969 or not. Subsection (5) of Section 45 provides that in the case of a dealer where the amount of tax assessed for any period under sections 41 or 50 or reassessed for any period under Section 45 exceeds the amount of tax already paid by the dealer in respect of such period by more than 25% of the amount of tax so paid the dealer shall be deemed to have failed to pay the tax to the extent of difference between amount so assessed or reassessed as aforesaid and the amount paid - Considering subsection (5) of Section 45 of the Act 1969 if a dealer is deemed to have failed to pay the tax to the extent mentioned in subsection (5) there shall be levied on such dealer a penalty not exceeding one and onehalf times the difference referred to in subsection (5). Under the circumstances to the aforesaid extent and on the difference of tax as per subsection (5) of Section 45 the respondent assessee dealer shall be liable to pay the penalty as mentioned under subsection (6) of Section 45. On a bare reading of subsections (5) and (6) of Section 45 it is evident that it is integral part of the assessment that the penalty be levied on the difference of amount of tax paid and amount of tax payable as per the order of assessment or reassessment as the case may and the same shall be automatic. Therefore when the penalty on the difference of amount of tax paid and tax payable is more than 25% of the amount of tax so paid there shall be automatic levy of penalty under Section 45(6) of the Act. The Gujarat High Court while considering the very provision and penalty and interest imposed under Section 45(6) and Section 47(4A) of the Act 1969 has taken a consistent view in the cases of Riddhi Siddhi Gluco Biols Ltd. 2017 (4) TMI 309 - GUJARAT HIGH COURT and Oil and Natural Gas Corporation Limited 2016 (4) TMI 94 - GUJARAT HIGH COURT that the penalty leviable under Section 45(6) of the Act is a statutory and mandatory penalty and there is no question of any mens rea on the part of the assessee to be considered. In the aforesaid decisions it is observed and held that levy of penalty is automatic on the eventualities occurring under subsection (5) of Section 45 of the Act 1969. On strict interpretation of Section 45 and Section 47 of the Act 1969 the only conclusion would be that the penalty and interest leviable under Section 45 and 47(4A) of the Act 1969 are statutory and mandatory and there is no discretion vested in the Commissioner/Assessing Officer to levy or not to levy the penalty and interest other than as mentioned in Section 45(6) and Section 47 of the Act 1969. It is needless to observe that such an interpretation has been made having regard to the tenor of Sections 45 and 47 of the Act 1969 and the language used therein. The impugned judgment and order passed by the High Court on the grounds that the amount of tax has already been paid by the assessee dealer; that the assessee dealer was under the bonafide belief that it was liable to pay the tax at the rate of 2% is unsustainable. The impugned judgment and order passed by the High court is hereby quashed and set aside - Appeal allowed.

Summary

Issues Involved:
1. Whether the penalty and interest levied under Section 45(6) and Section 47(4A) of the Gujarat Sales Tax Act, 1969 are valid.
2. Whether mens rea is required to be considered for the imposition of penalty and interest under the said sections.

Summary:

1. Validity of Penalty and Interest under Section 45(6) and Section 47(4A):

The Supreme Court addressed the appeal by the State of Gujarat challenging the High Court's decision to set aside the penalty and interest levied under Section 45(6) and Section 47(4A) of the Gujarat Sales Tax Act, 1969. The respondent company had deposited tax at the rate of 2% on sales involved in the execution of works contract by treating it as a civil works contract. The Assessing Officer (AO) determined that the contract did not qualify as a civil works contract and levied additional tax, interest, and penalty. The High Court set aside the penalty and interest, reasoning that the respondent acted under a bona fide belief and had already paid the enhanced tax.

2. Consideration of Mens Rea:

The Supreme Court examined whether mens rea (guilty mind) is required for the imposition of penalty and interest under Section 45(6) and Section 47(4A). The Court emphasized that the penalties under these sections are statutory and mandatory. The language of the statute, particularly the use of "shall be levied," indicates that the penalties are automatic upon the occurrence of specified conditions, without the need for proving mens rea. The Court referenced multiple precedents, including *Union of India v. Dharamendra Textile Processors* and *Chairman, SEBI v. Shriram Mutual Fund*, to support the view that mens rea is not required for civil penalties unless explicitly stated in the statute.

Conclusion:

The Supreme Court concluded that the penalty and interest under Section 45(6) and Section 47(4A) are statutory and mandatory, and there is no discretion for the Commissioner or Assessing Officer to waive them based on the assessee's bona fide belief or other considerations. The High Court's decision to set aside the penalty and interest was overturned, and the orders of the Assessing Officer and the Tribunal were restored. The appeal by the State of Gujarat was allowed.