2024 (12) TMI 938 - HC - VAT / Sales Tax

Levy of penalty under Section 10(d) of the CST Act - Entitlement of reduced rates of tax on sales in the course of inter state trade is available by virtue of Section 8(1) read with Section 8(3)(b) of the CST Act - existence of mens rea or not - whether the imposition of penalty, is an act which is automatic upon there being a default of the conditions, enabling the levy of penalty as specified under Section 10 or whether it is incumbent upon the Department to establish a case for imposition of levy and the assessee can escape the levy of penalty by discharging the responsibilities/conditions, specified in Section 10 (d)? - HELD THAT - It is clearly well settled that the provisions of penalty as prescribed in the various statutes have to be interpreted in the light of the language used in the said statutes. It is clearly well settled that where the penalty prescribed under a fiscal statute, is dependent on happening of particular act without anything else to be established, no necessity is to be established and the penalty is a natural consequence of the happening of that event, however, in the physical institute, if a penalty is prescribed dependent on factor as specified in the said statutes, the penalty can be imposed only on the happening of the said event and after observing the conditions as prescribed. In the present case, the interpretation of Section 10(d) has come up for consideration before the Supreme Court in the judgment in COMMISSIONER OF SALES TAX, UP. VERSUS SANJIV FABRICS AND HARI OIL GENERAL MILLS 2010 (9) TMI 461 - SUPREME COURT , and the Supreme Court has after considering the statutory provisions has held that it is essential that the mens rea be established. Even otherwise on the plain reading of Section 10(d) the phrase reasonable cause has been duly discharged by the revisionist by producing the certificate of an Engineer, thus necessary ingredient for levy of penalty have neither been alleged established or proved in the present case, as such, for the reasons recorded above, the order of penalty cannot be justified and is quashed. The questions are answered in favour of the revisionist. Revision disposed off.

Summary

Issues:
Interpretation of Section 8(3)(b) of the CST Act
Applicability of penalty under Section 10(d) of the CST Act
Scope of revisional power before the High Court

Analysis:
The judgment involved a revisionist challenging a penalty imposed for alleged misuse of benefits under Section 8(1) read with Section 8(3)(b) of the CST Act. The revisionist claimed reduced tax rates under Form C for procuring cement for construction purposes. The Assessing Officer denied the benefit, leading to a tribunal remand. Despite producing a certificate by a Chartered Engineer, a penalty was imposed based on presumptions of cement usage. The tribunal upheld the penalty, leading to the revision challenging the penalty imposition.

In the argument, the revisionist's counsel contended that the penalty provision under Section 10(d) required proof of mens rea and reasonable excuse for non-use of goods for intended purposes. Citing precedents from the Gujarat High Court and the Supreme Court, the revisionist emphasized the necessity of establishing mens rea for penalty imposition. The revisionist also relied on a Supreme Court case interpreting Section 11 AC of the Central Excise Act, highlighting the importance of criminal intent for levying penalties.

The revisionist's counsel argued that the revisionist had provided evidence of cement consumption and a reasonable excuse for any alleged misuse. The revisionist contended that the Department failed to prove malafide intent or non-compliance with statutory provisions, justifying the penalty imposition. The revisionist urged that the penalty should be set aside due to the absence of necessary ingredients for penalty imposition under Section 10(d).

The respondent's counsel opposed the revision, emphasizing the limited scope of revisional power before the High Court. The respondent argued that the revisionist could not introduce new grounds during the revision and that the revision should be dismissed.

The High Court analyzed the statutory provisions and precedents cited, concluding that the imposition of penalty required the establishment of mens rea and reasonable excuse. The Court found that the revisionist had discharged the burden of proof by producing an engineer's certificate, negating the Department's failure to establish grounds for penalty imposition. Consequently, the Court quashed the penalty order in favor of the revisionist, highlighting the importance of establishing necessary ingredients for penalty imposition under Section 10(d).

In the final disposition, the High Court ruled in favor of the revisionist, setting aside the penalty order based on the lack of established grounds for penalty imposition. The judgment highlighted the significance of proving mens rea and reasonable excuse for penalty imposition under the CST Act, ultimately favoring the revisionist's arguments and dismissing the penalty.