PENALTY UNDER SECTION 10(b) OF CENTRAL SALES TAX ACT, 1956

[Mr. M. GOVINDARAJAN]

Section 10(b) of Central Sales Tax Act, 1956 provides that if any person, being a registered dealer, falsely represents when purchasing any class of goods that goods of such class are covered by his certificate or registration he shall be punishable with simple imprisonment which may extend to six months, or with fine, or with both; and when offence is continuing offence with a daily fine which may extend to Rs.50/- for every day during which the offence continues.

In ‘Commissioner, Trade Tax V. Project Technologist Private Limited’ – 2012 (11) TMI 371 - Allahabad High Court the Allahabad High Court held that for imposing penalty under Section 10A  of Central Sales Tax Act read with Section 10(b) the department must establish that the goods purchased on ‘C’ form were under ‘false’ representation i.e., consciously and deliberately with full knowledge that the representation given in the declaration was not correct.   In other words, the purchasing dealer should made such representation with guilty mind.   In that connection the Hon’ble High Court made apt distinction between ‘wrong representation’ and ‘false representation’.

In ‘State of Tamil Nadu V. Nu-Tread Tyres’ – 2006 (7) TMI 578 - MADRAS HIGH COURT  the full Bench of Madras High Court held that the use of the word ‘falsely’ in Section 10(b) of the Central Sales Tax Act, 1956 implies that the person making the representation knew that the certificate of registration does not cover that item but knowing fully well that it does not state that it is covered.   The Court further held that the expression ‘falsely represents’ clearly shows that the element of mens rea is the necessary component of the offence and in the absence of mens rea, resorting to penal provision would not be proper unless it is established that the conduct of the dealer was contumacious or that there was deliberate violation of the statutory provision or willful disregard thereof.

In ‘Shoetek Agencies V. State of Tamil Nadu’ – 2014 (6) TMI 207 - Madras High Court the Department issued a show cause notice on 21.10.2005 stating that the petitioners have purchased machinery, which was not included in the CST registration certificate.   Therefore it was proposed by the Assessing Officer to impose penalty at 150% of the tax due on the turnover under Section 10(b) of the CST Act.   The assessee filed his reply in which he stated that all sales tax affairs were managed by its Accounts Officer and he acted on the bona fide belief that the said machinery also enjoy concessional rate of tax at 4% and C forms can be issued by any registered dealer.   The appellant further indicated that it took up the matter before the consultant, after receiving the  notice and that the Accounts Officer had no occasion to understand the provisions of law to that extent and the mistake committed was only bona fide and not intentional.   In this regard the Accounts Officer of the petitioner filed an affidavit.   The Assessing Officer accepted the explanation offered by the petitioner.  However he reduced the penalty to 100% of tax due instead of 150%.

The Commissioner (Appeals) after considering the entire facts and the bona fide belief of the petitioner, allowed the appeal.   The State preferred appeal before the Tribunal which considered the facts and observed that the assessee ought to have been careful enough to issue C form declaration only in respect of such goods, which are authorized in the Form B Certificate issued to them.   The Tribunal reversed the decision of the First Appellate Authority and restored the penalty imposed by the Assessing Officer.

The petitioner against the order of the Tribunal filed revision petitioner before the High Court raising following substantial questions of law:

• Whether the Tribunal has committed an error of law in holding that if the goods purchased do not appear in its registration certification in Form R, a false representation would have been made?
• Whether when a plea of ignorance of law is taken, the correctness of which is also not doubted, can mens rea be inferred?

The High Court considered the following issues:

• Whether the Tribunal was justified in reversing the order passed by the Appellate Assistant Commissioner in deleting the penalty levied?
• Whether the Tribunal has recorded any justifiable reason to reject the explanation given by the assessee as not been bona fide?

The High Court observed that the Assessing officer while issuing notice to the petitioner did not make any specific allegations that there was an element of mens rea on the part of the assessee and that the conduct of the dealer was contumacious and they have deliberately violated the statutory provisions and what is stated is that the said item of machinery was not included in the CST registration certificate.   The petitioner gave explanation setting out the fact that owing to the bona fide circumstances, they thought they would be entitled to the concessional rate of tax of 4%. To substantiate such claim the affidavit of the Accounts Officer of the petitioner was also filed.   The Assessing Officer did not outrightly reject the explanation offered by the petitioner.  He partially accepted the same and reduced the levy of penalty to 100%.  The Appellate Authority after taking note of the entire facts deleted the penalty.   The Tribunal did not examine the facts of the case thoroughly rather it gave a peculiar finding that the assessee ought to have been careful enough to issue C Form declaration only in respect of such goods, which are authorized in the Form B certificate issued to them.   Such a finding would not be sufficient to uphold the penalty imposed.  In the absence of any such finding the High Court set aside the order of the Tribunal.