2013 (9) TMI 111 - HC - VAT and Sales Tax

Penalty Proceedings u/s 4-B(5) of the Trade Tax Act, 1948 - Revenue was of the view that the Tendu Leave was not utilized in U.P. which was purchased in U.P. by paying concessional rate of tax - Held that - The initiation of penalty u/s 4-B(5) of the Trade Tax Act proceedings was not desirable specially when the final verdict in the quantum appeal was yet to come from the Hon ble Supreme Court - There was no justification for levy of the penalty specially when the quantum appeal had not attained the finality and matter was subjudice before the Hon ble Supreme Court who had already granted leave being satisfied prima facie. The assessee had purchased Tendu Leave after payment of the Tax on concessional rate - The said raw-materials was exclusive used for the finished goods, which were sold within the State of U.P. Perhaps due to cheap labour, raw-material was sent outside the State on temporary basis but the same was returned in the form of finished goods to the State of U.P., where it was finally disposed by way of sale. The assesse had not concealed any particular or any transaction - Everything was disclosed to the A.O. For the inter State Trade or Commerce, the penalty was leviable u/s 4-B(6) of the Act - but no penalty was levied under the said provision as there was no inter State Trade or Commerce - No finished goods were exported from the State - No sale was made outside the State - Raw-materials was received back in the form of finished goods - The assesse had already deposited the difference of Tax - the tax was already paid @15% along with interest - There was no loss to the revenue - There was no attempt to conceal any transaction. In the case of the BHAGWAN DASS VIJAY KUMAR MANDI DABWALI vs. COMMISSIONER OF INCOME TAX 1980 (4) TMI 10 - PUNJAB AND HARYANA High Court - The penalty may not be imposed merely because there was a technical or venial breach and not deliberately defiance of law or conscious disregard of obligation by the assesse - The department must establish some sort of mens rea - There was no mens rea on the part of the assessee- petitioner as there was no concealment of any particular or transaction - The entire tax along with the interest was deposited before initiation of proceedings - There was no loss to revenue Order set aside Decided in favour of Assesse. .

Issues Involved:
1. Validity of initiating penalty proceedings under Section 4-B(5) of the Trade Tax Act, 1948.
2. Differentiation between quantum proceedings and penalty proceedings.
3. Applicability of remission schemes and their impact on penalty.
4. Mens rea (intent to commit wrongdoing) in the context of penalty imposition.

Detailed Analysis:

1. Validity of Initiating Penalty Proceedings under Section 4-B(5) of the Trade Tax Act, 1948:
The petitioner challenged the orders initiating penalty proceedings for the assessment year 1997-98 under Section 4-B(5) of the Trade Tax Act. The petitioner, a public limited company, purchased Tendu Leaves in U.P. at a concessional tax rate of 2.5% and sent them to manufacturing units outside the state. The A.O. initiated penalty proceedings on the grounds that the Tendu Leaves were not utilized within U.P., violating the terms of the concessional tax scheme. The petitioner argued that the raw material was used for manufacturing Bidi, which was sold within U.P., thus not breaching any provisions of the Act.

2. Differentiation between Quantum Proceedings and Penalty Proceedings:
The petitioner contended that quantum proceedings and penalty proceedings are distinct. The quantum matter was pending before the Supreme Court, and the penalty proceedings were initiated despite this. The court referenced the case of Durga Kamal Rice Mills vs. Commissioner of Income Tax, which emphasized that findings in quantum proceedings are not binding in penalty proceedings. The court noted that penalty proceedings are intended to punish and are not criminal in nature. The court found no justification for the penalty, especially since the quantum appeal had not reached finality and was still sub judice before the Supreme Court.

3. Applicability of Remission Schemes and Their Impact on Penalty:
The petitioner availed of a state government scheme that allowed remission of 90% interest on depositing 10% of the interest amount. The petitioner deposited Rs.4,31,000/- as 10% of the interest amount within the stipulated period. The court noted that the petitioner had already deposited the tax difference and interest, resulting in no loss to the revenue. The court emphasized that the penalty proceedings were not warranted, given the compliance with the remission scheme and the absence of any revenue loss.

4. Mens Rea in the Context of Penalty Imposition:
The court highlighted that penalty imposition requires establishing mens rea, or intent to commit wrongdoing. The petitioner had disclosed all transactions to the A.O. and deposited the tax difference and interest voluntarily. The court referenced cases such as Ganesh Travanera Agency vs. CIT and Zoraster vs. CIT, which held that penalties should not be imposed for technical breaches without deliberate defiance of law or conscious disregard of obligations. The court found no evidence of mens rea on the petitioner's part, as there was no concealment of transactions and no loss to the revenue.

Conclusion:
The court set aside the orders initiating penalty proceedings under Section 4-B(5) of the Trade Tax Act for the assessment year 1997-98. It concluded that the initiation of penalty proceedings was unjustified, especially when the quantum appeal was pending before the Supreme Court and the petitioner had complied with the remission scheme, resulting in no revenue loss. The writ petition was allowed, and the penalty proceedings were quashed.

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