2014 (5) TMI 211 - HC - VAT and Sales Tax

Revision against dismissal of Second Appeal by Tribunal - Levy of penalty u/s Section 10(b) of the Central Sales Tax Act,1956 - Whether mens rea is essential part for levy of penalty - Held That - Judgment in The State of Tamilnadu rep. by the Deputy Commissioner of Commercial Taxes Versus Nu Tread Tyres 2006 (7) TMI 578 - MADRAS HIGH COURT followed - Section 10(b) of the Act provides for an offence if any person being registered dealer falsely represents when purchasing any class of goods that goods of such class are covered by his Certificate of Registration - The expression falsely represents clearly shows that the element of mens rea is the necessary component of the offence - In the absence of mens rea, resort 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 wilful disregard thereof - If the registered dealer honestly believes that any particular goods are embraced by the Certificate of Registration and on that belief makes a representation, he cannot be held guilty of the offence under Section 10(b) of the Act and no penalty can be imposed under Section 10-A of the Act - The question whether the assessee acted under the honest belief is a question of fact - Thus, mens rea is an essential ingredient for the levy of penalty under Section 10(b). In dealing with the question of levy of penalty u/s 10(b) is one has to necessarily keep in mind the nature of the business of the assessee -The nature of the business would not justify the purchase of diesel generator sets as forming part of the machinery to be used in the manufacture - Admittedly, the purchase of the generator set was only a standby to supply electricity whenever there was power failure - The assessee pointed out, in its reply that they were in the first year of business and they had commenced operations in India for the first time in the year 2002 and they had no previous knowledge of tax laws in India and there were none in their pay rolls to advise them on tax matters and they placed reliance on purchase department in-charge, who was an engineering graduate, hence, their bona fides could not be doubted - as against the penalty levied at 150%, the same could be reduced to 50% of the tax due - Confirming the levy of penalty imposed by the AO, the same is reduced to 50% of the tax due - The order of the Tribunal is set aside Decided partly in favour of assessee.

Summary

Issues:
1. Interpretation of Section 10(b) of the Central Sales Tax Act, 1956 regarding false representation.
2. Determining whether the items purchased by the assessee were covered under the Certificate of Registration.
3. Assessment of penalty under Section 10-A of the Central Sales Tax Act, 1956 based on false representation.

Issue 1: Interpretation of Section 10(b) of the Central Sales Tax Act, 1956 regarding false representation:
The assessee challenged the order of the Sales Tax Appellate Tribunal, questioning the Tribunal's interpretation of Section 10(b) of the CST Act. The Tribunal had concluded that the absence of a specific reference to a commodity in the Form-B registration certificate indicated a false representation under Section 10(b). However, the Full Bench decision of the Madras High Court emphasized that for an offense under Section 10(b), mens rea or a deliberate violation of statutory provisions is essential. The Court clarified that if a registered dealer honestly believes that certain goods are covered by their Certificate of Registration, they cannot be penalized under Section 10(b) unless there is contumacious conduct or wilful disregard. The Court highlighted the importance of mens rea in determining the levy of penalties under the Act.

Issue 2: Determining whether the items purchased by the assessee were covered under the Certificate of Registration:
The dispute arose from the purchase of Diesel Generator Sets and Air Conditioners using "C" forms, which were not explicitly mentioned in the assessee's Certificate of Registration. The Assessing Officer proposed a penalty for false representation under Section 10(b) and (d) of the CST Act. The Appellate Assistant Commissioner and the Sales Tax Appellate Tribunal upheld the penalty, reasoning that if certain items like welding machines were included in the Certificate, then the Diesel Generator Sets should have been included as well. The Tribunal referred to a previous court decision that clarified a Diesel Generator Set could not be considered machinery. The Court agreed with the Tribunal's assessment that the nature of the business did not justify the purchase of Diesel Generator Sets as part of the machinery for manufacturing.

Issue 3: Assessment of penalty under Section 10-A of the Central Sales Tax Act, 1956 based on false representation:
The assessee contended that they purchased the generator set under the bona fide belief that it was covered by the Certificate of Registration, thus negating any mens rea or false representation. The Court considered the assessee's argument that they were new to business operations in India and lacked expertise in tax matters. In light of these circumstances, the Court reduced the penalty from 150% to 50% of the tax due, acknowledging the lack of deliberate intent or contumacious behavior on the part of the assessee. The Court allowed the Tax Case (Revision) and set aside the Tribunal's order, reducing the penalty accordingly.

In conclusion, the Madras High Court's judgment in this case focused on the interpretation of Section 10(b) of the CST Act, the coverage of purchased items under the Certificate of Registration, and the assessment of penalties based on false representation, ultimately reducing the penalty imposed on the assessee due to their bona fide belief and lack of deliberate violation of statutory provisions.