2019 (1) TMI 1296 - HC - VAT and Sales Tax

Penalty u/s 10-A of the Central Sales Tax Act - absence of finding of falsely represented - levy of penalty when packing material itself is eligible to be purchased as provided under Section 8(3)(b) of the Central Sales Tax Act - requirement of mens rea for imposing penalty - Held that - In Sanjiv Fabrics, the question, which fell for consideration, was whether the requirement of mens rea is an essential ingredient for the levy of penalty under Section 10(b) read with Section 10(A) of the CST Act. The Hon'ble Supreme Court referred to the meaning of the word, which defines the word 'false' - it can ce construed that the word 'false' includes intentionally or knowingly or negligently untrue and a thing is called false when it is done, or made, with knowledge, actual or constructive, that it is untrue or illegal. In the instant case, the assessee was initially registered with Triplicane Assessment circle and it is stated that at the relevant point of time, these items were mentioned in the Registration Certificate - Subsequently, the assessee shifted his business operations to Coimbatore and obtained a Certificate of Registration from the Commercial Tax Officer, Coimbatore, which was issued on 02.05.2005, wherein, these items were included. Thus, the assessee, which is a Private Limited Company, was fully aware of the fact that the items mentioned in the above were not included in the certificate issued by the Commercial Tax Officer and were included only on 02.05.2005 when the certificate stood amended. Thus, false representation is writ large from the conduct of the assessee and with full knowledge they had purchased these items, which were not included in the Form B Registration Certificate by using Form C declarations. Therefore, the levy of penalty in the instant case is warranted and the mens rea or false representation is clearly made out by the conduct of the assessee. Furthermore, the subsequent conduct of the assessee in including the three items in the Registration Certificate also fortified the stand of the Petitioner. Therefore, penalty is warranted. - However, levy of penalty confirmed @10% as against 50%. Tax case revision dismissed.

Summary

Issues:
1. Levy of penalty under Section 10-A of the Central Sales Tax Act without a finding of "falsely represented"
2. Eligibility of packing material for concessional rate of tax under Section 8(3)(b) of the CST Act
3. Requirement of mens rea before imposing penalty under Section 10-A of the CST Act

Analysis:
1. The tax case revision involved the question of whether a penalty under Section 10-A of the Central Sales Tax Act could be levied in the absence of a finding of "falsely represented." The Assessing Officer had imposed a penalty on the assessee for purchasing certain items without mentioning them in the Registration Certificate. The First Appellate Authority reduced the penalty, considering the circumstances and circulars issued. However, the Tribunal increased the penalty to 50%, which was challenged in the revision. The High Court held that the penalty could not be increased without proper reasoning and restored the penalty to 10% as ordered by the First Appellate Authority.

2. Another issue was the eligibility of packing material for concessional tax rates under Section 8(3)(b) of the CST Act. The assessee argued that since the items were later included in the Registration Certificate, the penalty should not have been imposed. The Tribunal found that the penalty was justified due to the initial exclusion of items in the Certificate. The High Court agreed that the subsequent inclusion of items did not absolve the assessee of the penalty, as they were aware of the initial discrepancy.

3. The third issue revolved around the requirement of mens rea before imposing a penalty under Section 10-A of the CST Act. The Additional Government Pleader argued that the assessee's knowledge of the items not being included in the Certificate constituted mens rea, justifying the penalty. The High Court analyzed the definition of "false" and concluded that the assessee's conduct demonstrated knowledge of the discrepancy. The subsequent inclusion of items in the Certificate further supported the imposition of a penalty. The Court upheld the penalty but modified the percentage, emphasizing the lack of reasoning by the Tribunal in increasing the penalty.

In conclusion, the High Court dismissed the Tax Case Revision, maintaining the penalty but reducing it to 10% as initially ordered by the First Appellate Authority.