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TMI Blog2001 (4) TMI 884X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent stages with which we are not really concerned because admittedly, the petitioners have paid the tax at the higher rate in view of the fact that the various court decisions which were fluctuating were applied by the department and the petitioners have in fact paid the tax at the higher rate. The present petitions concern only one facet of the law, viz., the fact that the petitioners have been penalised under section 5-A(2)(v) of the Act on the ground that they had made a misdeclaration for the two years in question and the obvious implication is that through such a misdeclaration the petitioners had attempted to evade the payment of tax. The section prescribes a heavy penalty which is equivalent to the amount of tax involved and for the first of the two assessment years they have been visited with a penalty amounting to double the amount of tax involved, viz., Rs. 5,26,162. For the second year, the penalty was initially an amount equivalent to twice the amount of tax involved but at the appellate stage, on the verification of relevant data the appellate authority reduced the penalty to Rs. 3,59,095. These orders were confirmed by the Tribunal and it is against the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olutely exemplified by the fact that the party was guided by the law as interpreted by the High Court, that in such an exceptional situation there can be no warrant for the imposition of penalty. 5.. A lightly a different angle to the same argument emerged from the reliance on the Supreme Court decision reported in [1970] 25 STC 211 in the Hindustan Steel Ltd. case, where the court had gone to the extent of absolving a party principally on the ground that it was demonstrated to the satisfaction of the court that there was no dishonest intention and no contumacious disregard for law. The Supreme Court had observed as follows: "Under the Act penalty may be imposed for failure to register as a dealer: section 9(1) read with section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasicriminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable turnover during the preceding month. But the liability to pay penalty does not arise merely upon proof of default in payment of tax in advance every month. As observed by the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 at 214 (SC), an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.' Under section 12-B(3) of the Act, the authority may levy penalty in a sum not exceeding one and a half times of the amount of tax so paid falls short of the tax payable for the month or for the whole year, as the case may be. It is not known on what basis the assessing authority has levied the penalty in a sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly hair splitting that the courts will have no understand the genuine difficulty in which an assessee or the legal advisors are placed while arriving at the fine distinctions and that therefore, it is all the more important that the facts are very carefully assessed and in all those cases where it is demonstrated that the assessee has acted in good faith and there was valid and cogent ground for having made declaration in question that the harsh consequence of a penalty should not be visited on the assessee. In conclusion, what was contended was that the penalty orders were unjustified in the facts and circumstances of this case and consequently that they should be set aside. 8.. The learned Government Advocate submitted that the defence pleaded is nothing more than a clever cover-up for an attempt to evade tax. According to him, a simple analysis of the various court cases would indicate that the principles in respect of what constitutes an input and what could pass for a manufacturing process are will defined and it is his contention that once it is held that the petitioners have made a misdeclaration that the consequence, viz., the imposition of penalty are automatic. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt would have no discretion in the matter of imposition of penalty once the breach is established. His submission was that this Court must confirm the orders and refuse interference. 9.. We need to record that we are more than conscious of the fact that in cases relating to payment of tax that the courts do come across a large number of situations where the defence pleaded is very ingenious. We also need to take cognizance of the fact that oftentimes the party attempts to get away with the particular situation in the hope that it will not be detected and that consequently the courts must be extremely cautious in upholding the defence whereby it is demonstrated that a breach has taken place and the party tries to put forward virtually holistic defences. We need to also accept the premise as pointed out by learned Government Advocate that where there is statutory duty to act in a particular manner, viz., that the assessee is required to file a declaration that is honest, complete and in consonance of requirements of law that a breach would be ipso facto punishable. For example while filing personal tax returns a person can never be allowed to get away with the contention that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view, this aspect of the law is required to be taken cognizance of and applied only in those of the cases, perhaps a few or a microscopic minority of them, wherein the mechanical application of law and the arbitrary imposition of penalty would not be justified as a matter of course. While the opposite position holds good in the larger majority of cases, we need to observe that the courts should be very judicious, very slow and careful while examining as to whether the defence pleaded is honest, whether it is genuine and more importantly whether it is absolutely bona fide. 11.. There is a subtle angle of the law which we need to go into, viz., the fact that since section 5-A prescribes a very heavy penalty, that it is quite implicit from the legislative intent that the objective is with a view to come down heavily on attempts of misleading the authorities but more importantly causing tax evasion and loss to the exchequer. It becomes all the more important, before imposition of a penalty for the courts to apply what the Supreme Court has repeatedly defined as the objective test and if it can be demonstrated that on the defence pleaded, there is enough material for the courts to co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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