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TMI Blog2001 (7) TMI 1268X X X X Extracts X X X X X X X X Extracts X X X X ..... ing from one oil company to another. However, under section 5A of the Act they are so liable to pay tax on the purchase turnover where Central sales tax is not due on the sales turnover. 4.. Under agreements oil companies have to pay excise duty on the petroleum products on behalf of the manufacturer, Cochin Refineries Ltd. The question arose whether such excise duty paid by the petitioners also would form part of the purchase turnover for the purpose of tax under section 5A of the Act. Even though originally the law declared by the court [See: First McDowell's case [1977] 39 STC 151 (SC) and Burmah Shell case [1981] 48 STC 37 (Ker)] was that the element relating to excise duty was not part of such turnover, it was decided by the Supreme Court in the Second McDowell's case [1985] 59 STC 277 on April 17, 1985 that excise duty paid by the companies like the petitioners herein directly to Central Excise Department at the stage of removal of products from bonded warehouses formed part of the taxable turnover and liable to attract purchase tax. Consequently, a three-member Bench of this Court overruled the decision in the Burmah Shell's case [1981] 48 STC 37 (Ker) in Hindustan Petrole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.C. due Penalty imposed by assessing authority Penalty as it stands reduced by revisional authority. Rs. Rs. Rs. 4304 of 1999 of H.P.C. Ltd. 1987-88 17,82,710 35,65,420 17,82,710 1988-89 22,17,466 44,34,932 22,17,466 1989-90 28,15,895 56,31,790 28,15,895 1990-91 27,32,236 38,25,130 27,32,236 6823 of 1999 of B.P.C. Ltd. 1987-88 21,90,820 43,81,640 21,90,820 10445 of 1996 of I.O.C. Ltd. 1991-92 Not specified in O.P. 14,03,34,278 Equal amount as tax 16793 of 1996 of I.O.C. Ltd. 1992-93 do. 13,43,16,622 " 7021 of 1996 of I.O.C. Ltd. 1988-89 do. 3,38,68,784 " 1989-90 do. 6,11,10,899 " 1990-91 do. 7,04,79,715 " 8.. According to the petitioners, the imposition of penalty is totally unjustified in so far as section 45A can be invoked only where it is established that there was attempt to evade tax. That necessarily involves a certain element of mens rea. According to the petitioners, the non-inclusion of the details of the element relating to excise duty in the returns and the non-payment of the tax due thereon during the above periods arose only from the uncertainty of law arising from conflicting decisions and as soon as the apex Court finally pronounced on Oct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), Ernakulam v. Burmah Shell Oil Storage and Distributing Company Limited [1981] 48 STC 37 (Ker). It was found that though the excise duty is an impost on the manufacture or production of goods and the primary liability therefor is on the manufacturer or producer, the Central Excise Act and the Rules cast a liability for payment of such duty on a purchaser who acquires the ownership of the goods and who has been permitted to store the goods in his bonded warehouse under the licence issued by the Central excise authorities. It was held that the payment made by such purchaser is on his own account in discharge of the liability cast on him by the statute and the rules. The amounts paid by the purchaser directly to the excise authorities by way of duty on the goods owned by him at the stage of their removal from the bonded warehouses cannot be treated as forming part of the taxable turnover in view of the definition of the expression "turnover" contained in section 2(xxvii) of the Act, i.e., as meaning the aggregate amount for which goods are either bought or sold or as a component part of the price for which the goods were bought by the assessee from the manufacturer. 12.. The quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act in 1960, the scheme of the Act was held to be to levy the duty on the manufacturer and collection of rubber cess was also to be made from him only. In other words, the cess cannot form part of the sale consideration paid to the producer or grower of rubber. 14.. While deciding the above case the second McDowell case [1985] 59 STC 277 (SC) was also referred to. It was held that the said decision was distinguishable and would not apply to the facts of the case. With regard to the excise duty relating to liquor involved in the second McDowell case [1985] 59 STC 277 (SC) the legal liability to pay the duty was on the seller (manufacturer) and it was the seller who transferred such liability through an agreement to the purchaser. That was not the position involved with regard to the rubber cess considered in M.R.F. case [1989] 74 STC 56 (Ker); (1989) 1 KLT 827 aforementioned. The cess paid by the manufacturer was the duty levied on production of the rubber and is due at the stage of manufacture only. The turnover being inclusive of the aggregate amount for which the goods are either bought or sold, it was held by majority that the rubber cess due from and paid by the manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed by the statute. 18.. In P.D. Sudhi v. Intelligence Officer, Agricultural Incometax and Sales Tax, Mattancherry [1992] 85 STC 337 a Bench of this Court went into the scope and meaning of the term "evasion" for the purpose of section 45A of the Kerala General Sales Tax Act, 1963. It was held that the term "evade" means some device or stratagem; some arrangement, trust, or other device (whether concealed, or apparent on the face of the document) by which what is really one thing is made to appear as something else in order to escape payment of duty. It was also held that it is not the mere default that is made the foundation for the liability or penalty; but it is a contumacious or fraudulent or other blame-worthy or objectionable conduct of an assessee in fulfilling his obligations mentioned in section 45A(1) of the Act, that will attract the levy of penalty. Mens rea, it was held, is embedded in the term "evaded" occurring in section 45A(1) of the Kerala General Sales Tax Act, 1963. On the facts of that case it was held that the imposition of maximum penalty is a pointer to show that the officer had not exercised his judicial discretion according to law. 19.. The apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The discretion vested in the officer is not an unexaminable or unfettered discretion. The courts can properly enquire independently in appropriate cases whether the conditions are satisfied. No blanket power is available to the authority to impose penalty where there is no sufficient material or evidence. The officer gets jurisdiction to impose penalty only when one or the other of the ingredients provided for in section 45A(1) of the Act actually exists. The section provides for only the maximum amount of penalty and not the minimum. Before penalty is imposed, the authority is therefore bound to give an opportunity to the person of being heard on the aspect of quantum and fix the same judicially. The penalty cannot be levied mechanically and without disclosing grounds. The quantum of penalty should invariably depend upon the gravity of the offence. If the maximum penalty is levied in a mechanical manner, that will be an abdication of the judicial discretion vested in the officer. 22.. In K.P. Davis v. Assistant Commissioner 1997 KLJ (TC) 416 this Court held that the burden of proving that a person has not evaded or sought to evade any sales tax, is on such person. It is reall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Sales Tax Act. The sales tax authorities were, therefore, wrong in passing the orders of penalty and upholding the same. The High Court also, in our opinion, committed an error in upholding the orders of penalty. In the result, these appeals are partly allowed. The order of the High Court and the orders of the sales tax authorities imposing and upholding levy of penalty are set aside." 24.. Associated Cement Co. Ltd. v. Commercial Tax Officer, Kota [1981] 48 STC 466 (SC) is yet another decision throwing light on the point. There a company engaged in the manufacture and sale of cement, sold the product partly in Rajasthan, where its factory was situated, and partly outside that State. In the return filed the assessee did not include freight charges in the taxable turnover on the footing that it was under the bona fide belief that the freight charges were not liable to be included in the taxable turnover, in view of the decision of the Supreme Court in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh [1969] 24 STC 487. Subsequently, through another decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 the apex Court held that freight w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has to consider. If at all the answer is in the affirmative, the further question would arise whether these are not fit cases where nominal penalty alone should be inflicted in the circumstances. 27.. To enable the Commissioner to consider these aspects from the correct perspective and in the light of the relevant case law about which reference is already made in the earlier paras, I set aside orders of the revisional authority (Commissioner) and the consequential orders impugned in these cases. Exhibits P7 and P8 in O.P. No. 4304 of 1999, exhibit P5 order in O.P. No. 10445 of 1996, exhibit P11 order in O.P. No. 7021 of 1996, exhibit P3 order in O.P. No. 6823 of 1999 and exhibit P5 order in O.P. No. 16793 of 1996 are so set aside. The revisions are remitted to the Commissioner for fresh disposal with due notice of hearing to the assessees concerned. The collection of the disputed penalty amount will stand stayed until the Commissioner passes fresh orders on the revision petitions. The original petitions are disposed of as above. Order on C.M.P. No. 7304 of 1999 in O.P. No. 4304 of 1999K dismissed. Petition disposed of accordingly. - - TaxTMI - TMITax - CST, VAT ..... 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