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TMI Blog1998 (4) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are dealt with together. 2.. The slight variations apart, in the manner of relief sought for or the nature of writ, these writ petitions involve for consideration the constitutional validity of section 12(3) of the Tamil Nadu General Sales Tax Act, 1959, as introduced by substitution by Tamil Nadu Act No. 25 of 1993, providing about seven rates of penalties in graded scales and form, depending upon the difference in the tax paid and tax assessed, while dispensing at the same time with the maximum and minimum prescribed under the provision, as it existed prior to the said substitution. The several assessees who have filed the various writ petitions have made such challenge in respect of the proposed levy at the stage of show cause notice or penalty imposed after such imposition in respect of assessment made either under the Tamil Nadu General Sales Tax Act, 1959 or under the Central Sales Tax Act, 1956, by applying section 12(3) of the Tamil Nadu General Sales Tax Act read with section 9(2) of the Central Sales Tax Act, 1956. The cause of action for proposing to levy or for levying penalty in each one or the other of the cases depended upon ever so many reasons and in one or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions engrafted in section 12(3) as substituted by Tamil Nadu Act No. 25 of 1993, which had no relation to the circumstances relating to imposition of tax and really disproportionate to the evil sought to be remedied, cannot be characterised as a mere provision for penalty and, if enforced, renders the very carrying on of trade or business a peril and an act of distress and, therefore, it is an unjust and unreasonable restriction on the right to carry on business or trade and opposed also to the basic and essential requirements of the principles of rule of law and consequently violative of article 19(1)(g) of the Constitution of India. So far as the challenge based on article 14 of the Constitution of India is concerned, the same is projected from several angles. It is claimed that the provision equates dissimilar persons and different situations, by imposing uniform or same rates or scales or penalty by merely relating it to tax assessed and, therefore, it is violative of article 14 of the Constitution of India. The further aspect of challenge that related to the alleged violation of article 14 of the Constitution of India is that the impugned provision does not give any discr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the reason that such declarations or forms are not forthcoming from the other parties to the transaction and it is arbitrary to impose penalties at fixed or standardised rates, irrespective of even the nature of the lapse or the extent of guilt or for that matter even the lack of any contumacious conduct on the part of the assessee. The imposition of penalty at different rates depending upon merely the tax difference as assessed as against the tax liability disclosed and submitted in the return is said to be unreasonable having no relevance or nexus to the object sought to be achieved and the provision operates inequitably and unjustly in treating both inadvertent omission or genuine claims for exemption by dealers on a par with mala fide or deliberate omission or vexatious claims default, in the matter of quantum of penalty. The provision, in so far as it accords, both to evaders and non-evaders the same treatment, is ex facie said to be violative of article 14 of the Constitution of India and for that reason the provision is stated to suffer the vice of under-classification. In support of such claim, the learned counsel appearing for the petitioners attempted to illustrate w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stem adopted under the impugned provision sufficiently ensures proper and proportionate treatment of the defaulters, keeping in view only the tax liability attempted to have been evaded. Argued the learned Additional Advocate-General further that in tax or revenue matters, mens rea is not always an essential element in the nature of a condition to fasten liability upon a defaulter and that, therefore, there are absolutely no merits whatsoever in the grievance expressed by the petitioners and as long as there was default committed that by itself, is sufficient to warrant the levy of penalty. As for the grievance projected based on the alleged violation of article 19(1)(g) of the Constitution of India, it was contended for the respondent-State that the tax legislation was never considered to be a restriction or violation of rights secured under article 19(1)(g) of the Constitution of India and, therefore, the challenge has no substance. 6.. The learned counsel appearing for the appellant and writ petitioners invited our attention to several decisions to derive support for some of the general and well-settled principles of law, all of which we do not consider it necessary to refer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly a civil liability, though penal in character, that even a provision enabling the imposition and collection of penalty with retrospective effect was not violative of article 19(1)(g) of the Constitution of India and that the imposition of penalty under fiscal laws cannot be construed as a punishment as contemplated by the criminal law and in any event, it is only under the criminal law, mens rea is considered as a guilty intention, but when it is relatable to the tax delinquency, it is a civil obligation, which implies only "blame-worthy conduct". In view of the above, we will refer to only some of those decisions, which are really appropriate and need reference as being directly relevant." 7.. In the decision reported in [1983] 53 STC 289 (Shiv Dutt Rai Fateh Chand v. Union of India), the apex Court has held as follows (pp. 305-308 and 310-311): "It may be true that the circumstances leading to imposition of penalties and the rates of penalties vary from one State to the other but the power to make a legislative provision on matters relating to penalties is circumscribed by various economic factors and it cannot be said that Parliament has virtually surrendered its legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of taxes, including the power to fix the rate of taxation. A clear illustration is provided by the provisions of the State Transport Facilities Act, 1947 (Qld), and the State Transport Act, 1960 (Qld), which gave to a Commissioner for Transport very broad powers to licence services for the carriage of passengers and goods and to fix the amount of licence fee to be paid by every licencee. The validity of these provisions was upheld by the Privy Council in Cobb Co. Ltd. v. Kropp (1967) 1 AC 141, rejecting an argument that the Queensland Parliament had no power to abrogate its taxing power in this way: In their Lordships' view the Queensland Legislature were fully warranted in legislating in the terms of the Transport Acts now being considered. They preserved their own capacity intact and they retained perfect control over the Commissioner for Transport inasmuch as they could at any time repeal the legislation and withdraw such authority and discretion as they had vested in him. It cannot be asserted that there was a levying of money by pretence of prerogative without grant of Parliament or without parliamentary warrant. The Legislature were entitled to use any agent or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s committed by them were those committed under the said statutory provisions. On the basis of the language of sub-section (2) of section 9 of the Act in many States proceedings for levying penalties in accordance with the provisions relating to penalties in their respective general sales tax laws were commenced against such defaulters under the Act and in some cases proceedings were completed and penalties were also recovered. Some High Courts also took the view that such penalties were validly leviable. But ultimately this Court by a majority of three to two held in Khemka's case [1975] 35 STC 571 (SC); [1975] 3 SCR 753 that since there was no express provision in the Act permitting the levy of such penalties, the proceedings relating to the determination and recovery of penalties were not valid. The amending Act was, therefore, passed expressly to make the levy of penalties as per the general sales tax laws in force in the States permissible with retrospective effect and also to validate all such previous proceedings. Article 20 of the Constitution reads thus: '20. (1) No person shall be convicted of any offence except for violation of a law in force at the time of the commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is not of compensatory character is also termed as a penalty even though it is not being recovered pursuant to an order finding the person concerned guilty of a crime. In article 20(1) the expression 'penalty' is used in the narrow sense as meaning a payment which has to be made or a deprivation of liberty which has to be suffered as a consequence of a finding that the person accused of a crime is guilty of the charge. ......................................... After giving an anxious consideration to the points urged before us, we feel that the word 'penalty' used in article 20(1) cannot be construed as including a 'penalty' levied under the sales tax laws by the departmental authorities for violation of statutory provisions. A penalty imposed by the sales tax authorities is only a civil liability, though penal in character. It may be relevant to notice that subsection (2A) of section 9 of the Act specifically refers to certain acts and omissions which are offences for which a criminal prosecution would lie and the provisions relating to offences have not been given retrospective effect by section 9 of the amending Act. The argument based on article 20(1) of the Constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ableness of this provision as to cancellation of registration certificate has to be judged in the background of what we have already said about the purpose of the levy and its liability on the seller. It is true that there are other provisions in the law for realisation of public dues from those who default in making payments, but generally speaking cancellation of registration in cases like these is one more method of compelling payment of tax which is due to the State. Collection of revenue is necessary in order that the administration of the State may go on smoothly in the interest of the general public. The State has therefore armed itself with one more coercive method in order to realise the tax in such cases. It is true that cancellation of registration may result in a dealer being unable to carry on the business, but the same result may even follow from the application of other coercive processes for realisation of dues from a trader, for his assets may be sold off to pay the arrears of tax and he may thereafter be not in a position to carry on the business at all. Therefore, the provision for cancellation of registration for Here italicised. failure to pay the tax or for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Director of Inspection or the Commissioner, as the case may be, has to record his reasons before the authorisation is issued to the officers mentioned in sub-section (1). Thirdly, the authorisation for the search cannot be in favour of any Here italicised. officer below the rank of an Income-tax Officer. Fourthly, the authorisation is for specific purposes enumerated in (i) to (v) in subsection (1), all of which are strictly limited to the object of the search. Fifthly, when money, bullion, etc., is seized the Income-tax Officer is to make a summary enquiry with a view to determine how much of what is seized will be retained by him to cover the estimated tax liability and how much will have to be returned forthwith. The object of the enquiry under sub-section (5) is to reduce the inconvenience to the assessee as much as possible so that within a reasonable time what is estimated due to the Government may be retained and what should be returned to the assessee may be immediately returned to him. Even with regard to the books of account and documents seized, their return is guaranteed after a reasonable time. In the meantime the person from whose custody they are seized is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; and (ii) the differentia must have a rational relation to the object sought to be achieved by the Act. It is not the requirement that the classification should be scientifically perfect or logically complete. Classification would be justified if it is not palpably arbitrary. [See: In re, Special Courts Bill, 1978 [1979] 2 SCR 476 at pages 534 to 536; (1979) 1 SCC 380]. If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special treatment. (See: Khandige Sham Bhat v. Agricultural Income-tax Officer [1963] 48 ITR 21 (SC); [1963] 3 SCR 809 at page 817). 21.. Since in the present case we are dealing with a taxation measure it is necessary to point out that in the field of taxation the decisions of this Court have permitted the Legislature to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. [See: East India Tobacco Company v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. Mill Mazdoor Sabha [1967] 36 Comp Cas 901 (SC); [1967] 1 SCR 15 in the context of challenge to the validity of section 10 of the Payment of Bonus Act, 1965 providing for payment of a minimum bonus of 4 per cent by all industrial establishments irrespective of the fact whether they were making profit. This Court held that the judgment in Moopil Nair's case [1961] 3 SCR 77, has not enunciated any broad proposition that when persons or objects which are unequals are treated in the same manner and are subjected to the same burden or liability discrimination inevitably results. It was observed: '..........It was not said by the court in that case that imposition of uniform liability upon persons, objects or transactions which are unequal must of necessity lead to discrimination. Ordinarily it may be predicated of unproductive agricultural land that it is incapable of being put to profitable agricultural use at any time. But that cannot be so predicated of an industrial establishment which has suffered loss in the accounting year, or even over several years successively. Such an establishment may suffer loss in one year and make profit in another.' (SCR page 35). 26.. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cast in the form of an absolute or no-fault liability but must be preceded by mens rea. The classical view that 'no mens rea, no crime' has long ago been eroded and several laws in India and abroad, especially regarding economic crimes and departmental penalties, have created severe punishments even where the offences have been defined to exclude mens rea. Therefore, the contention that section 37(1) fastens a heavy liability regardless of fault has no force in depriving the forfeiture of the character of penalty". One of the learned Judges, who delivered a separate but a concurring opinion also observed on this aspect as hereunder: (page 528): "Mr. Kaji next submitted that forfeiture if it is to be penalty would be confined to acts where there is a guilty mind. In other words, he submitted that the penalty would be confined only to wilful acts of omission and commission in contravention of the provisions of the enactment. This plea cannot be accepted as penal consequences can be visited on acts which are committed with or without a guilty mind. For proper enforcement of various provisions of law it is common knowledge that absolute liability is imposed and acts without mens r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the statute provides for the delegation of arbitrary and uncontrolled power to the Government so as to enable it to discriminate between persons or things similarly situate and that, therefore, the discrimination is inherent in the statute itself. We have always to see what the statute does to make for equality of treatment.'" 14.. In the decision reported in [1989] 74 STC 102; [1989] 178 ITR 97; (1989) 3 SCC 634 (Federation of Hotel Restaurant Association of India v. Union of India), the apex Court once again held as follows: "A taxing statute is not, per se, a restriction of the freedom under article 19(1)(g). The policy of a tax, in its effectuation, might, of course, bring in some hardship in some individual cases. But that is inevitable, so long as law represents a process of abstraction from the generality of cases and reflects the highest common-factor. Every cause, it is said, has its martyrs. Then again, the mere excessiveness of a tax or even the circumstances that its imposition might tend towards the diminution of the earnings or profits of the persons of the incidence does not, per se, and without more, constitute violation of the rights under article 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uors is 'arbitrary' and the amending Act is liable to be struck down on this ground alone. Support for this proposition is sought from a judgment of this Court in State of Tamil Nadu v. Ananthi Ammal (1995) 1 SCC 519; AIR 1995 SCW 355. Before, however, we refer to the holding in the said decision, it would be appropriate to remind ourselves of certain basic propositions in this behalf. In the United Kingdom, the Parliament is Supreme. There are no limitations upon the power of the Parliament. No court in the United Kingdom can strike down an Act made by the Parliament on any ground. As against this, the United States of America has a Federal Constitution where the power of the Congress and the State Legislatures to make laws is limited in two ways, viz., the division of legislative powers between the States and the Federal Government and the fundamental rights (bill of rights) incorporated in the Constitution. In India, the position is similar to the United States of America. The power of the Parliament or for that matter, the State Legislatures is restricted in two ways. A law made by the Parliament or the Legislature can be struck down by courts on two grounds and two grounds alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and bad for them. The court cannot sit in judgment over their wisdom. In this connection, it should be remembered that even in the case of administrative action, the scope of judicial review is limited to three grounds, viz., (i) unreasonableness, which can more appropriately be called irrationality, (ii) illegality and (iii) procedural impropriety [see Council of Civil Services Union v. Minister for the Civil Services (1985) AC 374], which decision has been accepted by this Court as well. The applicability of doctrine of proportionality even in Administrative Law sphere is yet a debatable issue. (See the opinions of Lords Lowry and Ackner in R. v. Secretary of State for the Home Department Ex parte Brind, (1991) AC 696 at 766-7 and 762. It would be rather odd if an enactment were to be struck down by applying the said principle when its applicability even in administrative law sphere is not fully and finally settled. It is one thing to say that a restriction imposed upon a fundamental right can be struck down if it is disproportionate, excessive or unreasonable and quite another thing to say that the court can strike down enactment if it thinks it unreasonable, unnecessary or unw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Brandy Syndicate v. Commissioners of Inland Revenue (1921) 1 KB 64 at page 71: 'In a taxing statutes one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.' 11.. The above observation has been quoted with approval by a Bench of three Judges of this Court in Commissioner of Income-tax, Madras v. Ajax Products Ltd. [1965] 55 ITR 741 (SC); AIR 1965 SC 1358. In another decision rendered by a Bench of three Judges of this Court in State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191 (SC); AIR 1975 SC 1871 it has been observed thus: 'In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile.'" 18.. In [1984] 56 STC 214; AIR 1984 SC 762 (Khazan Chand v. State of Jammu and Kashmir), the apex Court once again held as follows (pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by subsection (2) of section 8 cannot, therefore, be characterised as arbitrary or unreasonable." 19.. We have carefully considered the submissions of the learned counsel appearing on either side. In our view, the challenge to section 12(3) of the Tamil Nadu General Sales Tax Act as incorporated by the amendment introduced by Tamil Nadu Act No. 25 of 1993 on the ground that it is violative of article 19(1)(g) of the Constitution of India has no merit whatsoever. It has been often held that a taxing statute is not per se a restriction of the freedom guaranteed under article 19(1)(g) of the Constitution of India and merely because the Legislature imposes a tax or provides for levy of penalty as part of the enforcement machinery, so as to sound a warning and serve as a deterrent and thereby prevent tax evasion, if at all such levy may have the consequence of diminution of the percentage of profits or the earnings out of the business. But, unless it is positively demonstrated that the very business is put an end to or liquidated by any such levy of tax or penalty, there is hardly any scope for pleading violation of article 19(1)(g) of the Constitution of India. Under the impugned p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idual assessees that the levy is not made to be commensurate to the quantum of turnover or size of the business, but on the difference of the tax assessed and tax-paid as per return or in the case of non-submission of return on the tax assessed by final assessment. We have carefully considered these aspects. But, in our view, the grievance cannot be said to be legally sustainable. The question as to the manner in which the penalty has to be devised or the measure as well as the basis of such penalty has to be fixed to make it more effective and useful to curb evasion of tax is always a matter of policy and it is for the Legislature to scheme things in this regard out of the experience gained in the enforcement of the provisions of the Act and it is not for the dealer, who was found to have been in default, or a violator to dictate as to what should be the rate or basis of penalty or how it should be levied or even for the courts to adjudicate upon the wisdom of the same or the need for such levy. So far as the rates of penalty stipulated under the impugned provision are concerned, they are, in our view, found to be not only reasonable, but have been also purported to be levied, adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, at the time of final assessment, found to have otherwise paid any amount already before such final assessment, sufficient to go to reduce the tax liability ultimately determined, the imposition of penalty to that extent is reduced. This again, in our view, proceeds upon an intelligible differentia or reasonable basis of classification that the State has not ultimately lost its legitimate due and it had the benefit of the same, in some form or other, from the assessee concerned and, therefore, it was not necessary to once-over-again penalise him. This itself shows that the Legislature has taken meticulous care to see that there is no unnecessary hardship caused to the assessee and instead of such instances being vitiating circumstances, they serve, in our view to substantiate and strengthen the plea of reasonableness of the rates of levy taken for the State. 22.. Yet another grievance is made on the alleged discriminatory impact resulting on account of the application of the provisions contained in section 12(3)(b)(i-a) and 12(3)(b)(v) of the Tamil Nadu General Sales Tax Act. A cursory perusal even of the respective and relevant provisions themselves will disclose the require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot that every lapse or default, irrespective of even the bona fides involved in the same, could be rendered punishable with the levy of penalty. In substance, the gravamen of the attack was that the element of mens rea could not be totally eliminated from consideration in the matter of levy of penalty under section 12(3) of the Tamil Nadu General Sales Tax Act and having regard to the earlier decisions of this Court as also the apex Court, which declare that the element of mens rea also should be taken into account in the matter of fixing the liability for penalty notwithstanding the scheme underlying section 12(3) of the Act as introduced by Tamil Nadu Act No. 25 of 1993, the assessing authorities must be held to still possess the power to go into the culpability or otherwise of the dealer or take into account the element of mens rea before either deciding to levy penalty or in arriving at the quantum of penalty to be levied in an individual case. The submissions on behalf of the petitioners in this regard cannot be countenanced in view of the decision reported in [1983] 53 STC 289 (SC) (Shiv Dutt Rai Fateh Chand v. Union of India), wherein it has been held in unmistakable terms t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission of an 'offence' in a criminal Court. Therefore, merely because 'penalty' clause exists in section 23(1)(a), the nature of the proceedings under that section is not changed from 'adjudicatory' to 'criminal' prosecution. An order made by an adjudicating authority under the Act is not that of conviction but of determination of the breach of the civil obligation by the offender. 8.. It is true the breach of a 'civil obligation' which attracts 'penalty' under section 23(1)(a) FERA, 1947 and a finding that the delinquent has contravened the provisions of section 10 FERA, 1947 would immediately attract the levy of 'penalty' under section 23, irrespective of the fact whether the contravention was made by the defaulter with any 'guilty intention' or not. Therefore, unlike in a criminal case, where it is essential for the 'prosecution' to establish that the 'accused' had the necessary guilty intention or in other words the requisite 'mens rea' to commit the alleged offence with which he is charged before recording his conviction, the obligation on the part of the Directorate of Enforcement in cases of contravention of the provisions of section 10 of IERA, would be discharged wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "prosecuted and punished" for the same offence with which he was charged before the Chief Presidency Magistrate, Bombay in the complaint which was filed against him under section 23, Foreign Exchange Regulation Act.' 11.. The Constitution Bench then laid down that though the administrative authorities functioning under the Sea Customs Act had the jurisdiction to confiscate gold, illegally brought into the country, and levy penalty on the defaulter, none the less the authorities were not trying a criminal case but deciding only the effect of a breach of the obligations by the defaulter under the Act. On a parity of reasoning, what holds true for the adjudicatory machinery under the Sea Customs Act holds equally true for the administrative or adjudicatory machinery, designed to adjudge the breach of a civil statutory obligation and provide penalty for the said breach, under the FERA, 1947, whether the breach was occasioned by any guilt intention or not is irrelevant. 12. In 'Corpus Juris Secundum' volume 85, at page 580, paragraph 1023, it is stated thus: 'A penalty imposed for a tax delinquency is a civil obligation remedial and coercive in its nature and is far different fr ..... 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