CASE NO.:
Appeal (civil) 1768 of 2008
PETITIONER:
M/s Bharjatiya Steel Industries
RESPONDENT:
Commissioner, Sales Tax, U.P.
DATE OF JUDGMENT: 05/03/2008
BENCH:
S.B. Sinha & V.S. Sirpurkar
JUDGMENT:
J U D G M E N T
CIVIL APPEAL NO. 1768 OF 2008
[Arising out of SLP (Civil) No. 17921 of 2004]
S.B. SINHA, J :
1. Leave granted.
2. Appellant manufactures Steel Ingots. It purchased iron scrap from the
Railways in public auction. Iron scrap is melted and converted into the
finished products. Appellant had been accorded recognition under Section
4-B (2) of the U.P. Trade Tax Act (for short "the Act") in terms whereof it
became entitled to purchase raw-materials for manufacturing purpose at a
concessional rate of tax. In the year 1985-86, it purchased 2532.989 M.T. of
iron scrap. Allegedly, the lots contained various categories of iron scraps as
it was purchased on "as is where is basis". Appellant allegedly was not
allowed to sort out the scrap at the time of purchase as the conditions
specified therein were :
"1. The material will be sold of "AS IS WHERE
IS" basis.
2. No sorting, picking whatsoever under any
circumstances will be allowed.
3. The purchaser will be required to take
delivery of the material from the lots.
4. The purchaser should inspect the lots prior
to the auction"
3. Appellants stated that about 9.47% of the total amount of scrap
purchased, i.e., 239.966 M.T., could not be utilized by it. It sold the said
goods to other dealers at a concessional rate of tax.
Inter alia, on the plea that the appellant for the purpose of obtaining
the tax concession in terms of Section 4-B(2) of the Act had furnished an
undertaking whereby and whereunder it undertook to utilize the entire
material for manufacturing purposes, which was breached by reason of the
said transfer, a proceeding for levy of penalty was initiated against it
whereupon a show-cause notice was issued. Cause was shown by the
appellant on 5.03.1990 contending that the said quantity of scrap being not
usable, it had no other option but to dispose of the same.
4. By reason of an order dated 26.03.1990, the assessing officer rejected
the said contention. It levied penalty of Rs.85,619/- on the appellant.
5. An appeal preferred thereagainst before the Deputy Commissioner
(Appeals) was dismissed by an order dated 8.02.1991. An appeal to the
Tribunal preferred by the appellant was, however, allowed by an order dated
29.04.1993, stating:
"6. Having given our deep consideration and
anxious thoughts to the rival submissions and
perused the relevant record, we feel that the ld.
Authorities below have not appreciated the facts of
the case in right perspective. It is not disputed that
the scrap has been purchased by the Appellant in
lots from the railway, in which there remains
existence of several types of scrap. During the
course of arguments, the ld. Counsel produced
copy of tender invited by Railway Department.
We have gone though this document and we find
that in general conditions of the said document,
there is specific mention in condition No. 1 that the
material will be sold on "AS IS WHERE IS" basis
and in condition No. 2, no sorting, picking
whatsoever under any circumstance will be
allowed. It is worth consideration that no
purchaser can violate the conditions of purchaser.
The purchases have been made in lots, in which
different types of scrap exists, out of which
maximum usable strap has been consumed by the
Appellant in the manufacture and only that type of
scrap was sold against the Form 3-B which was
not usable in the unit of Appellant in any
condition. In these circumstances, to our mind,
there appears no malafide on the part of the
Appellant, hence no penalty could be initiated
against the assessee U/s 4-B(6) of the Act"
6. Respondent preferred a revision petition thereagainst before the High
Court which has been allowed by the impugned judgment dated 1.04.2004.
7. Mr. Puneet Jain, learned counsel appearing on behalf of the appellant,
in support of the appeal, inter alia would submit :
(1) On a plain reading of the provisions of Section 4-B of the Act, it is
evident that in terms of Sub-section (a-1) thereof, a dealer is entitled
to sell the goods to another;
(2) From a perusal of Sub-section (5) of Section 4-B of the Act, it would
appear that a discretion has been conferred upon the authority to levy
or not to levy penalty and in that view of the matter the High Court
committed a serious error in opining that the principle of mens rea has
no application in the instant case as for technical or venial breaches no
penalty should be levied particularly when the action of the assessee
does not defeat the very object for which the provision has been
inserted.
(4) In view of the fact that 90% of the scrap purchased by the appellant
has been utilized for the purpose of manufacture of steel ingots, only
because due to certain unavoidable reasons the rest 10% of it could
not be utilized, the appellant could not be said to have any mens rea in
relation thereto.
8. Mr. Gaurav Banerjee, learned senior counsel appearing on behalf of
the respondent, on the other hand, would contend:
(1) In a case of this nature as no duty can be imposed, the minimum
penalty which has been prescribed would amount to the duty payable
to the State.
(2) The High Court, in a case of this nature, had ordinarily been ordering
levy of penalty only twice the amount of the duty keeping in view the
fact that the dealer admittedly has not utilized the goods for
manufacturing purposes wherefor it had furnished an undertaking.
(3) In any event, as the assessing authority and the appellate authority had
assigned sufficient and cogent reasons for imposition of the penalty
having found that:
(i) it has not been proved that the goods were not suitable for
manufacturing purposes;
(ii) the goods which were sold to another dealer had been used by
the vendee for manufacturing purposes;
(iii) the appellant could have given an advance intimation to the
authorities pointing out its genuine difficulty;
(iv) 10% of the total stock cannot be said to be a miniscule portion
which can be ignored by the authorities and, thus, there must be
something more than which meets the eye; and
(v) In any event such a process of getting away in regard to
payment of duty should not be encouraged.
the impugned judgment should not be interfered with.
9. Before embarking upon the rival contentions, as noticed hereinbefore,
we may notice the relevant part of Section 4-B of the Act, which reads as
under:
"4-B - Specific relief to certain manufacturers - (1)
Notwithstanding anything contained in Sections 3,
3-A, 3-AAAA and 3-D--
(a) Where any goods liable to tax under sub-
section (1) of Section 3-D are purchased by a
dealer who is liable to tax on the turnover of first
purchases under that sub-section or where any
goods are purchased by any dealer in
circumstances in which such dealer is liable to
trade tax on purchase of such goods under Section
3-AAAA, and the dealer holds a recognition
certificate issued under sub-section (2) in respect
thereof, he shall be liable in respect of those goods
to tax at such concessional rate, or be wholly or
partly exempt from tax, whether unconditionally or
subject to the conditions and restrictions specified
in that behalf, as may be notified in the Gazette by
the State Government in that behalf ;
(a-1) Where any declared goods liable to tax under
sub-section (1) of Section 3-D are sold or supplied
by a dealer, who is the first purchaser thereof, to
another dealer, holding a valid recognition
certificate under sub-section (2), in respect thereof,
the State Government may, subject to such
conditions and restrictions as may be specified by
a notification in that behalf, grant the same relief
as mentioned in clause (a) to such first purchaser:
XXX XXX XXX
(2) Where a dealer requires any goods, referred to
in sub-section (1) for use in the manufacture by
him in the State, of any notified goods, or in the
packing of such notified goods manufactured or
processed by him, and such notified goods are
intended to be sold by him in the State or in the
course of inter-State trade or commerce or in the
course of export out of India, he may apply to the
assessing authority in such form and manner and
within such period as may be prescribed, for the
grant of a recognition certificate in respect thereof,
and if the applicant satisfies such requirements
including requirement of depositing late fee, and
conditions as may be prescribed, the assessing
authority shall grant to him in respect of such
goods a recognition certificate in such form and
subject to such conditions, as may be prescribed.
XXX XXX XXX
(5) Where a dealer in whose favour a recognition
certificate has been granted under sub-section (2)
has purchased the goods after payment of tax at
concessional rate under this section or, as the case
may be, without payment of tax and has used such
goods for a purpose other than that for which the
recognition certificate was granted or has
otherwise disposed of the said goods, such dealer
shall be liable to pay as penalty such amount as the
assessing authority may fix, which shall not be less
than the difference between the amount of tax on
the sale or purchase of such goods payable under
this section and the amount of tax payable under
any other provisions of this Act but not exceeding
three times the amount of such difference"
10. It is not in dispute that the appellant was exempted from payment of
the entire amount of tax, subject to the conditions and restrictions specified
in the notification. For the said purpose, it holds a recognition certificate.
The assessing authority while opining that the appellant should have taken
all precautions to see that the goods it had purchased were capable of being
utilized or consumed for manufacture of ingots, arrived inter alia at the
following finding of fact:
(i) "The trader could have very well properly looked
into the fact at the time of purchase of the goods
as to which of the purchased goods by them would
be fit/ proper for their manufacture, and purchase
of the same should have been carried out through
the assistance of the Form 3-B..."
(ii) "Now the conclusion arrives is that the trader
has knowingly carried out purchases of such
goods, without utilizing the same in their
manufacture, they have sold away the same with
the assistance of the Form 3-B, because there is no
such evidence available on the records, by which it
may be proved that the goods sold away was not
worth to be utilized in the manufacture. Because
the purchases of old iron scrap have been made
against the Form 3-B, and the goods sold away
was also old iron scrap and the iron scrap traders
are utilizing the same in their manufacture,
therefore, their such averment is not proved that
the sold away iron was not fit for being utilized in
their manufacture"
(iii) "Therefore, the conclusion is arrived at that
these goods were worth being utilized in the
manufacture, but the same had been sold away
knowingly with the intention of escaping the tax
against the Form 3-B. Therefore, the trader was
under the impression that even if each goods is not
in consonance with the conditions of the
provisions of Section 4-B, even then at the time of
purchases, they could have paid the tax against the
same, but the trader had desired to escape from the
payment of the tax to such kind of sale-purchase
till the decision about the final assessment of the
tax, and from the same, the conclusion is arrived at
that the trader has committed violation of the
provisions of Section 4-B of the Act, knowingly
and in planned manner"
On the said findings, the minimum penalty of Rs. 85,619.00 was
imposed.
11. The appellate authority agreed with the said finding of the assessing
authority stating:
"Clearly, the appellants while violating the
provisions of Section 4(B)(2) of the Act had
carried out the sale of the raw material purchased
against Form 3-B. Therefore, this offence of the
appellant was naturally punishable under the
provisions of Section 4(B)(5) of the Act. The
appellants have committed this sale knowingly
with a view to escape from the liability of the tax.
Had this sale would not have been carried out
knowingly to escape from the liability of the tax,
then the appellants, while extending his
cooperation/ bone fides and informed the learned
Tax Assessing Authority and got inspected the
goods which they intended to sale and that that
material could not be utilized in the manufacturing
of the notified articles produced by them. But the
appellants have not done so. The appellants have
also not paid any tax against such sales and have
knowingly sold away the aforesaid goods to other
manufacturers and have also obtained the Form 3-
B from them. In this way, the appellants have also
not paid any tax against such sales"
(Emphasis supplied)
The Tribunal, however, as noticed hereinbefore, allowed the appeal on
the ground that the appellant did not have any mens rea.
12. The High Court by reason of its impugned judgment, following some
of its earlier decisions, opined:
"This Court in the case of Sai Electrical (P) Ltd.
(supra) has placed reliance upon three judgments
of the Supreme Court given in the case of
Hindustan Steels Limited Vs. State of Orissa AIR
1970 S.C. 253, R.S. Gujarat S.T.O. Vs. Ajeet Mills
Ltd. 1979 U.P.T.C. 171 and Director of
Enforcement Vs. M.C.T. Municipal Corporation
J.T. 1996 (1) S.C. 79 to hold that classic view that
"no mens rea no crime" is not applicable to the
economic crimes and departmental penalties.
Plain language of sub-section (5) of Section 4-B
also does not show that mens rea is an essential
ingredient for imposition of penalty. The
reasoning given by the tribunal in para 6 of its
order that since the goods were purchased in lots
and there appears no mala fide on the part of the
appellant, for deleting penalty under Section 4-
B(5) of the Act cannot be sustained. It appears
that sub-section (5) to Section 4-B was not brought
to the notice of the tribunal. The tribunal has
failed to decide the case within the four corners of
Section 4-B(5) of the Act.
The other reasoning given by the tribunal for
deleting the penalty is that the tax has been paid by
the purchasers to whom the sale of unusable iron
scrap has been made by the appellant. Substantial
proofs have been produced before it about the
payment of tax. These factors are hardly germane
for deleting penalty under Section 4-B (5) of the
Act."
13. It is difficult to accede to the contention of the learned counsel that
Sub-section (a-1) of Section 4-B of the Act would be attracted. Apart from
the fact that no such contention has been raised before the authorities
concerned, the notification purported to have been issued by the Stage
Government has also not been placed on record.
It is furthermore difficult to accept that in a case of this nature where a
tax benefit had already been granted to a dealer, a further tax benefit would
be granted even if he violates the condition of certificate.
14. Sub-section (5) of Section 4-B of the Act is in two parts. Penalty is
levied if the goods have been utilized for the purpose other than that for
which the recognition certificate was granted or the dealer otherwise had
disposed of the said goods. The statutory provision speaks of penalty and
not duty. It is, therefore, difficult to accept the contention of Mr. Banerjee
that the said provision merely purports to recover the duty which was
otherwise payable by the dealer. Mr. Banerjee himself submitted that the
stage of realization of the duty was over. If that be so, only penalty could be
levied. Levy of penalty, ordinarily, unless there exists any statutory
interdict, requires proof of mens rea.
It was so held in Hindustan Steel Ltd. v. State of Orissa [(1969) 2
SCC 627] stating:
"8An 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. Even if a minimum
penalty is prescribed, the authority competent to
impose the penalty will be justified in refusing to
impose penalty, when there is a technical or venial
breach of the provisions of the Act or where the
breach flows from a bona fide belief that the
offender is not liable to act in the manner
prescribed by the statute"
Mr. Banerjee, however, urged that Hindustan Steel Ltd. (supra) is not
applicable to the facts of the present case. We do not agree.
15. Reliance placed by Mr. Banerjee on R.S. Joshi, S.T.O., Gujarat v. Ajit
Mills Ltd. and another [(1977) 4 SCC 98] has no application in the instant
case. The question which arose for consideration therein was as to whether
the word 'penalty' would include forfeiture. The core question therein was
as to whether the enactment by the State legislature providing that sums
collected by dealers by way of sales tax but are not exigible under the State
law and, indeed, prohibited by it shall be forfeited to the public
exchequer punitively. It was held that it is permissible, stating :
"There is a tendency for valiant tax executives
clothed with judicial powers to remember their
former capacity at the expense of the latter. In a
welfare state and in appreciation of the nature of
the judicial process, such an attitude, motivated by
various reasons cannot be commended. The
penalty for deviance from these norms is the peril
to the order passed. The effect of mala fides on
exercise of administrative power is well-
established."
P.S. Kailasam, J, in his concurrent but separate judgment, stated :
"63. Mr Kaji as well as Mr B. Sen, learned
Counsel for some of the assessees, further brought
to our notice cases in which by the application of
the provisions of the sales tax enactment
considerable hardship and injustice has been
caused to the dealers. It was submitted that where
the assessee innocently collected amounts on the
impression that tax was leviable, the amounts so
collected were forfeited while his obligation to the
purchasers to refund the amounts continued. If the
assessee by a mistake failed to collect tax, from the
purchasers, tax was levied and collected from the
assessee making him suffer in any event. When
after a costly litigation, the assessee succeeded in
establishing that sales tax cannot be collected on
the railway freight on cement bags or inter-State
sales, the Government promptly forfeited such
amounts. We agree these are instances of hardship
to the assessees and deserve Government attention.
But for that reason the Courts cannot say that the
act is beyond the legislative competence. The fact
that in some cases the dealers are prejudiced would
not affect the validity of the legislation which is
the question we are called upon to decide. On a
careful consideration of the points raised, I am
satisfied that the provisions of Section 37(1) are
within the competence of the State Legislature."
We are not concerned with such a question here.
16. Reliance has also been placed on Director of Enforcement v. M.C.T.
M. Corporation Pvt. Ltd. & Others [(1996) 2 SCC 471]. This Court was
dealing therein with Foreign Exchange Regulation Act, 1947. It was opined
that Section 23(1(a) of the Act confers adjudicatory function on the conduct
of the delinquent, stating :
"8. It is thus 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 that 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
FERA, would be discharged where it is shown that
the "blameworthy conduct" of the delinquent had
been established by wilful contravention by him of
the provisions of Section 10, FERA, 1947. It is the
delinquency of the defaulter itself which
establishes his 'blameworthy' conduct, attracting
the provisions of Section 23(1)( a ) of FERA, 1947
without any further proof of the existence of "mens
rea". Even after an adjudication by the authorities
and levy of penalty under Section 23(1)( a ) of
FERA, 1947, the defaulter can still be tried and
punished for the commission of an offence under
the penal law, where the act of the defaulter also
amounts to an offence under the penal law and the
bar under Article 20(2) of the Constitution of India
in such a case would not be attracted. The failure
to pay the penalty by itself attracts 'prosecution'
under Section 23-F and on conviction by the
'court' for the said offence imprisonment may
follow."
17. The attention of the Court, therein, however, was not drawn to the
earlier binding precedent in Hindustan Steel (supra). Furthermore, the
question as to whether mens rea is an essential ingredient or not will depend
upon the nature of the right of the parties and the purpose for which penalty
is sought to be imposed.
18. A distinction must also be borne in mind between a statute where no
discretion is conferred upon the adjudicatory authority and where such a
discretion is conferred. Whereas in the former case the principle of mens
rea will be held to be imperative, in the latter, having regard to the purport
and object thereof, it may not be held to be so.
In Dilip N Shroff v. Joint Commissioner of Income Tax, Mumbai &
Anr. [(2007) 6 SCC 329], it was opined :
"86. It is of some significance that in the standard
pro forma used by the assessing officer in issuing a
notice despite the fact that the same postulates that
inappropriate words and paragraphs were to be
deleted, but the same had not been done. Thus, the
assessing officer himself was not sure as to
whether he had proceeded on the basis that the
assessee had concealed his income or he had
furnished inaccurate particulars. Even before us,
the learned Additional Solicitor General while
placing the order of assessment laid emphasis that
he had dealt with both the situations. The
impugned order, therefore, suffers from non-
application of mind. It was also bound to comply
with the principles of natural justice. (See Malabar
Industrial Co. Ltd. v. CIT)
87. We have, however, noticed hereinbefore that
the Income Tax Officer had merely held that the
assessee is guilty of furnishing of inaccurate
particulars and not of concealment of income;
which finding was arrived at also by the
Commissioner of Income Tax and the Income Tax
Appellate Tribunal."
In Chairman, SEBI v. Shriram Mutual Fund [(2006) 5 SCC 361], this
Court held:
"35. In our considered opinion, penalty is attracted
as soon as the contravention of the statutory
obligation as contemplated by the Act and the
Regulations is established and hence the intention
of the parties committing such violation becomes
wholly irrelevant. A breach of civil obligation
which attracts penalty in the nature of fine under
the provisions of the Act and the Regulations
would immediately attract the levy of penalty
irrespective of the fact whether contravention must
be made by the defaulter with guilty intention or
not. We also further held that unless the language
of the statute indicates the need to establish the
presence of mens rea , it is wholly unnecessary to
ascertain whether such a violation was intentional
or not. On a careful perusal of Section 15-D( b )
and Section 15-E of the Act, there is nothing which
requires that mens rea must be proved before
penalty can be imposed under these provisions.
Hence once the contravention is established then
the penalty is to follow."
19. It is, therefore, difficult to accede to the contention of Mr. Banerjee
that under no circumstances absence of mens rea would not be a plea for
levy of penalty. An assessing authority has been conferred with a
discretionary jurisdiction to levy penalty. By necessary implication, the
authority may not levy penalty. If it has the discretion not to levy penalty,
existence of mens rea becomes a relevant factor. We may notice that in the
show cause notice itself, the authorities stated:
"You have sold away 239.966 tons of iron and
steel without payment of any sales tax with the
assistance of the Form No. 3(B), amounting to Rs.
10,73,850.89, whereas the receipt thereof was also
issued under the provisions of Section 4-B on the
basis of full exemption from the tax, with the
assistance of the Form No. 3(B). In this way, the
material purchased for the purposes of production
under the provisions of Section 4-B, while utilizing
the same for the same purposes, was sold away in
the same condition, which is a violation of the
provisions of Section 4-B, and is punishable under
the aforesaid sub-section of the Act."
20. The assessing authority, therefore, understood the said provision to
mean that the appellant was liable to be imposed with a punishment. The
authority did not say that the duty which was otherwise due from the
appellant would be realized.
21. We, however, are of the opinion that in the facts and circumstances of
this case, existence of mens rea on the part of the appellant is evident.
22. Ordinarily a dealer must abide by the undertaking given by it. If it is
not in a position to comply with the requirements contained in the statute, it
is expected that it would inform thereabout to the assessing authority. It
purchased the goods in the assessment year 1985-86. It did not disclose as
to when it sold out the goods. What was its consumption during said
assessment year or the next assessment year had not been disclosed.
As a finding of fact has been arrived at that the dealer had not
furnished any proof in regard to its inability to use it for manufacturing
purposes. It was obligatory on the part of the appellant as it has special
knowledge in regard thereto to show as to why the entire quantity of goods
could not be utilized.
A finding of fact has also been arrived at by the assessing authority
that the vendee had utilized the self-same goods for manufacturing. 10% of
the purchased goods, namely, 2532.989 M.T. is not such which could be
ignored by the assessing authority. Although duty was payable thereon, it
may be that the auction of lots was on "as is where is basis", the same would
not mean that a part of it could not be melted for manufacturing the ingots.
If that was the position, it could have informed the authorities in that behalf
even prior to affecting the sale to a third party.
23. Moreover, the assessing authority as also the appellate authority had
held that the appellant sold the goods knowingly and, it must, therefore, be
inferred that the finding in regard to mens rea had also been arrived at.
24. In the facts and circumstances of this case, we are of the opinion that
no case has been made out for interfering with the impugned judgment. The
appeal is dismissed accordingly. No costs.
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