2004 (6) TMI 611 - HC - VAT and Sales Tax

Levy of penalty u/s 22-A(7) of the Rajasthan Sales Tax Act 1954 ( the Act 1954 ) - Requirement of mens rea for imposing penalty - Validity of the Rajasthan Taxation Tribunal s order - HELD THAT - A consistent thread of linking the penalty with dishonest or contumacious conduct is perceptible in most of the decisions referred to by the learned single Judge in his judgment wherever penalty is imposed for the breach of procedure required of furnish information. It is perhaps overlooked by over-emphasising the fact that mens rea need not in all cases be present because proceeding for penalty is distinct from the criminal liability and on the assumption that penalty and tax are not distinguishable concept but penalty is only an additional tax in all circumstances and like in levy of tax the conduct of assessee is immaterial for levy of penalty also the conduct and the circumstances in which the breach has been committed are immaterial before the authority exercises its jurisdiction to levy penalty. Once the distinction between honest and dishonest conduct is required to be made then in the cases where the requirement of law is unfulfilled bona fide and genuinely the discretion is not to be exercised for imposing the penalty merely because it is lawful to do so when such breach was complete in the first instance. But in case the conduct is found to be contumacious dishonest or wanton it no more remains a bona fide technical or venial breach of provision but becomes a serious matter and penalty must be imposed. In the present case as per the facts found by the Tribunal and about which there is no dispute that the requisite documents were sent by the petitioner with the goods and delivered to the driver. The driver for some reason had not produced these documents at the time of checking but the same were found at that very time from the possession of the driver accompanying with goods. Thus the requisite documents were accompanying the goods in transit. The said documents are not found to be false or forged. In these circumstances it is apparent that neither the goods were being carried unaccompanied with requisite documents nor the petitioner has committed any default or breach of the statutory obligation imposed upon him to furnish requisite documents to the carrier to be delivered at the time of the checking. The fact that the driver has not shown the documents which were given to him for some reason cannot make the petitioner guilty of breach of statutory obligation placed on him. It may be apposite to circumstances noticed by the Rajasthan Sales Tax Tribunal that perhaps penalty is the outcome of the fact that ACTO felt offended by the attitude of drivers. In the circumstances the conduct of the petitioner cannot be considered as dishonest or contumacious nor any link with evasion or avoidance of tax has been found. Consequently notwithstanding that the driver has failed to show the bill accompanying the goods at the time of checking but it was recovered from his possession which rules out the possibility of document being subsequently prepared and was not found to be incorrect or not genuine no nexus between the breach and object of the provision viz. evasion or avoidance of tax is established the principle in Swastik Roadways case 2004 (2) TMI 341 - SUPREME COURT fully governs the facts of this case. Consequently the order imposing penalty as sustained by the Rajasthan Taxation Tribunal under challenge cannot be sustained. The writ petition is allowed. The order of the Rajasthan Taxation Tribunal dated January 1 1998 along with orders of assessing officer dated November 16 1990 and Deputy Commissioner (Appeals) dated January 7 1991 are quashed and the order passed by the Rajasthan Sales Tax Tribunal dated March 31 1993 is restored by which the penalty levied u/s 22-A(7) of the RST Act was set aside.

Summary

Issues Involved:
1. Legality of the penalty imposed u/s 22-A(7) of the Rajasthan Sales Tax Act, 1954.
2. Requirement of mens rea for imposing penalty.
3. Validity of the Rajasthan Taxation Tribunal's order.

Summary:

1. Legality of the Penalty Imposed u/s 22-A(7):
The petition challenged the order of the Rajasthan Taxation Tribunal, which restored the penalty imposed by the ACTO and Deputy Commissioner (Appeals). The penalty was levied because the driver failed to produce the requisite documents at the check-post, despite the documents being found in the vehicle. The Rajasthan Sales Tax Tribunal had previously set aside the penalty, stating that the mere non-production of documents by the driver did not warrant a penalty, especially since the documents were genuine and later produced.

2. Requirement of Mens Rea for Imposing Penalty:
The court reiterated that penalty provisions are quasi-criminal in nature and require a finding of dishonest or contumacious conduct. The consistent view is that penalty should not be imposed for mere technical or venial breaches. The court emphasized that the opportunity of hearing before imposing a penalty is to allow the defaulter to produce genuine documents and show that the breach was not deliberate. The court referred to several Supreme Court decisions, including Hindustan Steel Ltd. and D.P. Metals, to support this view.

3. Validity of the Rajasthan Taxation Tribunal's Order:
The court found that the Rajasthan Taxation Tribunal's order was contrary to the consistent view that mens rea is necessary for imposing a penalty. The court noted that the documents were genuine and were found in the vehicle, indicating no intention to evade tax. The court quashed the orders of the Rajasthan Taxation Tribunal, ACTO, and Deputy Commissioner (Appeals), and restored the order of the Rajasthan Sales Tax Tribunal, which had set aside the penalty.

Conclusion:
The writ petition was allowed, and the penalty imposed u/s 22-A(7) of the Rajasthan Sales Tax Act, 1954, was set aside. The court emphasized the necessity of establishing mens rea and the nexus between the breach and the evasion or avoidance of tax before imposing a penalty.