TMI Blog2008 (3) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... he authorities in that behalf even prior to effecting the sale to a third party. 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. - Civil Appeal No. 1768 of 2008 - - - Dated:- 5-3-2008 - SINHA S.B. AND SIRPURKAR V.S. JJ. Puneet Jain, Sushil Kumar Jain, Ms. Christi Jain, H.D. Thanvi, Piyush Jain and Ms. Pratibha Jain Advocates for the appellant. Gaurav Banerjee, Senior Advocate (Manoj Kr. Dwivedi, Ms. Vandana Mishra and Gunnam Venkateswara Rao Advocates with him) for the respondent. -------------------------------------------------- PRAKASH KRISHNA J. This revision is at the instance of Commissioner of Sales Tax under section 11(1) of the U.P. Sales Tax Act, 1948 and is directed against the order dated April 29, 1993 passed by the Sales Tax Tribunal, Agra in Second Appeal No. 141 of 1991 (1985-86). The present revision arises out of penalty order dated March 26, 1990 passed under section 4B(5) of the U.P. Sales Tax Act. The facts of the case are almost undisputed. The dealer-opposite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r payment of tax at concessional rate or, as the case may be, without payment of tax, for a purpose other than that for which recognition certificate was granted or otherwise disposed of the said goods, such dealer shall be liable to pay, as penalty, such amount as the assessing authority may fix. On plain reading of sub-section (5) of section 4B the intention of the Legislature is clear that raw materials purchased for manufacture of the notified goods can be utilised only for the purpose for which the recognition certificate was granted and not otherwise. In the case of Sai Electricals (P) Ltd. v. Commissioner of Sales Tax [1997] 107 STC 384 (All); [1997] UPTC 721 it has been held that raw material purchased could be used for manufacture of only notified goods. The plea that raw material was used for repair and therefore there was no violation of section 4B was rejected. In this case the court has also held that the mens rea is not intended by the Legislature for imposing penalty. The learned counsel for the dealer-opposite party has placed reliance upon a judgment of this court given in the case of Commissioner of Sales Tax v. Prag Ice and Oil Mills, Aligarh [1983] UPTC 439 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted. 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 4B(2) of the U.P. Trade Tax Act, 1948 (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 on '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 rom the lots. 4.. The purchaser should inspect the lots prior to the auction . . ." The appellants stated that about 9.47 per cent of the total amount of scrap purchased, i.e., 239.966 M.T., could not be utilised by it. It sold the said goods to other dealers at a concessional rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been allowed by the impugned judgment dated April 1, 2004. 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 4B of the Act, it is evident that in terms of sub-section (1)(a1) thereof, a dealer is entitled to sell the goods to another; (2) From a perusal of sub-section (5) of section 4B 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 per cent of the scrap purchased by the appellant has been utilised for the purpose of manufacture of steel ingots, only because due to certain unavoidable reasons the rest 10 per cent of it could not be utilised, the appellant could not be said to have any mens rea in relation thereto. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to tax under sub-section (1) of section 3D 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: . . . (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the manufacture, but the same had been sold away knowingly with the intention of escaping the tax against the form IIIB. Therefore, the trader was under the impression that even if each goods is not in consonance with the conditions of the provisions of section 4B, 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 4B of the Act, knowingly and in planned manner . . ." On the said findings, the minimum penalty of Rs. 85,619 was imposed. The appellate authority agreed with the said finding of the assessing authority stating: ". . . Clearly, the appellants while violating the provisions of section 4B(2) of the Act had carried out the sale of the raw material purchased against form IIIB. Therefore, this offence of the appellant was naturally punishable under the provisions of section 4B(5) of the Act. The appellants have committed this sale knowingly with a view to escape from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty under section 4B(5) of the Act." It is difficult to accede to the contention of the learned counsel that sub- section (a1) of section 4B 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 State 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. Sub-section (5) of section 4B of the Act is in two parts. Penalty is levied if the goods have been utilised 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 realisation of the duty was over. If that be so, only penalty could be levied. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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 aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r binding precedent in Hindustan Steel [1969] 2 SCC 627 See [1970] 25 STC 211 (SC).. 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. 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 [2007] 6 SCC 329 See [2007] 291 ITR 519 (SC)., 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to Rs. 10,73,850.89, whereas the receipt thereof was also issued under the provisions of section 4B on the basis of full exemp- tion from the tax, with the assistance of the form No. IIIB. In this way, the material purchased for the purposes of production under the provisions of section 4B, while utilising the same for the same purposes, was sold away in the same condition, which is a violation of the provisions of section 4B, and is punishable under the aforesaid sub-section of the Act." 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 realised. 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. 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 so ..... X X X X Extracts X X X X X X X X Extracts X X X X
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