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TMI Blog1999 (3) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... etting the benefit declaration under form 18 from the purchaser is to be given. The above sub-section reads as follows: "(7) Notwithstanding anything contained in sub-section (1) or sub-section (2), the tax payable by a dealer in respect of any sale of industrial raw materials or packing materials, which is liable to tax at a rate higher than four per cent, when sold to industrial units for use in the production of finished products inside the State for sale, or for packing of such finished products inside the State for sale, as the case may be, shall be at the rate of only four per cent on the taxable turnover relating to such industrial raw materials or packing materials, as the case may be: Provided that this sub-section shall not apply where the sale of such finished products is not liable to tax either under this Act or under the Central Sales Tax Act, 1956 (Central Act 74 of 1956), or when such finished products are exported out of the territory of India: Provided further that the provisions of this sub-section shall not apply to any sale unless the dealer selling the goods furnishes to the assessing authority in the prescribed manner a declaration duly filled in and signed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in contravention of any of the provisions of this Act or any rule made thereunder, for the contravention of which no express provision for payment of penalty or for punishment is made by this Act; such authority or officer may direct that such person shall pay, by way of penalty, an amount not exceeding twice the amount of sales tax or other amount evaded or sought to be evaded where it is practicable to quantify the evasion or an amount not exceeding five thousand rupees in any other case." After hearing the petitioner, maximum penalty, that is twice the amount of tax alleged to have evaded, was imposed by exhibit P1 order which was confirmed in revision by exhibit P2 order which was further confirmed by exhibit P5 order in the second revision by the Board of Revenue (Taxes). Exhibits P1, P2 and P5 are under challenge in this original petition. 5.. The contentions of the petitioner are: (1) Section 5(7) of the KGST Act is not applicable to the purchasing dealer as liability to pay tax is only on the selling dealer. Consequently, penalty cannot be imposed under section 45A(1)(g) of the KGST Act. Since there is no statutory liability on the purchasing dealer to pay tax, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entitled to claim the concessional rate of one per cent, irrespective of the correctness of the declaration or the manner in which the declarant subsequently acts. Form 18 shows that the declarant need not even specify the goods he intends to manufacture or the nature of the use. The selling dealer is entitled to act on the meagre particulars furnished, and there is no legislative intention to put him on an impossible enquiry as to the correctness of the declaration. The taxing event is the sale to the purchasing dealer. If the purchaser misrepresents or subsequently misbehaves, the 'legislative wrath' falls upon him, as section 46(2)(d) of the Act provides for his imprisonment and for fine." In view of the above decision the first contention of the petitioner that purchasing dealer cannot be imposed with penalty even though lesser tax was paid only on the basis of his declaration, cannot be accepted merely because liability to pay tax to the Government is on the selling dealer. 7.. It is true that in the sub-section under question or in the declaration there is no obligation to the purchasing dealer to sell the finished goods manufactured by utilising the raw materials pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntional act on the part of the petitioner to evade tax. As such no penalty should have been levied and even if penalty is levied there is no case for imposition of maximum penalty. According to the petitioner, before amendment of the section, petitioner was purchasing raw materials through its branches outside the State, and bringing to the factory after paying Central sales tax and in that process Kerala Government was not getting any tax at all. In view of the amendment petitioner started to purchase locally. Therefore, at least four per cent tax was payable to the State and there is no loss to the State. It is further submitted that at the time of filing declaration petitioner only meant that the raw materials purchased as per the declaration will be used for manufacturing saleable finished goods in the State and only because of the market contingencies part of the goods so manufactured were transferred to branches by way of branch transfer and in the over all circumstances, there is no case for imposition of maximum penalty. It was also contended that the Supreme Court in the decision in Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 held that liability to pay pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be sold under the KGST Act or the Central Sales Tax Act, they are not entitled to the benefit. At least when the circumstance arose that depending upon the market conditions the goods were removed by way of branch transfer, before issuing notice under section 45A the company should have paid the difference in tax. 10.. In the decision in K.P. Davis v. Assistant Commissioner (1997) KLJ (TC) 416 it was held by this Court that what is required is an independent application of mind by the Board of Revenue while dealing with the question of quantum of penalty. The Board is bound to examine the entire materials and to evaluate the gravity of the offence before exercising the power of discretion and such discretion should be exercised reasonably and not mechanically or arbitrarily. It was held that the section is penal in nature intended to be an effective deterrent which will put a stop to practices of evasion of revenue. Even if penalty is imposable, what will be the quantum of penalty, whether maximum penalty should be imposed or not is also a matter to be considered independently by the Board of Revenue. In exhibit P5 order with regard to the quantum of penalty the following consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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