TMI Blog2004 (6) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished GR No. 1 dated October 31, 1990 issued by M/s. Delhi Bombay Road Lines, Abu Road. The consignor of the goods was shown to be M/s. Sumit Marbles, Abu Road. There was Bill No. 122 dated October 31, 1990 with regard to 50.31 square metres of granite priced at Rs. 34,494.95 and the recipient was shown to be M/s. Sri Parashwanath Granites. 5.. On being verified the vehicle, the goods were found to be more than as were shown in the said bill. The driver did not tender any other document. However on searching the vehicle, two envelopes were found, one of which was of M/s. Parashwanath Granites the present petitioner, and another was bill of M/s. Hindustan Granites, Abu Road. The bill issued by the present petitioner M/s. Parashwanath Granites was of 50.31 square metres of granite priced at Rs. 47,102.85 coupled with excise GR No.1 dated October 31, 1990. 6.. Apparently, the goods carried in the vehicle so far as the present petitioner is concerned, were accompanying the relevant documents delivered to the driver but the driver does not appear to have handed over the said documents to the officer at the check-post. Being suspicious of the evasion of tax, after seizing the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause notice and there being no issue about reliability of the document which was accompanying the goods, the penalty could not be levied. The Sales Tax Tribunal was also of the opinion that the penalty appears to be the outcome of the fact that the ACTO felt offended by the attitude of the driver. 11.. Against the order of the Tribunal, a revision was preferred before this Court which on Constitution of the Rajasthan Taxation Tribunal stood transferred to it, which earlier was registered as Revision Petition No. 329 of 1994 and on transfer, was numbered as RTT No. 101 of 1996. 12.. The learned members of the Rajasthan Taxation Tribunal were of the opinion that a conjoint reading of the provision contained in section 22-A(7) of the Act, 1954 since repealed and replaced by the Rajasthan Sales Tax Act, 1994 (hereinafter referred to as the Act, 1994 ) and rules 62A and 63 of the Rajasthan Sales Tax Rules, 1955 (for short, the Rules of 1955 ) makes it clear that the provision makes it obligatory on the part of the owner or person in-charge of the vehicle, etc., to carry with him the requisite documents and also to produce them at the check-post or on demand before the officer em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal was set aside in the writ petitions arising out of very same order which is under challenge in this petition, the learned counsel for the petitioner urges that this writ petition is also required to be allowed in terms of the said decision. 17.. However, the learned counsel for the respondents urged that since the aforesaid decision, this Court has struck a discordant note in some cases and it has been held that penalty is imposable as soon as the documents are not produced at the check-post and the subsequent production of documents does not cure the breach which has been committed in the first instance and the presence of mens rea or guilty intention is not at all necessary in cases of such breach. Therefore the consequence flowing from the breach of statutory provisions cannot be avoided with reference to mens rea. It was also contended that it is not necessary that the breach of the statutory provision must be related to the attempt to avoid or evade payment of tax within the State of Rajasthan before penalty can be levied. According to the learned Additional Advocate-General, it is in accordance with law that penalty be imposed as soon as the breach of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Officer v. Swastik Roadways [2004] 135 STC 1 (SC); (2004) 17 STT 185 (SC). It was also pointed that in Karnataka Rare Earth's case (2004) 2 SCC 783 the court has reiterated and reaffirmed the view expressed by the Supreme Court in its earlier decision in Alankar Granites Industries v. P.G.R. Scindia, MLA (1996) 7 SCC 416 and Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211; (1969) 2 SCC 627. It was contended by the learned counsel that penalty provisions specifically require an opportunity of hearing before levy of penalty, in cases a breach of section 22-A is found. Therefore, it is reasonable to infer that giving this opportunity, after the breach of statutory provision is complete cannot be an empty formality. It can only be for the purpose of giving an opportunity to the defaulter to produce the correct and genuine document containing requisite information, and if his conduct is not found to be dishonest or contumacious, the breach may be treated as venial and technical. In that event the authority ought to exercise his discretion of not levying penalty. 20.. Before considering in detail the rival contentions and referring to the decisions referred to at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed as an essential ingredient of offence. Absence of mens rea really consists in honest and reasonable belief entertained by the accused of the existence of facts which, in turn, would make the act charged against him innocent. 26.. However, in the context of penalty for breach of statutory obligations, not amounting to offence, mens rea in the aforesaid technical sense in most cases may not be necessarily recognised before penalty is imposed. But the term has often been used to draw distinction between honest and bona fide conduct in breach of statutory obligation on the one hand and dishonest and contumacious conduct on the other. The principle is invoked in cases where before levy of penalty an enquiry into probable defence is to be held by envisaging an opportunity of hearing by issue of show cause notice, even in cases where breach is complete. In some cases, penal consequences follow in absolute terms on principle of strict liability, such as penalty is considered compensatory for loss caused to revenue or a token or light penalty is provided commensurating with the nature of breach, where such distinction may not be present. It ultimately depends on the considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trict liability which follows with the completion of breach of obligation and imposition of penalty to be considered after breach is complete after an opportunity being given to defaulter. 31.. The court said that the confiscation of offending vessel under clause (12-A) is not the end of the matter. In dealing with the offences under clause (12-A) of section 167, the Customs Officer has also to exercise his jurisdiction under section 183 of the Act. The court further said that though confiscation is statutory corollary of the contravention of section 52-A, the Legislature realised that confiscation of the vessel may cause unnecessary hardship to the owners of the vessel and so, section 183 expressly requires the adjudicating officer to give an option to the owners of the offending vessel. Confiscation is no doubt authorised and required by section 167(12-A), but the statutory obligation makes it necessary for the officer to give an option to the owners, and so, in substance, the ultimate penalty which may be imposed on the owners does fall to be determined in the discretion of the said officer. Section 183 confers discretion on the officer to determine what amount of fine sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty has to be levied, or if it is to be levied, maximum penalty has to be levied. It is to be noticed that provision casts an obligation only to the extent of carrying of requisite documents along with the goods by the carrier. If the required documents are accompanied, no breach is committed except in case documents are found to be fictitious or forged. If the goods are carried unaccompanied with the documents requisite, the breach of the condition for carrying goods is complete. Can it be said that in latter case, levy of penalty is not only lawful but in all circumstances, obligatory? 35.. Considering this aspect of the matter, the court observed that law does not provide that once the goods in transit are found to be unaccompanied by the requisite documents, the levy of penalty is automatic. If that were so, the provision for issuing a show cause notice to the owner or transporter before imposing penalty will be meaningless. Notices are issued to the persons likely to be affected by the order, only with a view to give him an opportunity against the proposed penalty. Such opportunity must necessarily include opportunity to show that no penalty is leviable or can be levied in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be forged or not genuine. Since then the penalty has been provided equal to 30 per cent of value of the goods. 39.. These provisions are indicative of the fact that the penalty is to be levied where the breach committed or the default for which penalty is levied, is substantive and is related and has a rational nexus with the purpose for which the provisions of section 22-A have been enacted, namely, that the breach must be related to evasion or avoidance of tax. If that be so, mens rea or deliberate defiance of the provision with intention to evade or avoid liability of tax that may arise as a result of the transaction which was sought to be shielded by keeping it out of accounts, must be necessary ingredient before penalty could be levied. It may further be noticed that where the goods are found in transit unaccompanied with requisite documents when the vehicle is checked, the breach is complete. In defence, the person concerned can only produce the relevant documents that too only after the event, regarding which, breach has been committed and not earlier. Therefore, the mere fact that the goods were not accompanying by documents and the documents were produced later on, dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty 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. 42.. Finding that the assessee has offered the documents at the stage, opportunity was available to him and which was not found to be fictitious or forged, the levy of penalty was not sustained. 43.. The principle was followed and applied while deciding the case under the Act, 1994 in Assistant Commercial Taxes Officer v. Voltas Limited [2000] 120 STC 217 (Raj), the special leave petition against the said decision was rejected. 44.. The principle was upheld and applied earlier by the Division Bench of this Court in Assistant Commercial Taxes Officer v. Rajasthan Taxat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not militate against the view expressed by the Supreme Court in the case of Hindustan Steel Ltd. case [1970] 25 STC 211. Bombay Sales Tax Act, 1959 has made a provision that the sums collected by the dealers by way of sales tax on the transactions which are not exigible under the State law shall be forfeited to the public exchequer. The Gujarat High Court has held the provision as unconstitutional. The constitutionality of the provision was challenged on the ground of legislative competency as well as being violative of articles 14 and 19 of the Constitution of India. The provision was where there has been a contravention referred to in clause (a), a penalty of an amount not exceeding two thousand rupees........and, in addition......any sum collected by the person by way of tax in contravention of section 46 shall be forfeited to the State Government . 51.. Thus, the matter related to the constitutional validity of law providing for forfeiting of tax illegally collected by a dealer or by a person who is not dealer and not paying it to the public exchequer for which it has been collected. 52.. The High Court opined that the collections made by the person who was not a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e given back, if found non-exigible. And expression shall be forfeited was read as shall be liable to be forfeited leaving a discretion to the authorities not to forfeit the sums collected returned to persons from whom they were collected. 56.. The court said that there is authority to hold that shall be forfeited means liable to be forfeited . Referring with approval the above connotation of phrase in Attorney-General v. Parsons [1956] AC 421, Krishna Iyer, J., in his leading judgment said: .........it is sufficient to state that such a construction is tenable. Moreover, section 37 itself contains a clear clue indicative of the sense in which 'shall be forfeited' has been used. Section 37(2) directs the Commissioner to issue notice to the assessee to show cause why a penalty, with or without forfeiture, should not be imposed on him. Such a notice, with specific reference to forfeiture, points to an option in the Commissioner to forfeit or not to forfeit or partly to forfeit. This is made plainer in section 37(3) which reads: 'The Commissioner shall, thereupon, hold an enquiry and shall make such order as he thinks fit'. This order embraces penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intaining the equity and humanism in the statute was made to bear upon its constitutionality . 59.. The decision also maintains the distinction between consideration of constitutionality and consideration for exercise of such power. 60.. Thus, ultimately the court construed the provision in terms of Hindustan Steel Ltd.'s case [1970] 25 STC 211 (SC) holding the penalty shall not be imposed merely because it is lawful to do so, unless the conduct of defaulter is found to be dishonest or contumacious, when the question of its implementation was considered. It ultimately rests in the discretion of the authority to levy or not to levy a penalty, where it becomes imposable. 61.. It also read the provision in the context of object and restricted the penalty of forfeiture to the extent, it retained its nexus with the object of the provision by clearly pointing out that if in response to show cause notice, it is shown that collection was made only tentatively and were to be returned to customer if ultimately it was found not liable to tax or even if the person gives an undertaking to return the same to customer, it was in the discretion of the Commissioner not to levy penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, the High Court has held the provision levying penalty under section 78(5) on the person in-charge of the goods in transit who is not the owner of the goods nor he is dealer of the goods as unreasonable and the penalty leviable on the transporter was permissible to a limited extent provided under section 68. However, this judgment was reversed by the Supreme Court in D.P. Metals' case [2001] 124 STC 611. 66.. The question which directly fell for consideration before the Supreme Court was about the constitutionality of section 78(5) enacted in the Act of 1994 and the question about validity of any order of penalty passed in particular facts and circumstances of the case was neither raised nor decided, whether the mens rea is an ingredient to be enquired into before penalty is to be levied and whether there is a connection between the levy of penalty and evasion or avoidance of tax in respect of the alleged breach of statutory provisions. Still the observations made by the court while considering the question of validity of the provision and the purpose of giving opportunity of hearing before levy of penalty fully support the view expressed by this Court in Mahaveer Conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferred on any principle that the documents produced are presumed to be false or forged or dishonest conduct is to be assumed on mere failure to produce the document at the check-post without giving an opportunity of hearing. The falsity or forgery of document has to be proved as a fact. The purpose of giving hearing was viewed as giving an opportunity to produce the requisite documents bona fide and genuinely can be seen from the following observations: Once the ingredients of section 78(5) are established, after giving a hearing and complying with the principles of natural justice, there is no discretion not to levy or levy lesser amount of penalty. If by mistake some of the documents are not readily available at the time of checking, principles of natural justice may require some opportunity being given to produce the same. 72.. Obviously, it is with reference to the fact that before levy of penalty, the opportunity for hearing is required to be given, it was relatable to enabling the parties to produce those documents which could not be produced inadvertently or by mistake at the time the checking took place or to prove that documents produced are false or forged. Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in Lalji Mulji's case [2002] 127 STC 365 (Raj); (2002) 3 Tax Update 21 (Raj.): 75.. The Bench decision of this Court in Lalji Mulji [2002] 127 STC 365; (2002) 3 Tax Update 21 also reiterates the same principle that a person acting honestly cannot be subjected to penalty but the penalty follows dishonest taxpayer. Referring to the aforesaid observations of the Supreme Court, the court drew the distinction between honest and dishonest act on the part of the assessee. The court observed: .....It will not be correct to protect a tax evader saying that there is absence of mens rea. The apex Court in D.P. Metal's case [2001] 124 STC 611 has rejected the submissions regarding absence of mens rea by observing that the submission of false or forged documents or declaration at the check-post or even thereafter can safely be presumed to have been motivated by desire to mislead the authorities. The court further observed that hiding the truth and tendering falsehood would per se show existence of mens rea, even if requires. 76.. Thus, laying emphasis on the observations made in D.P. Metals' case [2001] 124 STC 611, the division Bench too clearly drew distinctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Supreme Court in Ajit Mills' case [1977] 40 STC 497 (SC); AIR 1977 SC 2279 and D.P. Metals' case [2001] 124 STC 611 and the Bench decision of this Court in Lalji Mulji case [2002] 127 STC 365 do not militate against the decision rendered by this Court in Mahaveer Conductors' case [1997] 104 STC 65 or the Jinendra's case (2001) 1 WLC 381, or the Voltas case [2000] 120 STC 217 and a host of other cases. On the contrary, these two judgments reaffirm the view expressed in the aforesaid decisions that the levying penalty is not automatic, and there is distinction between honest and dishonest acts. The opportunity of hearing envisaged before levying the penalty is primarily to enable an honest taxpayer to comply with the provisions of section 22-A of the Act of 1954 or for that matter section 78 of the Act of 1994 by producing before the authority giving notice genuine documents containing correct information as required by law. If the documents produced by him whether at the check-post or in response to the opportunity afforded to him are found to be false or forged or no documents are produced either at the check-post or even after opportunity of producing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and penalty will not ordinarily be imposed unless the party obliged has either acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of its obligation. Penalty will also not be imposed merely because it is lawful to do so. In spite of a minimum penalty prescribed, the authority competent to impose the penalty may refuse to impose penalty if the breach complained of was a technical or venial breach or flew from a bona fide though mistaken belief. 83.. However, the court found that demand for the price of mineral was not by way of penalty but was by way of compensation to the purpose for the mineral taken by the petitioner without payment of full price by operating quarry licence under an invalid lease though under the interim orders of the court. No element of penalty was found in that demand to apply ratio of Hindustan Steel Ltd. [1970] 25 STC 211 (SC) in said case. 84.. But the fact remains the court clearly culled out the ratio of decision in Hindustan Steel Ltd. [1970] 25 STC 211 (SC), as applicable to levy by way of penalty which is not compensatory in nature but is by way of punishment. 85.. In y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e levied was repelled by saying that penalty was not tax. The court said: ..........In our view, the basis of penalty was three times the amount of tax evaded by the dealer. This basis was a measure or the yardstick. It cannot convert a penalty on the defaulting clearing and forwarding agent into a tax. The object of section 57(2) is to penalise any person who abets in or facilitates the evasion of tax. Therefore, a heavy penalty is prescribed to check tax evasion, subject to the satisfaction of conditions laid down in the sub-section. 90.. Significantly, like in D.P. Metals' case [2001] 124 STC 611 (SC), the object of provision was found to check evasion and avoidance of tax justifying levying penalty. The court went on to explain the scope of penalty proceedings and necessary pre-requisite before penalty could be levied to effectuate the object of the provision as under: The nexus between tax evasion by the owner of goods and the failure of clearing and forwarding agent to furnish information required by the Commissioner is implicit in section 57(2) and the concerned assessing authority has to necessarily record a finding to this effect before levying penalty unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio emerging from all the aforesaid decisions of the Supreme Court making it apparent that levy of penalty for breach of any statutory provision, though become lawful to be imposed when the breach is complete, the penalty does not follow automatically, but the distinction has to be drawn in giving effect to such penalty provision between a dishonest breach of statutory provision and a breach of the statutory provision which falls in the category of a bona fide mistake. In the former the penalty follows the dishonest or contumacious conduct, and in the latter, it remains a venial or technical breach, within the ratio of Hindustan Steel Ltd. [1970] 25 STC 211 (SC) and discretion to levy penalty or not to levy penalty has to be exercised accordingly in the other manner the penalty followed. 95.. In the latter class of cases, the Supreme Court has taken the view that discretion vests in the authority not to levy penalty. As we have discussed above, in fact, neither any Supreme Court decision nor the larger bench decision of this Court has held to the contrary. (a) Mutha Premraj's case (2002) 3 Tax Update 51 (Raj) (SB): 96.. The learned counsel for the respondents has pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1997] 104 STC 65 and Voltas Ltd. [2000] 120 STC 217, but as the honourable apex Court, in a large number of its judgments, dealing with various subjects, including Foreign Exchange Regulation Act, Customs Act, Essential Commodities Act, Income-tax Act, General Sales Tax Acts of the State and Central Sales Tax Act, has elaborately held that the proceedings are not criminal or quasi-criminal in nature nor the penalty imposed under these statutes can be held to be penal in its strict legal sense as understood in criminal jurisprudence and penalty so imposed remains merely an additional tax to be paid by the assessee for breach of a statutory provision or his contumacious conduct because section 22-A(7) does not deal with a case of merely furnishing a false declaration. There may be, like instant, cases of no declaration at all. 98.. After expressing the aforesaid opinion, the learned single Judge further stated that in the light of the view taken by this Court in Lalji Mulji's case [2002] 127 STC 365 and after considering the judgments of the Supreme Court in R.S. Joshi's case [1977] 40 STC 497; AIR 1977 SC 2279 and D.P. Metals' case [2001] 124 STC 611, it would not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 77 ITR 107 (SC); AIR 1970 SC 778. 103.. Suffice it to state that no such principle of general application has been stated in any of the cases. 104.. The concept of additional tax adverted to in absolute in Mutha Premraj case (2002) 3 Tax Update 51 appears to be incorrect and out of context in which penalty has been treated as additional tax for certain purposes only, in some of the cases. 105.. In C.A. Abraham's case [1961] 41 ITR 425 (SC); AIR 1961 SC 609, the court was considering in the context of section 44 of the Indian Income-tax Act, 1922. Under section 44 of the Income-tax Act, a general provision has been made requiring assessment of a firm where business has been closed. However, no separate provision has been made providing machinery for imposing penalty. The assessee has been assessed for suppressed income of the firm under the Travancore Income-tax Act for the assessment year 1949-50 and for assessment year 1950-51 under the Indian Income-tax Act. The assessee challenged the levy of the penalty, inter alia, on the ground that after the firm was dissolved on account of death of one of its partners in 1949, no order imposing a penalty could be passed again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinct provisions are made for recovery of tax due and penalty, but that in our judgment does not alter the true character of penalty imposed under the two Acts. The court declined to draw parity with other enactments on the ground that under different Acts, separate provisions were made for procedure to be followed for assessment and penalty. 107.. In Commissioner of Income-tax v. Anwar Ali [1970] 76 ITR 696 (SC), the court referred to the aforesaid observations in C.A. Abraham's case [1961] 41 ITR 425 (SC); AIR 1961 SC 609 and explained the distinction between the penalty to be considered as additional tax for the purposes of machinery provisions and penalty to be dealt with as the part of substantive law. The court said: It is true that penalty proceedings under section 28 are included in the expression 'assessment' and the true nature of penalty has been held to be additional tax. But one of the principal objects in enacting section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court in Mutha Premraj's case (2002) 3 Tax Update 51 is in fact to the contrary. Jain Brothers' case [1970] 77 ITR 107 (SC); AIR 1970 SC 778 is founded on the premise that there is a difference between the penalty proceedings and the assessment proceedings which provide rational criteria for making different provision. The observations made in Jain Brothers' case [1970] 77 ITR 107 (SC); AIR 1970 SC 778 have been taken wholly out of the context in which they have been made. 113.. While repealing the Indian Income-tax Act, 1922 under section 297(1) of the Income-tax Act, 1961, certain transitory provisions were made in sub-section (2) of section 297 for the proceedings relating to assessment year completed on or before March 31, 1962, which fell otherwise within the Act of 1922. Under clause (f) of section 297(2), the penalty proceedings which were pending as on the date of commencement of the Act of 1961, were to continue under the Act of 1922. However, in cases where assessment for the year ending on the 31st day of March, 1962 or any earlier year which is completed on or after 1st April, 1962, the proceedings for imposition of penalty in respect of it could be ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to levy penalty was neither raised nor decided in Jain Brothers' case [1970] 77 ITR 107 (SC); AIR 1970 SC 778. 118.. The decision in Gujarat Travancore Agency v. Commissioner of Income-tax, Kerala [1989] 177 ITR 455 (SC); AIR 1989 SC 1671, also cannot be considered to be germane for the present purposes. It was a case where the question arose about the penalty leviable under section 271(1)(a) of the Income-tax Act, 1961 which provided penalty for delayed furnishing of return without reasonable cause, where there was an obligation to pay tax as was due as per return. Considering the object and purpose of provisions of section 271(1)(a), the court found it to be compensatory in nature primary and penalty was to make such compensation payable through coercive law when it observed: .....however, it seems that the intention of the Legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. 119.. Thus, finding that the consequence for breach of obligation under section 271(1)(a) was compensatory in nature, the question of conduct became immaterial as was also explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax v. I.M. Patel and Co. [1992] 196 ITR 297 (SC); (1993) Supp 1 SCC 621 is also relating to imposition of penalty under section 271(1)(a) of the Incometax Act, 1961, and follows the principle laid in Gujarat Travancore Agency's case [1989] 177 ITR 455 (SC); AIR 1989 SC 1671. 123.. The decision in Director of Enforcement v. MCTM Corporation Pvt. Ltd. AIR 1996 SC 1100 has been referred to in the Mutha Premraj's case (2002) 3 Tax Update 51 (Raj). Said case had arisen in particular scheme of the Foreign Exchange Regulation Act. The question was whether two separate and independent penalties are envisaged for breach of section 10(1) and 10(2). Keeping in view the object and purpose below the substantive obligation cast on recipient of foreign exchange in India to repatriate the same within reasonable time and keeping in view that penalty followed the breach in absolute term, the court held that non-repatriation within reasonable time under section 10(1) and not responding to directions issued under section 10(9) constituted distinct and separate breaches inviting separate penalties. Sub-section (2) of section 10 was not a provision requiring opportunity of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objectively determined only if the delinquent employee is heard and is given a chance to satisfy the authority regarding the final orders that may be passed by the said authority. (3) This provision confers power on the disciplinary authority to decide whether in the facts and circumstances of a particular case what penalty, if at all, should be imposed on the delinquent employee. In considering the matter the disciplinary authority will have to take into account the entire conduct of the delinquent employee, the gravity of misconduct committed by him, the impact which his misconduct is likely to have on the administration and other extenuating circumstances or redeeming features, if any, present in the case and so on and so forth. 125.. Thus, the court clearly indicated that notwithstanding there being a conviction on criminal charge, it being lawful to impose penalty of dismissal by the departmental authority, the question of mens rea in the sense it is used in the context of criminal offence being not relevant still it may not be imposable in the facts and circumstances of the case. Notwithstanding the fact of conviction on criminal charge being uncontrovertable, and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person concerned fails to produce the relevant documents or the documents produced are found to be false or forged or incorrect, penalty becomes imposable. 128. 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. 129.. In fact, there has been consistent view that on substantive plateau, penalty is different from tax in its nature so much so that no penalty can be levied without specific provision by merely extending machinery provision generally. Where substantive and independent provision has been made for imposition of penalty, extension of machinery provision relating to assessment has been held to include within it the proceedings for levy of penalty also as machinery for levying penalty as an additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Union of India [1983] 53 STC 289 (SC); AIR 1984 SC 1194. 134.. The division Bench of this Court in Lalji Mulji [2002] 127 STC 365 as noticed above, also did not accept the penalty as merely as additional tax, not different from tax, when it said that the penalty provision cannot be used as revenue yielding provision. 135.. In view of above discussion, the foundation of Mutha Premraj's case (2002) 3 Tax Update 51 (Raj) that penalty is only additional tax and not different from it for all purposes, cannot be accepted as stating the law correctly. 136. In fact, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguishing penalty provision from criminal proceedings, dishonest or contumacious conduct was considered to be a normal ingredient of penalty provisions unless in the very scheme of the statute authorising levy of penalty can be assumed to be absolute in terms, without any defence possible, which may not even require a show cause notice before levy of penalty. 143.. The Madras High Court in Vijaya Electricals v. State of Tamil Nadu [1991] 82 STC 268 is a case in which information furnished by the person by way of declaration in C form was found to be false; which carry with presumption of dishonesty and contumacious conduct. Hence, independent of falsity of information, no separate mens rea was required to be proved. It was not a case of a violation which was bona fide mistake and not contumacious. In fact, the court found that the plea of bona fide was unsustainable because the declaration was found to be false. Apparently falsity and bona fide do not stand together. 144.. The aforesaid principle too is in line with the Supreme Court decision in Hindustan Steel Ltd.'s case [1970] 25 STC 211 and other cases noticed above that penalty is not necessary to be imposed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions have been made, for example, the provision for confiscation of vessel which was found in Indian water and which was not conforming to description prescribed under section 52-A of the Sea Customs Act, in Indo-China Steam Navigation case AIR 1964 SC 1140 was found to be absolute but imposition of penalty in lieu of confiscation was found to be vesting in the discretion of the authority. Similarly, the levy of penalty for late filing of return which was found to be compensatory in nature was held to be absolute in Gujarat Travancore's case [1989] 177 ITR 455 (SC); AIR 1989 SC 1671 and another decision under section 271(1)(a) of the Income-tax Act, 1961. However, in Swastik Roadways' case [2004] 135 STC 1 (SC), where the court found that the provisions under the M.P. Commercial Tax Act, empowering the Commissioner to require agent or broker to submit information about the transactions was with the object to check and prevent evasion of tax and failure to submit such information on requisition was made punishable with different levy of penalty, equal to three times the tax on those transactions, about which the information was not furnished, the court looking to the obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (2003) 7 Tax Update 136 (Raj) follows the decision rendered in Mutha Premraj's case (2002) 3 Tax Update 51 (Raj) and therefore, for the reasons stated above, the same also cannot be considered as laying down the principles correctly. 154.. However, we may notice that while referring to the decision of the Supreme Court in Hindustan Steel Ltd. [1970] 25 STC 211 the court in Shiv Shambhu's case (2003) 7 Tax Update 136 has said that because the Supreme Court has ultimately come to the conclusion that it is unable to decide the appeals unless additional statements of facts are brought on record, the court was considering the question in the absence of complete statement of facts and the observations were made 'broadly'. Thus, nothing could be decided in the absence of facts required to be submitted. ..........it would not be inferred that the law has been given final shape in the decision . 155.. With utmost respect, this, in our opinion is complete misreading of the decision. 156.. The Supreme Court has laid down the principle which is to be applied by the concerned authorities while determining the question of levy of penalty where breach of obligation und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion be found not deciding the principle governing the levy of penalty for breach of statutory obligation by drawing distinction between breach simpliciter without nexus with the object of the provision, which is not in deliberate defiance of law nor as a result of dishonest and contumacious conduct on the one hand, and on the other hand breach of obligation which is in deliberate defiance of law or dishonest or tainted with contumacious conduct. 163.. The judgment in Hindustan Steel Ltd. [1970] 25 STC 211 (SC) could not have been ignored and its binding force under article 141 could not have been belittled and whittled down. 164.. The reference to the decision in Haryana Financial Corporation v. Jagdamba Oil Mills (2002) 3 SCC 496 which arose in the context of exercise of power of State Financial Corporation under section 29 does not afford any parallel to the controversy at hand for ignoring the decision in Hindustan Steel Ltd. [1970] 25 STC 211 (SC). 165.. Be that as it may, without repeating in detail the reason for which we have regretted our inability to agree with the single Bench decision rendered in Mutha Premraj's case (2002) 3 Tax Update 51 (Raj), since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se [2004] 135 STC 1 (SC); (2004) 17 STT 185 (SC) and Lalji Mulji's case [2002] 127 STC 365 (Raj); (2002) 3 Tax Update 21, and other decisions as discussed above are not contrary to the principle laid down by this Court in Mahaveer Conductor's case [1997] 104 STC 65, Voltas Ltd.'s case [2000] 120 STC 217 and Jinendra Co.'s case (2001) 1 WLC 381. 167.. In the Swastik Roadways case [2004] 135 STC 1, the Supreme Court after considering the case in D.P. Metals' case [2001] 124 STC 611 (SC) has clearly pointed out that where the object of the provision is to prevent evasion and avoidance of tax and the consequence of the non-compliance of the provision is to be visited with deterrent penalty, and reasonable opportunity is to be afforded before levy of penalty, the finding has to be recorded about existence of nexus between defaulter and the evasion or avoidance of tax, before penalty is actually imposed. This, in our opinion, is true import of all the decisions referred to above and is guiding factor that how and in what manner, the power conferred under the statute for levying the penalty for not complying with the provisions of section 22-A of the Act, 1954 or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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