1986 (5) TMI 239 - SC - VAT and Sales Tax

Supreme Court clarifies penalty calculation under Central Sales Tax Act - aligning with High Courts

State of Tamil Nadu Versus Kodaikanal Motor Union (P.) Ltd.

The Supreme Court held that the penalty under section 10A of the Central Sales Tax Act, 1956, should be calculated at one-and-a-half times the normal tax ... Whether assessees had actually committed the offences under section 10(d) of the Central Sales Tax Act, 1956 in using the goods for purposes other than the one mentioned in C form certificates? Held that:- The appeals are allowed and the judgment and order of the High Court of Madras are set aside. The revenue is entitled to the costs of these appeals. The moment it is found that in respect of particular quantity of goods the undertaking given by the assessee in form C declaration has not been carried out, the goods were presumed to be such in respect of which no undertaking was existing. Therefore such goods would be liable to normal tax contemplated under sub-section (2) of section 8. Therefore, the penalty should be worked out only on the basis of the normal rates prescribed under sub-section (2) of section 8. That would make sense. That is a reasonably possible construction. Thus he construction put by the assessee cannot be accepted and the contention urged on behalf of the revenue in this case should be preferred. Issues Involved:1. Offences under section 10(d) of the Central Sales Tax Act, 1956.2. Quantum of penalty under section 10A of the Central Sales Tax Act, 1956.Detailed Analysis:1. Offences under section 10(d) of the Central Sales Tax Act, 1956:The assessees were found to have purchased motor spare parts using C form certificates issued under the Central Sales Tax Act, 1956, for sale but instead used them for their own consumption. This was deemed an offence under section 10(d) of the Act, as the goods were not used for the purposes specified in section 8(3)(b) and recorded in the C form certificates. The authorities, including the Tribunal, confirmed that the assessees committed the offence by using the goods for purposes other than those mentioned in the certificates.2. Quantum of penalty under section 10A of the Central Sales Tax Act, 1956:The primary question before the High Court was the quantum of penalty to be levied under section 10A of the Act, which deals with penalties in lieu of prosecution. Section 10A allows the imposition of a penalty not exceeding one-and-a-half times the tax that would have been levied if the offence had not been committed. The Tribunal had accepted that the penalty should be one-and-a-half times the concessional rate of tax, not the normal rate, which was challenged by the revenue.The High Court followed the decision of the Madras High Court in State of Madras v. Prem Industrial Corporation [1969] 24 STC 507, which held that the penalty should be calculated on the concessional rate of tax applicable if the offence had not been committed. This view was not accepted by the Mysore High Court in M. Pais & Sons v. State of Mysore [1966] 17 STC 161 and the Orissa High Court in Bisra Limestone Co. Ltd. v. Sales Tax Officer, Rourkela Circle, Uditnagar [1971] 27 STC 531, which held that the penalty should be one-and-a-half times the normal tax rate.The Supreme Court, in this judgment, aligned with the views of the Mysore, Orissa, Jammu and Kashmir, Kerala, and Gujarat High Courts, rejecting the Madras High Court's interpretation. The Court emphasized that the penalty should be based on the normal tax rate under sub-section (2) of section 8 of the Act, not the concessional rate. The Court reasoned that interpreting section 10A to impose a penalty based on the concessional rate would lead to absurd results and put a premium on the misuse of C form certificates.The Supreme Court concluded that the penalty should be calculated at one-and-a-half times the normal tax rate, as this interpretation aligns with the legislative intent and avoids absurd outcomes. The decision of the Madras High Court was set aside, and the revenue's appeal was allowed, entitling the revenue to the costs of the appeals.Conclusion:The Supreme Court held that the penalty under section 10A of the Central Sales Tax Act, 1956, should be calculated at one-and-a-half times the normal tax rate under sub-section (2) of section 8, not the concessional rate. This judgment aligns with the views of multiple High Courts, rejecting the contrary interpretation by the Madras High Court. The appeals were allowed, setting aside the judgment and order of the Madras High Court.