Penalty for breach of recognition certificate conditions upheld where certified goods were knowingly disposed of otherwise than for manufacture.

Goods purchased under a recognition certificate for a specified manufacturing purpose remained subject to that condition, and disposal for another use attracted the statutory penalty. Section 4B(5) of the U.P. Sales Tax Act was treated as a penal provision, but one conferring discretionary power to levy penalty where certified goods were used otherwise or otherwise disposed of. On the facts, the dealer had sold part of the scrap without using it in manufacture, had not promptly shown inability to utilise it, and the findings recorded knowing sale in breach of the certificate conditions. The plea of purchase on an "as is where is" basis did not override the statutory restriction, and absence of mens rea was not established.

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Issues: Whether penalty under section 4B(5) of the U.P. Sales Tax Act, 1948 was sustainable for disposal of goods purchased under recognition certificate, and whether absence of mens rea excluded such penalty.

Analysis: The statutory scheme granted concessional or exempt purchase of raw materials only for the purpose for which the recognition certificate was issued. Section 4B(5) provided for penalty where such goods were used for a different purpose or otherwise disposed of. The provision was treated as penal and not as a mere recovery of duty, but the authority was vested with discretion in levy of penalty. In the facts, the dealer had sold part of the purchased scrap without using it in manufacture, had not disclosed any prompt inability to utilise the goods, and the fact-finding authorities had recorded that the goods were sold knowingly and that the buyer used them for manufacture. The plea that the scrap was purchased on an 'as is where is' basis did not displace the statutory condition attached to the recognition certificate.

Conclusion: Penalty under section 4B(5) was rightly sustained, and the absence of mens rea was not established. The appeal failed and the decision was in favour of Revenue.

Ratio Decidendi: Where goods are purchased under a recognition certificate for a specified manufacturing purpose and are knowingly disposed of otherwise, penalty under the governing provision may be imposed notwithstanding the general rule on mens rea, especially when the statute confers discretionary penal power and the facts show breach of the certificate conditions.

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