Quasi-criminal sales tax penalty fails where tax avoidance is not proved and mens rea remains essential

Penalty under section 15-A(1)(d) of the U.P. Sales Tax Act was held unsustainable because the department did not prove false disclosure of purchases or actual tax avoidance. Penalty proceedings were treated as quasi-criminal, so mens rea remained essential and the burden could not be shifted to the assessee by invoking section 12-A, which applies to assessment rather than penalty. The department was required to produce material showing that the disclosed purchases were unreliable and that tax had in fact been avoided. As the assessee was a recognised certificate holder under section 4-B and no tax was leviable on the purchases, the penalty basis failed.

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Issues: Whether penalty under section 15-A(1)(d) of the U.P. Sales Tax Act, 1948 could be sustained when the department did not establish that the assessee had made false disclosure of purchases or that any tax had in fact been avoided.

Analysis: Penalty proceedings under section 15-A(1)(d) are quasi-criminal in nature, and mens rea is an essential ingredient. The burden could not be shifted to the assessee by relying on section 12-A, because that provision governs assessment proceedings and not penalty proceedings. The department was required to produce material showing that the disclosed purchases were unreliable and that the assessee had actually avoided tax. The assessee was also a recognised certificate holder under section 4-B, so no tax was leviable on the purchases and no tax could be said to have been avoided. In the absence of proof of tax avoidance, the penalty basis failed.

Conclusion: The penalty was not sustainable and the revision was allowed in favour of the assessee.

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