1997 (3) TMI 576 - HC - VAT and Sales Tax

Court reduces penalty under U.P. Trade Tax Act for dealer using raw materials.

Sai Electricals (P) Ltd. Versus Commissioner of Sales Tax, UP.

The revisions were partially allowed in a case where a registered dealer used raw materials for repairing transformers instead of manufacturing them, ... - Issues Involved:1. Whether the revisionist used the raw material obtained on the basis of form 3-B against the provisions of section 4-B and the condition of the recognition certificate.2. Whether mens rea is necessary for imposing a penalty under section 4-B(5) of the U.P. Trade Tax Act.3. Whether the quantum of penalty imposed was arbitrary and excessive.Issue-wise Detailed Analysis:1. Use of Raw Material Against Provisions of Section 4-B and Recognition Certificate:The revisionist, a registered dealer for the manufacture and sale of transformers, was issued a recognition certificate for purchasing raw materials at concessional rates. The assessing authority found that during the assessment years 1984-85 and 1985-86, the revisionist used the raw materials for repairing transformers instead of manufacturing them, contravening section 4-B of the U.P. Trade Tax Act. Consequently, penalties of Rs. 46,000 and Rs. 34,000 were imposed. The appeals against these penalties were dismissed by the Deputy Commissioner and the Trade Tax Tribunal, leading to the present revisions.Section 4-B(5) stipulates that if a dealer uses goods obtained at concessional rates for a purpose other than that for which the recognition certificate was granted, a penalty must be imposed. The authorities held that the revisionist used raw materials for manufacturing parts of transformers, which were used in repairs, not in manufacturing transformers, violating the conditions of the recognition certificate. Notification dated December 31, 1976, lists transformers as notified goods but does not include spare parts. Thus, the use of raw materials for manufacturing parts instead of transformers attracted the penalty under section 4-B.2. Necessity of Mens Rea for Imposing Penalty:The revisionist argued that since they deposited trade tax on the sale of spare parts used in repairs, the breach was not deliberate, and no penalty should be imposed due to the absence of mens rea. However, the court noted that section 4-B(5) does not include terms like 'knowing,' 'deliberately,' or 'intentionally.' The Division Bench in Kishori Lal Rakesh Kumar v. Commissioner, Sales Tax [1985] 59 STC 323 held that mens rea is not necessary for imposing a penalty under this section. The classical view of 'no mens rea, no crime' has been eroded, especially in economic crimes and departmental penalties, as observed in R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Ltd. [1977] 40 STC 497 (SC).3. Quantum of Penalty:The revisionist contended that the assessing authority arbitrarily imposed the maximum penalty without justification. Section 4-B(5) allows the penalty to be not less than the difference between the tax amount on the sale or purchase of goods and the tax payable at concessional rates, but not exceeding three times this amount. The court agreed that neither the assessing authority nor the appellate authorities considered the reasonableness of the penalty amount. The penalty should be reasonable and just, not arbitrary. The court directed that the penalty amount should be reduced to the difference between the tax on the sale or purchase of goods payable under section 4-B and the tax payable under any other provisions of the Act.Conclusion:Both revisions were allowed in part. The penalty amount was directed to be reduced to the difference between the tax amounts as specified. The Tribunal was instructed to determine the penalty amount accordingly. The rest of the revisions were dismissed, with costs on the parties. Copies of the judgment were ordered to be sent to the concerned Tribunal without delay.