2006 (7) TMI 578 - HC - VAT and Sales Tax

Mens rea required for penalties under Central Sales Tax Act; 'falsely represents' needs knowing falsehood.

The State of Tamilnadu rep. by the Deputy Commissioner of Commercial Taxes Versus Nu Tread Tyres

The court determined that mens rea is a necessary component for imposing a penalty under Section 10(b) of the Central Sales Tax Act, 1956. The term ... Levy of penalty under Section 10(b) of the Central Sales Tax Act, 1956 - mens rea is an essential ingredient for the levy of penalty or not - HELD THAT:- Section 10(b) of the Act provides for an offence if any person being registered dealer falsely represents when purchasing any class of goods that goods of such class are covered by his certificate of registration. The expressionfalsely represents clearly shows that the element of mens rea is the necessary component of the offence. In the absence of mens rea, resort to penal provision would not be proper unless it is established that the conduct of the dealer was contumacious or that there was deliberate violation of the statutory provision or willful disregard thereof. If the registered dealer honestly believes that any particular goods are embraced by the certificate of registration and on that belief makes a representation, he cannot be held guilty of the offence under Section 10(b) of the Act and no penalty can be imposed under Section 10A of the Act. The question whether the assessee acted under the honest belief is a question of fact. Thus, mens rea is an essential ingredient for the levy of penalty under Section 10(b) of the Central Sales Tax Act, 1956. The reference is answered accordingly - The Registry is directed to place the appeals before the appropriate Bench for disposal. Issues Involved:1. Whether mens rea is an essential ingredient for the levy of penalty under Section 10(b) of the Central Sales Tax Act, 1956.Detailed Analysis:1. Inconsistent Decisions on Mens Rea:The court noted that previous decisions under Section 10-A of the Act were inconsistent. Some cases required mens rea for penalty imposition, while others did not. For instance, in State of Tamil Nadu v. Betala Industries and Sri Lakshmi Machine Works v. State of Madras, it was held that mens rea was necessary. Conversely, in Vijaya Electricals v. State of Tamil Nadu and Kumudham Printers (P) Ltd. v. State of Tamil Nadu, it was held that mens rea was not required.2. Material Facts of the Cases:- T.C.No.82 of 1997: The assessee, registered under the Act, purchased empty jars using C-Forms, which were not specifically mentioned in their registration certificate. The Assessing Officer and the Appellate Assistant Commissioner imposed a penalty, stating that mens rea need not be proved under Section 10-A.- T.C.No.1180 of 1992: The assessee purchased a boiler using a C-Form, which was not included in their registration certificate. The Assessing Officer imposed a penalty, but the Tribunal set it aside, considering the purchase as bona fide.3. Arguments by Counsel:- For the Assessee: It was argued that mens rea is essential to attract penalty under Section 10-A. The term 'false representation' implies that without establishing mens rea, penalty under Section 10-A is unsustainable.- For the Revenue: It was contended that there is nothing in Section 10-A requiring proof of mens rea before penalty imposition. A finding of 'false representation' suffices to attract the provisions of Section 10(b).4. Examination of Sections 10 and 10-A:- Section 10: Deals with penalties for seven categories of violations, including clauses (b), (c), and (d), which can result in prosecution or penalty under Section 10-A.- Section 10-A: Provides for imposition of penalty in lieu of prosecution for violations under clauses (b), (c), and (d) of Section 10. It includes a provision barring prosecution if a penalty has been imposed.5. Interpretation of 'False Representation':The term 'falsely represents' in Section 10(b) indicates that mens rea is a necessary component. If a dealer honestly believes that goods are covered by the registration certificate, they cannot be held guilty under Section 10(b).6. Relevant Case Law:- Cement Marketing Co. of India v. Assistant Commissioner of Sales Tax: The Supreme Court held that a return cannot be said to be 'false' unless there is an element of deliberateness.- State of Rajasthan v. Jaipur Udyog Limited: The Supreme Court opined that unless it is shown that the assessee made a false representation, Section 10-A would not be attracted.- Hindustan Steel Ltd. v. State of Orissa: The Supreme Court stated that penalty will not be imposed unless the party acted deliberately in defiance of law or was guilty of contumacious conduct.7. Analysis of Conflicting Decisions:- Vijaya Electricals Case: Held that mens rea is established if the conduct is blameworthy. A finding of 'false representation' inherently includes mens rea.- Director of Enforcement v. M/s. MCTM Corpn. Pvt. Ltd.: The Supreme Court held that mens rea is not required under FERA, but this case is not applicable to Section 10(b) of the Central Sales Tax Act.- I.T. Commissioner, Gujarat v. I.M. Patel & Co.: Distinguished between penalties under different sections of the Income-tax Act, noting that mens rea is required for certain penalties.Conclusion:The court concluded that mens rea is an essential ingredient for the levy of penalty under Section 10(b) of the Central Sales Tax Act, 1956. The expression 'falsely represents' implies that the dealer must have knowingly made a false representation. Without establishing mens rea, penal provisions should not be invoked. The reference was answered accordingly, and the appeals were directed to be placed before the appropriate Bench for disposal.