False declaration for concessional sales tax can attract penalty when finished goods are later transferred tax-free outside the State.

A purchasing dealer who secures concessional sales tax by furnishing a declaration that raw materials will be used in manufacturing finished goods for taxable sale can be proceeded against under section 45A(1)(g) if that declaration is materially false. The concession under section 5(7) is available only while the finished products remain liable to tax under the Act or the Central Sales Tax Act; where the goods are transferred outside the State by branch transfer or consignment and are not taxed, the concession fails. A false declaration causing revenue loss may attract maximum penalty, and the fact that the tax is initially collected from the selling dealer does not bar action against the purchasing dealer.

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Issues: (i) whether a purchasing dealer who furnished a false declaration to obtain concessional sales tax could be proceeded against under section 45A(1)(g) of the Kerala General Sales Tax Act, 1963, (ii) whether the concession under section 5(7) remained available when the finished products were transferred outside the State by branch transfer or consignment and were not liable to tax, and (iii) whether the levy of maximum penalty required interference for want of mens rea or because the quantum was excessive.

Issue (i): whether a purchasing dealer who furnished a false declaration to obtain concessional sales tax could be proceeded against under section 45A(1)(g) of the Kerala General Sales Tax Act, 1963.

Analysis: The concession was obtained on the basis of a declaration in prescribed form stating that the raw materials would be used in the manufacture of finished products inside the State for sale and that the finished products would be liable to tax. The statutory language of section 45A was wide enough to apply to any person who acted in contravention of the Act or the rules. The fact that the tax is collected in the first instance from the selling dealer did not prevent penalty being imposed on the purchasing dealer whose declaration caused the lesser levy and consequent loss of revenue.

Conclusion: The purchasing dealer was liable to penalty under section 45A(1)(g); the contention to the contrary was rejected.

Issue (ii): whether the concession under section 5(7) remained available when the finished products were transferred outside the State by branch transfer or consignment and were not liable to tax.

Analysis: The concession under section 5(7) depended not only on use of the raw materials in manufacture inside the State and on filing the prescribed declaration, but also on the condition that the finished products should be liable to tax under the Act or the Central Sales Tax Act. The declaration itself incorporated that condition. Once the manufactured goods were moved out of the State on branch transfer or consignment basis without attracting tax under either enactment, the factual basis of the declaration failed and the exemption condition was breached.

Conclusion: The assessee was not entitled to the concessional rate for the goods so transferred, and the declaration was /incorrect in law and on facts.

Issue (iii): whether the levy of maximum penalty required interference for want of mens rea or because the quantum was excessive.

Analysis: The case was not one of a mere technical breach. The declaration was false in a material particular, the revenue suffered loss, and the assessee was a large corporate dealer expected to know the tax consequences of the chosen mode of disposal. Explanation I to section 45A placed the burden on the assessee to show non-liability to penalty. On the facts found by the statutory authorities, the element of culpability was present and the authorities were justified in treating the case as fit for maximum penalty, though the penalty had to be computed only on the tax sought to be evaded.

Conclusion: There was no ground to interfere with the finding of mens rea or with the imposition of maximum penalty as modified to the tax sought to be evaded.

Final Conclusion: The challenge to the penalty failed, and the appellate court left undisturbed the authorities' conclusion that the assessee had wrongly obtained concessional tax by a false declaration and was therefore liable for penalty.

Ratio Decidendi: A purchasing dealer who secures concessional tax by furnishing a declaration that is materially false, and whose finished products are in fact disposed of in a manner that makes them not liable to tax, incurs penalty under section 45A even though the immediate tax liability is collected from the selling dealer.

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