2008 (2) TMI 840 - HC - VAT and Sales Tax

Court quashes penalty orders for lack of proper defense opportunity in CST Act case

The court held that the show cause notice alleged an offence under clause (b) and not clause (d) of section 10 of the CST Act. It found that the penalty ... Penalty under section 10A of the Central Sales Tax Act, 1956 imposed - Held that:- Without calling upon the dealer-petitioner to explain its stand on the question of commission of offence under clause (d) of section 10 of the CST Act, imposition of penalty under section 10A, holding the dealer-petitioner guilty of an offence under clause (d) of section 10 is not sustainable. This court finds that the STO and the revisional authority in their order have laboured hard to establish that the petitioner was guilty of an offence under clause (d) of section 10 of the CST Act. Since the show cause notice itself suffers from the basic infirmity as pointed out above, the orders of the STO and revisional authority cannot cure the same. If the Revenue authorities are so advised, they may initiate fresh proceeding by issuing proper show cause notice indicating the allegation of offence under clause (d) of section 10 of the CST Act to the petitioner, if any, in accordance with law. It is made clear that if such a proceeding shall be initiated, the Revenue authorities shall afford reasonable opportunity of being heard to the petitioner as contemplated in section 10A of the CST Act. W.P. allowed. Issues Involved:1. Whether the show cause notice dated October 21, 1989, issued under section 10A of the CST Act, alleges an offence under sub-clause (b) or sub-clause (d) of section 10 of the CST Act.2. Whether the orders of penalty dated October 30, 1989, and March 13, 1992, passed by the STO and the revisional authority, respectively, are legally sustainable in the absence of a show cause notice giving reasonable opportunity to the dealer-petitioner to explain the alleged offence under clause (d) of section 10 of the CST Act.Issue-wise Detailed Analysis:Issue 1: Nature of the Offence Alleged in the Show Cause NoticeThe crux of the issue is whether the show cause notice dated October 21, 1989, alleges an offence under clause (b) or clause (d) of section 10 of the CST Act. The petitioner argued that the show cause notice issued was for an offence under clause (b) of section 10, which pertains to a registered dealer falsely representing that certain goods are covered by their certificate of registration. The notice stated that the petitioner purchased several articles worth Rs. 2,60,32,996.14 on the strength of Central declaration forms, which were not specified in the registration certificate, indicating a violation of the CST Act.The Revenue contended that the notice was for an offence under clause (d) of section 10, which involves failing to use the goods for the specified purposes without reasonable excuse. However, the court noted that the language of the show cause notice did not mention sub-sections (1), (3), and (4) of section 8 of the CST Act, which are relevant to clause (d). The court emphasized that a show cause notice must be clear and unambiguous, allowing the recipient to understand the exact allegations and respond accordingly. The court concluded that the notice was issued for an offence under clause (b) and not clause (d) of section 10 of the CST Act.Issue 2: Legal Sustainability of the Penalty OrdersThe petitioner argued that both the STO and the revisional authority committed a serious error of law by not issuing a show cause notice for an offence under clause (d) of section 10 before imposing a penalty under section 10A. The petitioner claimed that this omission caused serious prejudice and violated the principles of natural justice.The court agreed with the petitioner, stating that the imposition of a penalty under section 10A, holding the petitioner guilty of an offence under clause (d) without a proper show cause notice, was not sustainable. The court highlighted that the show cause notice must explicitly state the offence alleged to provide the petitioner with a reasonable opportunity to defend themselves. The court found that the STO and the revisional authority's orders labored to establish guilt under clause (d) without the petitioner being given a chance to address such allegations.The court concluded that the orders of the STO and the revisional authority could not cure the basic infirmity in the show cause notice. The court quashed the orders of the STO and the revisional authority and allowed the writ petition. The court also provided that the Revenue authorities could initiate fresh proceedings by issuing a proper show cause notice indicating the alleged offence under clause (d) if they so advised, ensuring reasonable opportunity for the petitioner to be heard as required by section 10A of the CST Act.ConclusionThe writ petition was allowed, and the orders of the STO and the revisional authority were quashed due to the improper issuance of the show cause notice. The court emphasized the necessity of clear and unambiguous communication in legal notices to ensure fair opportunity for defense.