2014 (6) TMI 207 - HC - VAT and Sales Tax

High Court overturns Sales Tax Tribunal's penalty decision under Central Sales Tax Act, emphasizing mens rea.

Shoetek Agencies Versus State of Tamil Nadu

The High Court held that the Sales Tax Appellate Tribunal erred in overturning the Appellate Assistant Commissioner's decision to delete the penalty ... Penalty under section 10(b) of the CST Act - Penalty @ 150% tax liability - Whether the Tribunal was justified in reversing the order passed by the Appellate Assistant Commissioner in deleting the penalty levied - Held that:- assessing officer while issuing notice dated October 21, 2005 did not make any specific allegation that there was an element of mens rea on the part of the assessee and that the conduct of the dealer was contumacious and they have deliberately violated the statutory provisions and what is stated is that the said item of machinery was not included in the CST registration certificate. The assessee in response to such notice submitted their explanation on November 5, 2005 setting out the fact that owing to the bona fide circumstances, they thought they would be entitled to the concessional rate of tax of four per cent. To substantiate such claim, the affidavit of the accounts officer of the assessee was also filed. The assessing officer did not outrightly reject the explanation offered by the assessee, but proceeded to partially accept the same and reduced the levy of penalty to 100 per cent though the proposal was 150 per cent. Tribunal, while considering the appeal filed by the State, did not examine the facts of the case thoroughly rather it gave a peculiar finding that the assessee ought to have been careful enough to issue C form declaration only in respect of such goods, which are authorised in the form B certificate issued to them. Such a finding would not be sufficient to uphold the penalty levied by the assessing officer - Order of Tribunal erroneous - penalty waived - Decided in favour of assessee. Issues:1. Assessment of penalty under the Central Sales Tax Act, 1956 for non-inclusion of machinery in the CST registration certificate.2. Justifiability of reversing the order passed by the Appellate Assistant Commissioner in deleting the penalty.3. Examination of the explanation given by the assessee as being bona fide.Analysis:1. The case involved the imposition of a penalty on the assessee under the Central Sales Tax Act, 1956 for not including machinery in the CST registration certificate. The assessing officer proposed a penalty of 150 per cent of the tax due, which was later reduced to 100 per cent. The Appellate Assistant Commissioner, considering the bona fides of the assessee, deleted the penalty. However, the Sales Tax Appellate Tribunal reversed this decision, citing the need for the assessee to be careful in issuing C form declarations only for authorized goods. The Tribunal's decision was challenged by the assessee in a revision.2. The High Court analyzed whether the Tribunal was justified in overturning the Appellate Assistant Commissioner's decision to delete the penalty. The Court referred to a Full Bench decision which emphasized the necessity of mens rea for penal provisions to apply. The assessing officer did not allege mens rea on the part of the assessee, and the explanation provided was considered bona fide. The Court found that the Tribunal did not adequately consider the facts of the case and failed to establish deliberate violation or contumacious conduct by the assessee, as required by law. Therefore, the Court held the Tribunal's order as erroneous and confirmed the Appellate Assistant Commissioner's decision to delete the penalty.3. The Court examined the explanation provided by the assessee, which claimed a genuine belief in entitlement to a concessional tax rate for the machinery. The assessing officer did not outrightly reject this explanation and partially accepted it by reducing the penalty. The Appellate Assistant Commissioner, after considering the Full Bench judgment emphasizing mens rea, deleted the penalty. The Court agreed with the assessee's explanation that their conduct was neither deliberate nor contumacious, leading to the confirmation of the Appellate Assistant Commissioner's decision and allowing the revision in favor of the assessee.