2018 (9) TMI 157 - HC - VAT and Sales Tax

Court Overturns Notices & Orders for Lack of Mens Rea Findings, Limitation Period, Dealer Benefits

UMA BRICKS INDUSTRIES AND PARBATI BRICK INDUSTRY & CONSTRUCTION Versus UNION OF INDIA AND OTHERS

The court set aside the impugned notices and orders due to the absence of findings on mens rea and the expiry of the limitation period for one of the ... Penalty under Section 10(b) read with Section 10-A of the CST Act - mis-use of C-Form - presence of mens rea - Whether the petitioners have falsely represented while using the C-form against the said purchase of the JCB excavators? - Held that:- In proceedings for levy of penalty under Section 10-A of the CST Act, the burden would be on the Revenue to prove the existence of circumstances constituting the said offence - In the light of the language employed in Section 10-A and the nature of penalty contemplated therein, it cannot be held that all types of omissions or commissions in the use of Form C will be embraced by the expression “false representation.” - a finding of mens rea is a condition precedent for levying penalty under Section 10(b) read with Section 10-A of the CST Act - penalty not warranted. Whether the order passed by the respondent No.4 is a simple order of penalty or the assessment in terms of Section 31 of the TVAT Act or is it a composite assessment of the tax and penalty being in the nature of assessment and whether in the circumstances, the limitation for 5(five) years would apply? - Held that:- In the manner in which the assessment has been made it clearly appears to have been made under Section 31 of the TVAT Act and as such the limitation under Section 33 of the TVAT Act would apply. Therefore, the impugned notice dated 07.05.2014 and the order are without jurisdiction being barred by limitation under Section 33 of the TVAT Act. But the said bar is not applicable so far the impugned notice - if the jurisdiction under Section 10(a) is exercised by the authority on conforming to the conditions laid down therein, the limitation as prescribed by Section 33 of the TVAT Act will have no manner of application in such cases. Whether the petitioner is liable to pay further tax as the situs of sale falls within the jurisdiction of the State of Haryana? - Held that:- The purchase took place at Haryana and ‘C’ form has been used to get the benefit of reduced rate of tax under Section 8(1) of the CST Act. The word ‘resell’ or the provisions as appearing in Section 8(3)(b) if read jointly, the word ‘resell’ would take an expansive meaning. Thus, when there can be two interpretations viz. (i) the strict interpretation of ‘resell’ and (ii) the expansive interpretation of ‘resell’, the benefit must go to the dealer - no further tax is required to be paid. The impugned orders are not sustainable in law - petition allowed. Issues Involved:1. Validity of the notice and order issued by the Superintendent of Taxes.2. Alleged misuse of 'C' form for purchasing JCB machines.3. Jurisdiction and authority of the tax authorities under the CST and TVAT Acts.4. Applicability of the limitation period under Section 33 of the TVAT Act.5. Requirement of mens rea for imposing penalties under Section 10A of the CST Act.Issue-wise Analysis:1. Validity of the Notice and Order:The petitioners challenged the notice dated 09.06.2014 and the order dated 28.03.2014, arguing that the claims of the revenue were unsustainable in law. The court noted that the petitioners had used 'C' forms to purchase JCB machines for their brick manufacturing business. Despite explanations provided by the petitioners, the Superintendent of Taxes imposed penalties under Section 10A of the CST Act for alleged contraventions of Section 10B of the CST Act.2. Alleged Misuse of 'C' Form:The petitioners argued that the JCB machines were integral to their manufacturing process, including excavating and transporting earth, which is essential for making bricks. The court examined whether the use of 'C' forms for these purchases constituted a false representation under Section 10(b) of the CST Act. The court referenced the Supreme Court's interpretation in *Collector of Central Excise, Jaipur vs. Rajasthan State Chemical Works* to support the view that the manufacturing process encompasses all activities directly related to production.3. Jurisdiction and Authority:The petitioners contended that the Superintendent of Taxes lacked the authority to assess tax or impose penalties beyond the five-year limitation period stipulated under Section 33 of the TVAT Act. The court found that for W.P.(C) No.448 of 2014, the five-year limitation period had expired, rendering the notice and order without jurisdiction. However, for W.P.(C) No.284 of 2014, the notice was issued within the limitation period.4. Applicability of Limitation Period:The court clarified that the limitation period under Section 33 of the TVAT Act applied to assessments under Sections 31 and 32 of the TVAT Act. For W.P.(C) No.448 of 2014, the assessment was barred by limitation, but for W.P.(C) No.284 of 2014, the notice was timely. The court emphasized that the limitation period would not apply if the jurisdiction under Section 10A of the CST Act was exercised correctly.5. Requirement of Mens Rea for Penalties:The court highlighted that for imposing penalties under Section 10A of the CST Act, the existence of mens rea (intentional wrongdoing) must be established. The court referenced the Supreme Court's decision in *Commissioner of Sales Tax, Uttar Pradesh vs. Sanjiv Fabrics*, which held that penalties under Section 10A require proof of deliberate defiance of law or dishonest conduct. The court found no evidence of mens rea in the impugned notices and orders, leading to their invalidation.Conclusion:The court set aside the impugned notices and orders due to the absence of findings on mens rea and the expiry of the limitation period for W.P.(C) No.448 of 2014. The court also interpreted the term 'resell' expansively, concluding that the benefit should go to the dealer. Consequently, the writ petitions were allowed, and the orders were deemed unsustainable in law.