TaxTMI 
TaxTMI 
1975 (8) TMI 108
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of penalty under section 10A of the Central Sales Tax Act, 1956, though the penalty was reduced to certain extent? (ii) Whether, on a true construction of section 10A of the Central Sales Tax Act, 1956, the Tribunal was justified in rejecting the contention of the applicant that the maximum penalty that could be levied under section 10A of the Central Sales Tax Act, 1956, was 3 per cent up to 30th June, 1966, and 4.5 per cent since 1st July, 1966?" These two questions arise in the background of the following facts: The applicant-assessee is a limited concern, whose main business is to manufacture and sell textile goods. During the calendar years 1965 and 1966, the assessee purchased dyes and chemicals in the course of inter-State trade and commerce against C form declarations. A small part of the goods, (working out at 2 to 3 per cent) out of the goods purchased against C forms, was utilised by the assessee in processing cloth of outside parties. The main bulk of the goods so utilised for the outside parties was for a sister concern of the applicant-assessee, namely, the Navsari Cotton and Silk Mills Ltd. The remaining quantity was used in the processing of cloth of Mess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce contemplated by section 10(d) and had, therefore, attracted the penalty contemplated by section 10A of the Act. The Sales Tax Officer has further found that the penalty should be calculated at the rates contemplated by sub-section (2) of section 8 and not by sub-section (1) thereof. It is an admitted position that under sub-section (2) of section 8 of the Act, the rate of tax was 10 per cent and, therefore, the maximum penalty, which could be levied under section 10A of the Act, would be 15 per cent. if that sub-section is applied. The Sales Tax Officer has, however, imposed the penalty at the rate of 12 per cent. The above view of the Sales Tax Officer was confirmed in appeal, but when the matter went to the Tribunal, the Tribunal held that though the assessee failed in proving that the goods in question were utilised for outside parties, under "reasonable excuse", the penalty should be reduced to 8 per cent for the period prior to 1st July, 1966, and to 7 per cent for the period after 1st July, 1966. The assessee, feeling aggrieved by the above decision of the Tribunal, has moved this court by this reference in which the above-quoted two questions have been referr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aterials shall be utilised by the assessee for manufacture of the goods for sale. This undertaking clearly stipulates the use of the purchased materials by the assessee, and for the assessee, for the purpose of manufacturing goods for sale. Therefore, the assessee was knowing that it was not open to it to use the materials for the purpose of other concerns. This is, therefore, a case wherein the assessee is found to have acted in conscious disregard of its obligation, which it had undertaken at the time of giving the declarations in C forms. Shri Modi then contended that at any rate, considering the fact that the assessee has not committed the breach of the undertaking given by it in its declaration for any profit-motive, the Tribunal should have imposed only a token penalty. Now, what should be the quantum of penalty in a particular case is purely a question of discretion to be exercised having regard to the circumstances of each case. The Tribunal has exercised this discretion, after considering all the relevant facts of the case. If that is so, it is difficult to understand how the exercise of that discretion would involve any question of law which requires an opinion of this....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power." Thus, in order to obtain the advantage of concessional tax contemplated by sub-section (1) of section 8, the goods concerned must have been specified in the certificate of registration and must be such as were intended for resale or for use in manufacture or processing of the goods for sale. The provisions of sub-section (1) of section 8 are also controlled by sub-section (4) thereof, which says that the provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner, a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority. This declaration is to be given in form C. This form is prescribed by rule 12(1) of the Central....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... local Act. So far as this case is concerned, it is not in dispute that this rate is 10 per cent. The above provisions of section 8 are the only provisions relevant for our purpose in this reference. The case of the taxing authorities in this reference is that the assessee has not used the goods purchased by it against C form, in manufacture or processing the goods for sale inasmuch as he has utilised a portion of these goods in doing job-work for others. Thus, according to the taxing authorities, the assessee has committed breach of the undertaking given by it in its declaration made in form C. It is, therefore, now necessary to consider the provisions of the Act, which deal with such purchases. Section 10 of the Act provides for various penalties. Clause (d) thereof provides for the penalty in case where the assessee fails, without reasonable excuse, to make use of the goods purchased against C forms, in breach of the undertaking given by him. This clause (d) is in the following terms: "10. If any person......... (d) after purchasing any goods for any of the purposes specified in clause (b) of sub-section (3) of section 8 fails, without reasonable excuse, to make use of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e that if this contention of Shri Modi is accepted, then the penalty cannot exceed three per cent for the period before 1st July, 1966, and 4.5 per cent so far as the period subsequent to 1st July, 1966, is concerned. In that case, the view taken by the Tribunal and the taxing authorities in this case should be set aside and the second question should be answered in the negative, but if this view of Shri Modi is not accepted, then the Tribunal's view should prevail and the second question should be answered in the affirmative. For the reasons which follow, we are of the opinion that the view taken by the Tribunal on the second question is correct and, therefore, our answer to the second question should be in the affirmative. It is apparent from what is stated above, that the real controversy between the parties is about the effect of the phrase, "if the offence had not been committed", which is found at the end of sub-section (1) of section 10A. The plain reading of sub-section (1) of section 10A makes it clear that the penalty should be worked out on the rate of tax which would have been levied, if the offence had not been committed. In other words, the question is: what tax wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the penal clause contained in section 10A of the Act should be destroyed. The truth of the matter is that the use of the word, "if" simpliciter, was meant to indicate a condition, the condition being that at the time of assessing the penalty, that situation should be visualised wherein there was no scope of committing any offence. Such a situation could arise only if the tax liability falls within the provisions of sub-section (2) of section 8 of the Act. The scheme of section 8 shows that concessional rates contemplated by sub-section (1) thereof would be available only with reference to those goods which are covered by the declarations in form C. This is very clear by reference to subsection (4) of this section. In view of this position, the question which arises for our consideration is whether the goods regarding which the undertaking contemplated by the declaration is not carried out, can be treated as the goods covered by the said declaration or not. In our opinion, the moment it is found that with regard to a particular quantity of goods, the undertaking given by an assessee in form C declaration is not carried out, the said goods assume the character of the goods rega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oint to the result that the tax for the purposes of assessing one-and-a-half times thereof is not that which would have been levied on the basis that the C forms had not been complied with or have been misused, but, as if they have been used in a proper way. It is further observed by the said High Court that if that were not the case, there would be no meaning to the above-referred last words of the section. While giving this decision, the said High Court has referred to the decision of the Mysore High Court in M. Pais and Sons v. State of Mysore(3), and has observed that this decision does not take into account the concluding words, "if the offence had not been committed ", in section 10A. We find it difficult to agree with the Madras decisions as they are based on the assumption that the words, "if the offence had not been committed", have the effect of creating a deeming fiction. Such an assumption of a deeming fiction is apparent from the use of the expression, "as if" which we have underlined above. We have already given reasons why there is no scope for such a deeming fiction in a penal clause. With utmost respect to the learned Judges of the Madras High Court, therefore, we ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase and, therefore, instead of putting a literal meaning to the words, "if the offence had not been committed", leading to an obvious absurdity, what we seek to do is to iron out the creases which appear on account of bad drafting. Shri Modi drew our attention to the fact that section 10A is subsequently amended by the Central Sales Tax (Amendment) Act, 1971, and as a result of this amendment, it has been made clear that the penalty contemplated by section 10A should be calculated on the basis of the tax contemplated by sub-section (2) of section 8 of the Act. According to Shri Modi, therefore, this subsequent amendment of section 10A indicates a parliamentary exposition of the amended legislation. We are of the opinion that the principle of parliamentary exposition by the subsequent legislation has no relevance to the facts of the present case. Even in the absence of the subsequent amendment, the legal position with regard to the penalty contemplated by section 10A of the Act would have remained the same. It seems that the Parliament wanted to avoid the possibility of section 10A, being construed in the manner canvassed by the assessee in this case, and the necessity to avoid such....