IMPORTANT POINT
A finding of mens rea is a condition precedent for levying penalty under of the CST Act, 1956.

Headnote:(a) Central Sales Tax Act, 1956 – Section 10(b) – Mens Rea – There is a presumption that mens rea is an essential ingredient in every offence – However in examining whether mens rea is an essential element of an offence regard must be had to the object, scheme and language of the statute; and; the nature of penalty. (Paras 12, 13 and 17)
        [1895] 1 QB 918; AIR 1965 SC 722; AIR 1966 SC 43; (2008) 13 SCC 369; (2009) 13 SCC 448; (1989) 3 SCC 52 – Relied upon
        (b) Central Sales Tax Act, 1956 – Section 10(b) – ‘Falsely represents’ – A thing is called “false” when it is done, or made, with knowledge, actual or constructive, that it is untrue or illegal, or is said to be done falsely (Para 19)
        (1980) 1 SCC 71 – Relied upon
        (c) Central Sales Tax Act, 1956 – Section 10(b) r/w Section 10A – Section 10(b) r/w Section 10A – A finding of mens rea is a condition precedent for levying penalty under of the Act. (Para 22)
        (2002) 9 SCC 379; (1977) 4 SCC 98; 1974 UPTC 566 (All); 1999 UPTC 425 (All); [1991] 82 STC 268 (Mad.); [1980] 46 STC 103 (Ker.); (2008) 11 SCC 617; (1996) 7 SCC 92 – Referred
       Facts of the case:
        1. The dealer was authorized to issue Form ‘C’ on the import of cotton and cotton yarn as raw materials and he imported cotton waste, polythene, sutli and tat against Form ‘C’ in order to avail the benefit of payment of concessional rate of Central Sales Tax.
        2. On 15th October 1985, the revenue issued a notice to the dealer to show cause as to why penalty should not be imposed on them for using Form ‘C’ for the purchase of items which were not covered by their certificate of registration.
        3. The dealer pleaded that they were under a bona fide belief that “cotton” included “cotton waste”, and thus there was no false representation on their part. Disagreeing, the Assessing Authority imposed penalty on the dealer for making false representation in respect of purchase of tat, sutli, polythene, cotton waste, and jute.
        4. The Tribunal, in Second Appeal set aside the order of penalty on purchase of cotton waste for the previous years opining that the issuance of Form ‘C’ for the purchase of said commodity was a bona fide error on the part of the dealer and it did not involve false representation.
        5. However, notwithstanding its earlier orders, the Tribunal affirmed the orders levying penalty for the current year, inter-alia observing that for the purposes of sales tax, cotton and cotton waste are two different commodities and the dealer had imported the goods by making a false representation and had taken the benefit of concessional rate of tax unauthorizedly.
        6. The dealer’s Sales Tax Revisions before the High Court were allowed.
       Finding of the Court:
        The explanations furnished by the dealers in both the cases require a fresh look by the authority competent to levy penalty under Section 10A of the Act.
       Result : Appeals allowed.

JUDGMENT

D.K. Jain, J. —

1. These appeals, by special leave, are directed against the judgments and orders delivered by the High Court of Judicature at Allahabad, reversing the orders passed by the Sales Tax Tribunal, Meerut, (for short “the Tribunal”). In the first set of appeals (No. 2344-2347/2004) the Tribunal had affirmed the levy of penalties on the respondent, under Section 10(b) read with Section 10A of the Central Sales Tax Act, 1956 (for short “the Act”) whereas in the second set (appeals No. 6382-6383/2004), the Tribunal had set aside the levy of penalties under the said Section on the appellant. Since the appeals raise a common question of law, it would be convenient to dispose them of by this single judgment.

2. Shorn of unnecessary details, the facts essential for the adjudication of these appeals are:

C.A. Nos. 2344-2347 of 2004

The respondent (hereinafter referred to as “the dealer”) is registered under Section 7(2) of the Act and since the year 1977-78 is engaged in the business of manufacture and sale of Handloom fabrics.

The dealer was authorized to issue Form ‘C’ on the import of cotton and cotton yarn as raw materials. It is not in dispute that the dealer had imported cotton waste, polythene, sutli and tat against Form ‘C’ in order to avail the benefit of payment of concessional rate of Central Sales Tax.

On 15th October 1985, the revenue issued a notice to the dealer to show cause as to why penalty under Section 10(b) read with Section 10A of the Act should not be imposed on them for using Form ‘C’ for the purchase of items which were not covered by their certificate of registration. Immediately on the issuance of the said notice, dated 15th October 1985, the dealer applied for amendment of the certificate of registration for inclusion of “cotton waste” in the certificate. The said amendment was granted on the same day.

In reply to the show cause notice, the dealer pleaded that they were under a bona fide belief that “cotton” included “cotton waste”, and thus there was no false representation on their part. However, not being convinced with the reply, sometime in January 1986, the Assessing Authority imposed penalty on the dealer under Section 10(b) read with Section 10A of the Act amounting to Rs.18,840/-; Rs.63,822/-; Rs.55,111/- and Rs.51,141/- for all the four assessment years in question, viz. 1979-80, 1981-82. 1982-83 and 1983-84 respectively, for making false representation in respect of purchase of tat, sutli, polythene, cotton waste, and jute. The first appeals preferred by the dealer were dismissed by theAssistant Commissioner (Judicial) by two separate orders. Being aggrieved,the dealer filed four separate second appeals before the Tribunal. It appears that in the meanwhile, by an order dated 30th April 1987, the Tribunal, in Second Appeal Nos. 243 of 1986 for the assessment year 1977-78; 242 of 1986 for assessment year 1978-79 and 550 of 1986 for assessment year 1980-81, set aside the order of penalty on purchase of cotton waste on the ground that no objection was raised by the revenue for the previous years, and therefore, the issuance of Form `C’ for the purchase of said commodity was a bona fide error on the part of the dealer and it did not involve false representation. In relation to other commodities, the Tribunal remanded the matters for re-fixation of penalty. However, when appeals for the present assessment years were taken up, notwithstanding its earlier orders, the Tribunal vide order dated 22nd January 1991, affirmed the orders levying penalty, inter-alia observing that for the purposes of sales tax, cotton and cotton waste are two different commodities and the fact that the dealer had deliberately used Form `C’ to import items like cotton waste, sutli, tat etc., established that the dealer had imported the goods by making a false representation and had taken the benefit of concessional rate of tax unauthorizedly. According to the Tribunal, these circumstances proved the mala fide on t

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2010 Supreme(SC) 844

IMPORTANT POINT A finding of mens rea is a condition precedent for levying penalty under of the CST Act, 1956.

Cases Referred (9)

IMPORTANT POINT
A finding of mens rea is a condition precedent for levying penalty under of the CST Act, 1956.