K.S. Radhakrishnan, J.
1. Whether the sale of motor vehicles effected to defence personnel would amount to a sale through Canteen Stores Department so as to claim concessional rate of tax vide entry 6 of the Schedule III to S.R.O. No. 1091/99 is the question that has come up for consideration in these cases.
2. The petitioner in W.P.C. No. 25373 of 2004 has submitted its annual return showing a total and taxable turnover of Rs. 21,36,95,585.67 and Rs. 19,82,95,785.91, respectively, for the year 2002-03. Scrutiny of the return revealed that the petitioner had, inter alia, claimed concessional rate of tax at the rate of six per cent on sale of motor vehicles vide entry 6 of Schedule III to S.R.O. No. 1091/99 on a turnover of Rs. 51,36,020.60 as against the Scheduled rate of 12 per cent. In support of the claim for concessional rate of tax, the assessee had filed photo copies of the certificates stated to have been issued from the Canteen Stores Department, in short, 'CSD'. Further the assessees also apprised the assessing authority that before making sales at concessional rate they had ascertained the procedures from the CSD and they were informed that CSD would be raising sales invoices in its name though registering the vehicles in the name of the defence personnel and that there is no provision in the sale letter to include the name of the canteen. Explanation given by the assessees was not satisfactory to the authorities. Hence the assessing authority issued notice under Section 45A of the Kerala General Sales Tax Act, 1963 to show cause why penalty be not imposed for filing untrue and incorrect return so as to evade payment of tax. The assessees filed reply to the show cause notice which was not acceptable to the assessing authority. Later order dated June 24, 2004 was passed by the first respondent imposing a penalty of Rs. 3,54,385 under Section 45A of the Kerala General Sales Tax Act. Similar order was also passed for the year 2003-04 demanding an amount of Rs. 11,16,810 being the amount of tax sought to be evaded. Aggrieved by those proceedings the assessee has approached this Court by filing O.P. No. 25373 of 2004. Identical is the issue raised in W.P.C. No. 28092 of 2004.
3. Learned single judge accepted the view of the Department that the assessee is not entitled to concessional rate of tax at six per cent on the sale of motor vehicles as per S.R.O. No. 1091/99 since motor vehicles were sold not to CSD but to defence personnel directly. Learned judge however found that it is not a fit case for imposition of penalty and the order imposing penalty was set aside. Aggrieved by that part of the order State has preferred W.A. Nos. 568 and 1141 of 2005. W.P.C. No. 27053 of 2005 wherein identical issue arises for consideration also stands referred to be heard along with the writ appeals.
4. We heard Senior Counsel Sri Mathai M. Paikaday and Sri. Premjit Nagendran for the assessees and Sri Raju Joseph, Special Government Pleader for Taxes for the State. Senior Counsel Sri Mathai M. Paikaday as well as Sri Premjit Nagendran submitted that the assessing authority was not justified in holding that the assessees are not entitled to claim concessional rate of tax at six per cent on the sale of motor vehicles vide entry 6 of Schedule III to S.R.O. No. 1091/99. Counsel submitted that as per the said entry, Military, Naval, Air Force, NCC canteens and Canteen Stores Department are eligible for concessional rate of tax at half of the rate of tax applicable to such goods subject to the conditions prescribed in the S.R.O. Counsel placed considerable reliance on the certificate issued by the CSD and submitted that, in fact, assessee was selling the property to defence personnel through CSD. Counsel made reference to URC manual which gives an overall view of the functioning of the CSD. Counsel referred to paragraph 1.12 of the said manual and submitted that for the purpose of warehousing management and ease of indenting by URCs, inventory has been grouped itemwise based on functional commonality. Counsel referred to Group VII which deals with AFD items. AFD items take in cars also. Referring to item 1.13, it was pointed out that AFD items are not stocked by the depots but are arranged by CSD and collected by consumers directly from dealers, e.g., refrigerators, TVs, washing machines, air conditioners, microwave ovens, cars, tractors, two wheelers, etc. Due to lack of sufficient space in the naval canteen the aforementioned items according to the counsel, are not directly kept by the canteen in its premises but all the same necessary arrangements are being made by the CSD for the sale of those items to defence personnel. Certificates issued by the CSD would show, according to the assessee, that the vehicles were sold to the defence personnel on their recommendation. Counsel submitted in effect sales were effected to CSD and therefore the assessees are entitled to get the benefit of SRO No. 1091/99. Counsel submitted that but for the certificates issued by the CSD the assessee would have collected the entire tax from the Defence personnel. Therefore, there is no question of violating the provision or filing incorrect returns and that the assessees were on the bona fide belief that they were entitled to the benefit of the abovemen-tioned S.R.O. Referring to Sections 19 and 20 of the Sale of Goods Act, 1930 counsel submitted that in effect the transfer was in favour of CSD though the certificate of sale, etc., under the Motor Vehicles Act and Rules, stood in the name of individual purchasers.
5. Counsel placed reliance on the decision of the apex court in Agricultural Market Committee v. Shalimar Chemical Works Ltd. : AIR1997SC2502 and submitted that Section 19 of the Sale of Goods Act attempts to give effect to the elementary principle of law of contract that the party may fix the time when the property in the goods shall be treated to have passed. Counsel submitted that the time of delivery or the time of payment of price or even the time of the making of contract and the manner in which transaction is to be carried out all depends upon the intention of the parties. Counsel submitted it is the duty of the court to ascertain the intention of the parties and in doing so, they would be guided by the principles laid down in Section 19(2) which provides for ascertaining the intention of the parties. Counsel further submitted in such circumstances court should have regard to the terms of the contract. Counsel also referred to the counter-affidavit filed by the fifth respondent and submitted that canteen had been issuing certificates as per S.R.O. No. 1091/99 for the last many years to all dealers including the assessees and that delivery of vehicles from dealer would normally be made to the customer and not to CSD. Counsel submitted that intention of the parties is therefore evident that though registration is in the name of individuals everything is routed through the Canteen/Department and therefore assessees are entitled to get the benefit of S.R.O. No. 1091/99.
6. Sri Raju Joseph, Special Government Pleader for Taxes, submitted that the actual sale of vehicles at the concessional rate of tax was not made to persons or organisation detailed under entry 6 of Schedule III. Sales were effected to various individuals and invoices were issued in the name of the individual who have actually purchased the vehicle. Counsel also submitted that no transfer of property was effected in favour of CSD on the sale of goods and no consideration is seen received by the assessee from the CSD. Counsel, therefore, submitted that no sale has been effected by the assessee to the CSD as claimed by the assessee. Counsel also made reference to the provisions of the SROs issued to that effect and submitted that consistent view of the rule-making authority is to grant exemption to the canteen/department and not to the individual serving officials of Military, Navy or Air force. Counsel submitted that the assessee had wilfully violated the entry and filed an incorrect return with an intention to evade payment of tax on the due date which is an offence punishable under Section 45A of the Kerala General Sales Tax Act, 1963 and therefore learned single judge is not justified in interfering with the order imposing penalty.
7. Before we examine the rival contentions, we may refer to the relevant provisions of Notification S.R.O. No. 1091/99. State Government have issued S.R.O. No. 1091/99 in exercise of the powers conferred under Section 10(1) of the Kerala General Sales Tax Act, 1963, and hence it is a statutory notification. It is trite that exemption notification has to be interpreted strictly. Relevant entry of Schedule III reads as follows:
Schedule III
Persons or organisations, the rate of tax on the sale of goods to whom is reduced under Sub-clause (3) of Clause 1.Sl. Description of person/ Description of Reduced rate of taxNo. organisation goods (percent)6. Military, Naval, Air force Any goods Half of the rate of NCC canteens and Canteen the tax applicable toStores Department such goods.
Column 2 of Schedule III specifically refers to description of person or organisation. Entry 6 states Military, Naval, Air Force (NCC canteens and Canteen Stores Department). So far as sale effected by the CSD to defence personnel they need pay only half of the rate of tax applicable to such goods purchased by them. Same is the case of NCC canteen and Canteen Stores Department. Military personnel, Navy personnel and Air Force personnel as such have not been shown in the heading 'description of person/organisation'. Exemption is available for the sales effected to those organisations and not to personnel of the organisation. K.S.E. Board, National Thermal Power Corporation, Central/State Government departments and local bodies, BSNL, etc., are also entitled to reduced rate of tax. Personnel working in those establishments are not entitled to concessional rate of tax. CSD is also grouped along with Military, Naval and Air Force, etc. Military personnel, Naval personnel and Air Force personnel, etc., who purchase from the CSD would also be entitled to get the concession and not from the assessee.
8. The Government in exercise of the powers conferred under Section 10(1) of the KGST Act in public interest had issued notification, SRO No. 32/66 granting exemption in respect of certain goods sold to CSD and to the Indian Naval Canteen Service, Cochin subject to production of certificate from the CSD or the Indian Naval Canteen Service, Cochin, to the effect that the sale of goods was made to them for use of the defence service personnel. Yet another Notification SRO No. 111/67 was also issued to that effect followed by SRO No. 32/66 ; so also SRO Nos. 213/68, 274/70, 234/ 72, 985/75, 333/78, 357/92 and so on. If any certificate is produced from the canteen/department to the effect that dealer has effected sales to canteen/ department for the use of the defence service personnel those persons would get the benefit of the above SROs in respect of goods sold to canteen/stores department. Therefore only if it is shown that the goods were sold to canteen/stores department and evidence is produced to that effect would the assessee get the benefit of SRO No. 1091/99. Assessees in these cases could not produce any certificate showing that motor cars were purchased by Canteen Stores Department from them. Sale invoices are seen issued in favour of individual purchases who are not entitled to concessional rate of tax as per SRO No. 1091/99.
9. We may also refer to the relevant provisions of the Motor Vehicles Act and Rules. As per Rule 47(a) and (d) of the Motor Vehicles Rules, application for registration of a motor vehicle shall be accompanied with the sale certificate in form 21 which gives details of real purchase of the vehicles. Sale certificates would show that the sales have been effected not to CSD but in the name of individuals. No delivery of vehicle has been effected to CSD. Registration Certificates reveal that no sale has been effected in favour of CSD. In view of the above mentioned circumstances, we are in agreement with the Revenue that unless and until it is shown that the assessees have sold vehicles to CSD and certificate to that effect is produced they are not entitled to get the benefit of SRO No. 1091/99. Certificate produced from the Canteen Stores Department would not show that they have purchased any vehicle from the assessee. The argument that in fact vehicles were purchased by the Canteen Stores Department on behalf of the individuals is also far-fetched and if that be so it should be reflected in the records. Documents produced would not show that there was diversion or transfer of property in goods in favour of CSD. Instead sales are seen effected to various individuals. Further insurance documents, financing documents are also not raised in favour of CSD but in favour of individual purchasers. No transfer of property as defined under the Sale of Goods Act has been effected in favour of CSD, and no consideration has been passed between the assessee and the CSD. We therefore find no infirmity in the stand of the department that the assessees are not entitled to get the benefit of SRO No. 1091/99.
10. The learned single judge has however interfered with the imposition of penalty. We also find no reason to take a different view from that of the learned single judge since we understand from the counter-affidavit filed by the fifth respondent that the Canteen Stores Department has been issuing certificates as per SRO No. 1091/99 for so many years to dealers including the assessees. Further we notice as per URC manual car and other items are grouped as AFD items. Those items are not stocked by the depots but are arranged by CSD and collected by consumers directly from dealers, e.g., refrigerators, TVs, washing machines, air conditioners, microwave ovens, cars, etc. Procedure has also been laid down in that manual. Looking at the procedure laid down therein as well as the conduct of parties though legally they have no right we are not prepared to say that there was a deliberate intention to defy the law or the orders or that there was any conscious disregard of the obligation under the Kerala General Sales Tax Act. We may in this respect refer to the decision of the apex court in Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) , wherein the apex court while dealing with the provisions of the Orissa Sales Tax Act, held (page 214):.An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.
The court also held as follows (page 214):
Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
11. The apex court in Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax : [1980]124ITR15(SC) held that where the assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable so to include it, it will not be right to condemn the return as a 'false' return inviting imposition of penalty. Reference may also be made to the decision of the apex court in E.I.D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes : AIR2000SC551 wherein the court interfered with the facts and imposition of penalty on the ground that the assessee had not acted in defiance of law or that the assessee was dishonest or that it had failed to adhere to discharge their obligation under the Act. Considering the totality of circumstances and examining the legal principles, we are in agreement with the learned single Judge that imposition of penalty cannot be sustained in the facts and circumstances of these cases.
12. We therefore hold that the assessee is not entitled to get concessional rate of tax since motor vehicles were sold not to CSD but to Defence personnel and hence not entitled to claim concessional rate of tax under entry 6 of the Third Schedule to SRO No. 1091/99. We therefore sustain the judgment of the learned single Judge and dismiss both the appeals and the writ petition.