A. Pasayat, J.
1. These three writ applications involve adjudication of common points and therefore, are disposed of by this judgment which shall cover all the three cases.
2. The legality of the orders purported to have been passed under Section 13(4)(a), and the sustainability of penalties imposed under Section 13(5) of the Orissa Sales Tax Act, 1947 (for short 'the Act') fall for adjudication in these cases.
3. Shorn of unnecessary details, the factual antecedents are that the petitioner is a Government of India undertaking and a Corporation established under the Food Corporation Act, 1964 (Union Act 37 of 1964) (for short 'the Act 37 of 1964') and is registered as a dealer under the Act and the Rules framed thereunder. The petitioner is assessed to sales tax by the Sales Tax Officer, Bhubaneswar Circle, Bhubaneswar (opposite party No. 1). It filed returns for the months January to March, 1973. Petitioner purchases paddy and converts it to rice for sale. Undisputedly, purchase of paddy attracted levy of purchase tax under the Act and rate of tax payable on such purchase was 7 per cent at the relevant time. Nevertheless, the petitioner paid tax at the rate of 3 per cent on the ground that it was entitled to a rebate of 4 per cent on the purchase turnover. According to the Sales Tax Officer, the payment of tax at the reduced rate attracted action under Section 13(4)(a) of the Act. He passed orders purported to be under the said provision. When demands raised by these purported orders were not paid within the time stipulated in the enclosed notices of demand, action was initiated under Section 13(5) of the Act and penalty was imposed for each of the periods. The matter was agitated in a revisional proceeding before the Commissioner of Sales Tax (opposite party No. 3). On purported delegation of power by the Commissioner, the Additional Commissioner of Sales Tax (opposite party No.2) heard the revision application and dismissed the same. A further attempt was made by the petitioner to get the order imposing penalty and the revisional order passed by the Additional Commissioner revised by the Commissioner. The Commissioner, however, rejected the application on the ground that he had no power to revise an order passed by the Additional Commissioner and in any event the only power of revision which could have been exercised in the circumstances was the exercise of suo motu revisional power and this being a case where the petitioner may have been entitled to relief, and since there was no loss of revenue, the exercise of suo motu revisional power was also not sanctioned in law. The quanta of the penalty which were imposed and sustained are as follows :
January, 1973 ... Rs. 1,43,516.40February, 1973 ... Rs. 90,592.30March, 1973 ... Rs. 52,583.40
The orders imposing penalty and the revisional order passed by the Additional Commissioner and the order of the Commissioner refusing to interfere are impugned.
4. The main thrust of the petitioner's argument is three-fold.
(i) The purported orders under Section 13(4)(a) were without jurisdiction as law does not envisage passing of such orders and in any event Section 13(4)(a) had no application to the facts of the present case, as there was no admitted tax payable or due. Reliance was placed on an unreported decision of this Court in the case of Mahadev Ram Udmi Ram v. Sales Tax Officer (O.J.C. No. 528 of 1982 disposed of on 23rd March, 1982) in support of the contention.
(ii) The petitioner was acting in a bona fide manner as it was led to believe that it was authorised to make the claim of rebate and make payment of tax at the rate of 3 per cent. Reliance was placed on a series of documents exchanged between the petitioner and the authorities of the State Government and the Commercial Tax Department.
(iii) Even conceding that the purported orders under Section 13(4)(a) were authorised in law, yet in view of the fact that the petitioner had acted bona fide, in good faith believing that the tax rate applicable to it was 3 per cent, the question of imposition of any penalty does not arise. Reliance is placed on a decision of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211. The Additional Commissioner and the Commissioner did not act in accordance with law, and without considering the relevant materials upheld the levy of penalty. The Commissioner should have interfered though the petitioner was to get relief, and though there was no loss of revenue.
5. On behalf of the Revenue, it was strenuously urged that the orders passed under Section 13(4)(a) had become final as the revision applications filed by the petitioner before the revisional authority were rejected and therefore, it is not open to the petitioner to agitate the matter in the present writ applications without a specific prayer to nullify those orders. Further, the petitioner which is a Government of India undertaking and established under a Central Act is required to act in a manner in consonance with law and payment of tax at the rate of 3 per cent knowing full well that the rate applicable was 7 per cent shows the contumacy. In any event as decided by this Court in the case of Commissioner of Income-tax, Orissa v. Gangaram Chapolia : [1976]103ITR613(Orissa) mens rea is not an essential ingredient for determining the question of legality of penalty imposed under the Act. Therefore, the orders imposing penalty as confirmed by the Additional Commissioner are in order. Further, in view of the decision of this Court in the case of Orient Paper Mills v. State of Orissa [1988] 70 STC 333 ; (1988) 1 OLR 467, the Commissioner had no jurisdiction to revise an order passed by the Additional Commissioner and therefore, the action of the Commissioner cannot be called in question. Tax becomes due as soon as a sale is effected and therefore, expression 'tax due' cannot be construed to mean 'tax due' as per return filed.
The rival contentions raise some interesting questions which need adjudication.
6. We shall first deal with the question of legality of the Commissioner's order refusing to revise the Additional Commissioner's order. As rightly submitted by Mr. Misra, learned counsel for the Department, this matter has been set at rest by a decision of the Division Bench of this Court in the case of Orient paper Mills [1988] 70 STC 333 ; (1988) 1 OLR 467. Therefore, the Commissioner was right in refusing to exercise the revisional power over the order passed by the Additional Commissioner.
7. We shall now deal with the various provisions which will be relevant for our purposes. A dealer registered under the Act is required to file a return within a stipulated time. The prescribed time and the manner of filing the return have been detailed under Section 11(1) of the Act. The return is to be filed periodically in the prescribed form IV. An annual return is required to be filed in form IV-AA. In case a defective return is filed or appropriate tax is not paid, penal action under Section 11(3) is provided for. If tax due as per the return is not paid, service of a notice requiring payment is provided for under Section 13(4)(a). Action under the said provision is also stipulated in respect of (a) tax assessed under various sub-sections of Section 12, Section 12-A, and (b) tax assessed together with penalty under Section 12(5) and 12(8) and penalty levied under Section 11(3) and certain other levies with which we are presently not concerned. Section 13(5) deals with a situation where a tax demanded on the basis of a notice of demand under Section 13(4)(a) is not paid within the statutorily provided time. The provisions as they stood at the relevant time are quoted below.
'11. Returns--
(1) Such dealer as may be required so to do by the Commissioner by notice served in the prescribed manner and every registered dealer shall furnish such returns by such dates and to such authority as may be prescribed.
(1-a)......
(2)........
(3) If a registered dealer fails, without any reasonable cause, to furnish any return within a fortnight of the due date, the Commissioner may direct that the dealer shall, by way of penalty, pay a sum not exceeding one-tenth per centum of the tax due or five rupees whichever is higher for every day after the due date during which the dealer fails to submit the required returns.
Explanation.--A return unaccompanied by a receipt from the treasury showing full payment of the admitted tax or composition money or by a crossed cheque or crossed bank draft covering the admitted tax or composition money, as the case may be, and by a dealerwise list of sales to the registered dealers in duplicate in respect of which deduction is claimed under item (ii) of Sub-clause (a) of Clause (A) of Sub-section (2) of Section 5 in respect of the period to which the return relates, shall not be deemed to be a return for the purpose of this section and, in case such cheque or bank draft is dishonoured for payment, the return shall not be deemed to be a return for the purpose of this section :
Provided that an annual return shall not be invalid if treasury receipts showing full payment of the admitted tax or composition money, for the whole of the year or if the crossed bank draft or crossed cheque covering such tax or money have been previously furnished with returns for parts of the year.
(4) ........
12. Assessment of tax--...........
13. Payment and recovery of tax and penalty--
(1) to (3)......
(4) The amount of--
(a) tax due where the returns are furnished without receipt showing full payment thereof, or
(b) tax assessed under Sub-sections (1), (2), (3) and (4) of Section 12 or under Section 12-A less the sum, if any, already paid by the dealer in respect of the said period, or
(c) tax assessed under Sub-section (5) or Sub-section (8) of Section 12 together with the penalty directed to be paid under any of the said sub-sections, and the penalty, if any, imposed under Sub-section (3) of Section 11, or
(d) and (f)...............shall be paid by the dealer into a Government Treasury within thirty days from the date of service of the notice issued by the Commissioner for the purpose.
(5) If any amount is not paid by the due date in pursuance of a notice issued under Sub-section (4) the Commissioner may direct that the dealer or the person, as the case may be, shall, in addition, pay by way of penalty a sum not exceeding one-half of the total amount due within thirty days from the date of service of notice upon the dealer or the person in this behalf :
Provided that in the cases of continuing default the penalty may be levied in instalments from time to time so however as not to exceed one-half of the total amount due :
Provided further that--
(a) When the dealer or person as the case may be, has presented an appeal under Sub-section (1) of Section 23 the Commissioner may, on an application in that behalf filed by such dealer or person within thirty days from the date of receipt by him of the notice under Sub-section (4), in his discretion stay the recovery of the amount in respect of which such notice has been issued or any portion thereof, for such period and subject to such conditions as the Commissioner thinks fit ; or
(b)..................
Provided also that where as a result of an order passed in an appeal, revision or reference--
(i) the assessment with or without penalty under Section 12 or 12-A ; or
(ii) the penalty imposed under Sub-section (3) of Section 11 or under Sub-section (3) of Section 9-B; or...............'
8. A bare perusal of the provisions of Section 13(4)(a) goes to show that only when returns are furnished without showing full payment of tax admitted to be due, a notice demanding payment thereof can be issued. This obviously means that when the tax admitted by the assessee to be due as per the return filed action under Section 13(4) can be initiated. There is always distinction between two expressions 'tax due' and 'tax payable'. In the concept of admitted tax, a process of self-assessment is involved. This is different from quantification of liability by the assessing officer. This is very apparent from the language used in Sub-sections (1), (2) and (3) of Section 13. Sub-section (1) uses the expression 'tax payable'. In Sub-sections (2) and (3), which deal with filing of returns in different situations, the expression used is 'tax due'. Sub-section (2) also provides that the dealer has to pay tax due according to the return in the prescribed manner. The dealer is required in law to calculate his tax liability and give the details of the turnovers and the tax admitted to be payable, and the return is required to be filed under Rule 20 which reads as follows :
'20. Returns.--(1) Within one calendar month of the expiry of each quarter of a year, every registered dealer, other than those who are permitted to compound their tax under Rule 90-A shall furnish to the Assistant Sales Tax Officer or the Sales Tax Officer, as the case may be, within whose jurisdiction his place or places of business are located a return in form IV showing particulars in respect of the tax payable by him for that quarter.
(2) Within one calendar month of the expiry of each quarter of a year every dealer permitted to compound his tax under Rule 90-A shall so long he holds a valid certificate for such compounding, furnish to the Assistant Sales Tax Officer or Sales Tax Officer, as the case may be, within whose jurisdiction his place or places of business is or are located, a return in form IV-A:
Provided that the Commissioner may, in the case of any dealer, by order in writing, direct that such dealer shall furnish a return under this rule for a period shorter or longer than a quarter and may at any time modify or annul his order.'
Provisions relating to notice of demand are contained in Rule 32. Rule 32 provides that the notice of demand shall be in form X. The rule so far as it is relevant for our purpose is quoted below.
'32. Notice of demand.--(1) In respect of any amount found payable by a dealer under Sub-section (4) of Section 13, the Commissioner shall serve on the dealer a notice of demand in form X with a direction to the dealer to pay the amount within thirty days from the date of service of the notice and to produce before him the receipted chalan in proof of payment of such amount within 7 days from the date of payment..........'
Although in the form which is the relevant notice of demand as referred to under Section 13(4)(a), the expression 'Please take notice that for the quarter/year ending.........a sum of Rs.....has been determined' have been used, the same seems to be inconsistent with Section 13(4)(a). Section 13(4)(a) does not involve any determination of tax payable by an assessee. Further, in the notice of demand there is no reference to any tax due as per the return though various types of demands on the basis of determinations under the Act have been indicated.
The notice of demand in our view is not consistent with the provisions of the Act and, therefore, is irregular to that extent. The further position that emerges on analysis is that action under Section 13(4)(a) can be initiated in case of a default to pay the tax admitted to be payable in terms of a return. There is no question of any determination and no order is envisaged under Section 13(4)(a). Therefore, if any order was passed by the Sales Tax Officer the same was unauthorised. This was the view expressed by a Bench of this Court in the case of Mahadev Ram Udmi Ram (O.J.C. No. 528 of 1982 decided on 23rd March, 1982). It was held as follows :
'The only point canvassed before us is that on the returns filed by the petitioner which are annexure 1 series, there was no scope for raising the demand under annexure 2. Section 13(4)(a) of the Orissa Sales Tax Act under which the impugned demand has been made under annexure 2 provides :
'(4) The amount of--
(a) Tax due where the returns are furnished without receipt showing full payment thereof, or
*** *** *** shall be paid by the dealer into Government Treasury within thirty days from the date of service of the notice issued by the Commissioner for the purpose.'
The power which has been exercised by the officer is available to be invoked where on the return admitted tax can be computed not to have been paid. The returns as filed do not indicate any foundation upon which hands could be laid by the Sales Tax Officer to raise the demand. When we called upon the learned Standing Counsel with reference to the returns how the demand could have been made, he agreed that there is no material in the returns for giving rise to the demand. It is quite possible that the returns as filed, in the event of the allegation of the Sales Tax Officer being true, could be inadequate returns liable to be rejected in law giving rise to other consequences for breach of the obligation cast on dealer under the Act. But the situation as before the Sales Tax Officer cannot give rise to an order under Section 13(4)(a) of a demand as under annexure-2. In these circumstances, we must hold that the demand is without any foundation.'
The view expressed by the Bench has our concurrence.
9. We find no substance in the contention of the learned Standing Counsel that the order under Section 13(4)(a) having not been challenged specifically before us, the sustainability thereof cannot be called in question. The order in question was not a voidable order, but an order which was a nullity. When law does not postulate passing of an order, an authority passing an order cannot take the advantage of non-challenge. The Commissioner while dealing with the application to revise the order of the Additional Commissioner has also accepted the position, with the following observations :
'On a perusal of the order under Section 13(4)(a) issued by the Sales Tax Officer, Bhubaneswar Circle for non-payment of demand made on which penalty under Section 13(5) of the Act was subsequently imposed, it is clear that the Sales Tax Officer has acted beyond the scope of Section 13(4)(a) of the Orissa Sales Tax Act as laid down in O.J.C. No. 528 of 1982 (Makadev Ram Udmi Ram v. Sales Tax Officer, Puri II Circle). In the said case the Honourable High Court has held that the power of raising a demand under this provision can be exercised by the Sales Tax Officer wherefrom the return admitted tax can be computed not to have been paid. In the instant case the returns filed by the Food Corporation of India did not indicate a higher amount of admitted tax but only 3 per cent purchase tax to be paid on the basis of the proceedings of the high level committee as claimed by the petitioner. When the returns did not indicate a higher admitted tax or lesser payment it was not proper to take action under Section 13(4)(a) without an assessment under Section 12 as provided under the law. The Additional Commissioner has in his impugned order mentioned that the revision petitioner has not challenged the order under Section 13(4)(a) and therefore, he has held the order to be valid and has upheld the penalty order passed under Section 13(5). He could no doubt have looked into the correctness or otherwise of the order under Section 13(4)(a) but he has not taken trouble of doing that.'
The orders purported to have been passed under Section 13(4)(a) were, therefore, without jurisdiction.
10. The other issue that survives for adjudication is as to whether penalties as imposed under Section 13(5) can be sustained. The petitioner has referred to several documents to show that it was acting bona fide. Correspondence were exchanged between the Finance Secretary, the Commissioner of Sales Tax and the officials of the petitioner-Corporation relating to rate at which tax was to be paid. On perusal of these documents there can be no scope for any doubt that the petitioner was acting under a bona fide belief that it was entitled to a rebate of 4 per cent, and tax payable by it was 3 per cent even though the statutorily prescribed rate was 7 per cent. As decided by the Supreme Court in the case of Hindustan Steel Ltd. [1970] 25 STC 211, 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 Apex Court highlighted the non-desirability 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 one is not liable to act in the manner prescribed by the statute. In the instant case, apart from recourse to Section 13(4)(a), penalty under Section 11(3) of the Act was levied for deliberately and intentionally withholding a part of the admitted tax and by not paying the admitted tax in full. The assessee challenged the orders on the ground that there was no question of default in the payment of the admitted tax, as the tax admitted to be due was duly paid. This contention was accepted by the Assistant Commissioner of Sales Tax, Appellate Unit, Bhubaneswar, in his order dated 29th September, 1973, in Appeal Nos. AP 105 to 108/73-74, The Assistant Commissioner accepted the contention of the assessee and held that in order to determine whether a dealer has paid the admitted tax in full or otherwise, the Sales Tax Officer can only scrutinise the figures furnished in the return and the documents showing proof of payment of the tax admitted therein. He also observed that whether the return has been furnished correctly or otherwise can only be examined in course of assessment proceeding under Section 12 of the Act. He, therefore, annulled the penalty levied. His order has been annexed as annexure-18 to the writ application. In our view, the conclusions arrived at by the Assistant Commissioner are in conformity with the provisions of law. But the Additional Commissioner, while dealing with the petitioner's challenge to the levy of penalty under Section 13(5), disposed of the matter laconically. The only assigned reason to uphold the penalty was that the order under Section 13(4)(a) was valid and strictly in accordance with law and therefore, the levy of penalty cannot be called in question. The approach is lackadaisical, and shows non-application of mind. He has not discussed the explanations and submissions made on behalf of the assessee in support of its claim of bona fides. He has also not taken note of the cancellation of penalty imposed under Section 11(3). Non-consideration of relevant materials vitiates his order.
11. The learned Standing Counsel, however, strenuously urged that the ratio of the decision in the case of Hindustan Steel Ltd. : [1972]83ITR26(SC) , is not applicable to proceedings tinder Section 13(5) as, according to him, a Full Bench of this Court in the case of Gangaram Chapolia : [1976]103ITR613(Orissa) , so decided. It is further submitted that the levy of penalty under Section 13(5) is automatic in case of failure to comply with the notice of demand, and even no opportunity to the assessee before levy of penalty is stipulated. On a close reading of the decision in the case of Gangaram Chapolia : [1976]103ITR613(Orissa) , it appears that the court was addressing itself to an entirely different question relating to the provisions of the Income-tax Act, 1961, with regard to the question as to whether the onus lay on the Department to establish mens rea where default under Section 271(1)(a) had occurred. The Bench concluded that in view of the difference in language used in Section 271(1)(a) and Section 276C (which provided for prosecution in case of default for certain deliberate action), mens rea was not an essential ingredient to be considered while determining the liability to be visited with penalty under Section 271(1)(a). The Full Bench held that though very strong language was used in the case of Hindustan Steel Ltd. : [1972]83ITR26(SC) , relating to nature of the penal provisions, yet it was not specifically decided in that case that mens rea was an ingredient to be considered. The view expressed by this Court in Gangaram Chapolia's case : [1976]103ITR613(Orissa) has been approved by the Supreme Court in the case of Gujarat Travancore Agency, Cochin v. Commissioner of Income-tax, Kerala reported in : [1989]177ITR455(SC) . However, that is not relevant for our purpose. Dealing with an identical contention raised on behalf of the Revenue, this Court held in the case of Patnaik & Co. (P.) Ltd. v. State of Orissa reported in [1975] 36 STC 362
'Penalty proceedings are quasi-criminal in nature. Though the language of the section does not give any indication as to how the discretion of the taxing authority is to be exercised, the onus on the dealer would be discharged by preponderance of probabilities as in a civil case and not beyond reasonable doubt. Reference in this connection may be made to the observations in the judgment in S.J.C. No. 17 of 1973 (Commissioner of Income-tax, Orissa v. Gangaram Chapolia) and O.J.C. No. 684 of 1974 (Gangaram Chapolia v. Commissioner of Income-tax, Orissa) delivered on 2nd April, : [1976]103ITR613(Orissa) . Those observations have no strict application to the facts of this case as they were made under the provisions of the Income-tax Act and with different wordings. Reference has been made to those observations only to give a clear picture of the nature of the onus on the dealer and the manner in which judicial determination is to be made by the taxing authority.'
We concur with the views expressed. Even though a hearing has not been specifically provided for, before imposition of penalty under Section 13(5), yet principles of natural justice require extending such an opportunity. Our view finds support from decision of the Supreme Court in the case of Nand Lal Raj Kishan v. Commissioner of Sales Tax, Delhi reported in [1961] 12 STC 324. In that case the Supreme Court was dealing with the legality of demanding additional security. The relevant Section 8A of the Bengal Finance (Sales Tax) Act, 1941, which was in force in Delhi did not provide for any enquiry before demand of security. It did not provide for an opportunity being given to the person against whom the order was proposed to be passed, of being heard before such an order was passed. The court overruled the contention that the authority proposing to demand security was not fettered by any restriction and that no opportunity was required to be extended before demand of the security. The court at page 329 held as follows :
'As to the last contention that the section does not provide for any enquiry or any opportunity being given to the person against whom the order is proposed to be passed of being heard, this point was taken before the Chief Commissioner and the Chief Commissioner rightly pointed out that the principles of natural justice would apply and the person to whose prejudice the order is to be made must be given an opportunity to say whatever he has to say in his defence......'
As held by the Supreme Court in the case of Hindustan Steel Ltd. [1970] 25 STC 211 and a larger number of other decisions and as accepted by the Full Bench of this Court in the case of Gangaram Chapolia : [1976]103ITR613(Orissa) , penal proceedings are quasi-criminal in nature. Therefore, it would be against the spirit of law and the principles of natural justice to deny a person likely to be affected by an order, the opportunity of placing his materials for consideration. Imposition of penalty under Section 13(5) is not an empty formality and the authority dealing with the matter has to exercise his judicial mind and there has to be a judicial determination of the fact as to whether penalty is called for and quantum thereof has to be indicated. When the maximum quantum of penalty is prescribed it is always open to a party to contend that even though the imposition of penalty may be called for, levy to the extent of the maximum prescribed is not warranted in the circumstances.
The contention of the learned Standing Counsel for the Revenue that the expression 'tax due' as used in Section 13(4) means 'tax which has fallen due on completion of sale' appears to be misconceived. Strong reliance was placed on a decision of the Calcutta High Court reported in [1953] 4 STC 271 [Recols (India) Ltd. In re] where it was held that as soon as there is a taxable turnover, the tax is due. We find the ratio of the said decision has no application to the facts of the present case. In fact in the said decision also it was observed as a general principle that where a tax has to be assessed, it does not become either due or payable till at least an assessment is made. That was also the view expressed by the Judicial Committee in the case of Pratt Re: Ex parte : Inland Revenue Commissioners v. Phillips [1950] 2 All ER 540. In view of the unambiguous language used and in view of the analysis made above, the contention is not acceptable.
12. In the result, the writ applications are allowed and the orders and the demand notices as contained in annexures 1, 1(a), 2, 2(a), 3, 3(a), 4, 10, 10(a), 11, 11(a), 12 and 12(a) are quashed. We direct the parties to bear their respective costs.
L. Rath, J.
13. I agree.