Rajesh Balia, J.
1. Heard learned counsel for the parties.
2. This petition is filed challenging the order of the Rajasthan Taxation Tribunal, Jodhpur dated 1.1.1998 allowing the revision filed by the respondent, Assistant Com- mercial Taxes Officer, Flying Squad, Raniwara, by setting aside the orders of the Rajasthan Sales Tax Tribunal dated 31.3.93 and restoring the orders of the ACTO dated 16.11.90 and the orders of the Deputy Commissioner (Appeals) dated 7.1.91.
3. These orders relate to levy of penalty Under Section 22-A (7) of the Rajasthan Sales Tax Act, 1954 (hereinafter referred to as 'the Act, 1954').
FACTS:
4. The facts which emerge from the proceedings are that on 1.11.90 at zero hours (12.00 AM), at the check post Abu Road, vehicle No. GJ 02/T 5721 carrying the goods was checked. On making a demand, the driver of the vehicle furnished GR No. 1 dated 31.10.90 issued by M/s Delhi Bombay Road lines, Abu Road. The consignor of the goods was shown to be M/s Sumit Marbles, Abu Road. There was Bill No. 122 dated 31.10.90 with regard to 50.31 Sq. Metres of granite priced at Rs. 34,494.95 NP and the recipient was shown to be M/s Sri Parashwanath Granities.
5. On being verified the vehicle, the goods were found to be more than as were shown in the said bill. The driver did not tender any other document. However on searching the vehicle, two envelopes were found, one of which was of M/s Parash-wanath Granities- the present petitioner, and another was bill of M/s Hindustan Granites, Abu Road. The bill issued by the present petitioner M/s Parashwanath Granities was of 50.31 Sq. Meters of granite priced at Rs. 47,102.85 NP coupled with excise GR No. 1 dated 31st October, 1990.
6. Apparently, the goods carried in the vehicle so far as the present petitioner is concerned, were accompanying the relevant documents delivered to the driver but the driver does not appear to have handed over the said documents to the officer at the check post. Being suspicious of the evasion of tax, after seizing the goods, a notice under Rule 54 was issued on 16.11.90. On 1.11.90, the representative of the petitioner firm appeared and requested for the release of the goods by submitting security. He expressed his readiness to deposit the security amount that may be fixed by the ACTO. An amount of Rs. 14,150/-, 30% of the value of the goods, was deposited as security under protest. The goods were released on 1.11.90.
7. In response to the notice to show cause against the proposed levy of penalty Under Section 22A(7) of the Act, 1954, it was submitted by the petitioner that he had delivered the relevant documents to the transporter which were found to be in the vehicle at the time of seizure of the goods and, therefore, obviously he has discharged his obligation Under Section 22-A of the Act of 1954. There is no finding that the bills or the other documents were fictitious or false. If by mistake, the driver of the transport has not produced the documents which were with him at the time of checking the vehicle, penalty ought not be levied against him for the breach of Rule 57-A, as there was no breach of Section 22A(7) of the Act, 1954 and the rules framed thereunder.
8. However, the explanation was not accepted only for the reason that the driver on demand has not delivered the relevant documents and penalty @ 30% of the value of goods, as was shown in the bill which was accompanying the goods, was levied vide order dated 16.11.90.
9. On appeal, the Deputy Commissioner (Appeals), Commercial Taxes, vide his order dated 7.1.91 affirmed the levy of penalty. He was of the opinion that not showing the bill at the check post shows the mind of the assesses to evade the tax in respect of the goods in question.
10. On further appeal, the Rajasthan Sales Tax Tribunal vide its order dated 31.3.93 set aside the orders of penalty imposed by the Assistant Commissioner, Commercial Taxes as affirmed by the Deputy Commissioner (Appeals). The Sales Tax Tribunal was of the view that merely because the document was not shown by the Driver at the check post which was sent by the petitioner along with his goods, may not result in levy of penalty. He also opined that even if the documents were not accompanying the goods, the same could have been produced within 15 days after receipt of the show cause notice and there being no issue about reliability of the document which was accompanying the goods, the penalty could not be levied. The Sales Tax Tribunal was also of the opinion that the penalty appears to be the outcome of the fact that the ACTO felt offended by the attitude of the drivers.
11. Against the order of the Tribunal, a revision was preferred before this Court which on constitution of the Rajasthan Taxation Tribunal stood transferred to it, which earlier was registered as Revision Petition No. 329/94 and on transfer, was numbered as RRT No. 101/96.
12. The learned members of the Rajasthan Taxation Tribunal were of the opinion that a conjoint reading of the provision contained in Section 22-A(7) of the Act, 1954 since repealed and replaced by Rajasthan Sales Tax Act, 1994 (hereinafter referred to as the Act, 1994) and Rules 62A and 63 of the Rajasthan Sales Tax Rules, 1955 (for short 'the Rules of 1955') makes it clear that the offence which makes it obligatory on the part of the owner or person in charge of the vehicle etc. to carry with him the requisite documents and also to produce them at the check post or on demand before the officer empowered in this behalf. Once the offence Under Section 22-A of the Act is committed, it cannot be washed off by producing the same under the procedure laid down in Rule 62-A and 63 and it is immaterial whether the documents were delivered to the consignee by the consignor or that the documents produced at a later stage were not adjudged as not reliable. Thus, considering the penalty as automatic, if the driver of the vehicle on demand fails to show the document with him or fails to produce the document required to be accompanying goods Under Section 22-A, the offence is complete and subsequent furnishing of the document even if bona fide and genuine, does not relieve the owner of the goods from liability of penalty which arises, the moment the offence is complete by not producing the documents at the check post. It is not necessary to connect the act of non production of documents with the question of the evasion or avoidance of tax for which Section 22A has been enacted.
CONTENTIONS:
13. Along with the case of the petitioner, two other cases proceeding on almost identical facts, were decided by the common order. One in the case of M/s Hindustan Granites and Another in the case of M/s Paras Prabhu Granites and that of the petitioner, in all the three cases, three separate writ petitions were filed.
14. A Division Bench of this Court vide order passed in D.B. Civil Writ Petition No. 4247/98 decided on 16th July, 2001 allowed the writ petition and set aside the very same order, which is subject matter of this writ petition, arising in the case of M/s Paras Prabhu Granite v. State & Ors., by holding that the decision of the Tax Tribunal is contrary to the consistent view taken by this Court that establishing of mens rea that is to say connecting the breach of conditions requisite Under Section 22-A with intention to avoid or evade payment of tax within the State of Rajasthan is necessary condition before penalty can be imposed for breach of such statutory conditions. Until such finding is reached, it remains a technical breach.
15. In coming to this conclusion, the Division Bench referred to an earlier decision rendered in Mahaveer Conductors v. ACTO (1), which has been consistently followed thereafter in other cases.
16. Relying on the aforesaid facts, and the fact that very same judgment of the Tribunal was set aside in the writ petitions arising out of very same order which is under challenge in this petition, the learned counsel for the petitioner urges that this writ petition is also required to be allowed in terms of the said decision.
17. However, the learned, counsel for the respondents urged that since the aforesaid decision, this Court has struck a discordant note in some cases and it has been held that penalty is imposable as soon as the documents are not produced at the check post and the subsequent production of documents does not cure the breach which has been committed in the first instance and the presence of mens rea or guilty intention is not at all necessary in cases of such breach. Therefore the consequence flowing from the breach of statutory provisions cannot be avoided with reference to mens rea. It was also contended that it is not necessary that the breach of the statutory provision must be related to the attempt to avoid or evade payment of tax within the state of Rajasthan before penalty can be levied. According to the learned Additional Advocate General, it is in accordance with law that penalty be imposed as soon as the breach of Section 22-A is committed by not producing the documents or refusing to produce the documents at the check post on demand. In support of this contention, the learned counsel places reliance on the decisions of the Supreme Court in R.S. Joshi v. Ajit Mills Ltd. : [1978]1SCR338 , State of Rajasthan v. D.P. Metals (3), and also on the Bench Decision of this Court in Lalji Mulji Transport v. State (4), and two Single Bench decisions of this Court in Mutha Premraj v. ACTO (5),and ACTO v. Shiv Shambhu (6).
18. In the last mentioned case, the learned Single Judge while noticing the earlier decisions of this Court of Single Benches as well as Division Benches holding that the penalty Under Section 22A is not automatic, but follows dishonest or contumacious conduct, was of the opinion that in view of Supreme Court decision in the R.S. Joshi's case and D.P. Metals's case and another Division Bench decision in Lalji Mulji's case, the decisions of this Court have lost their binding force. In the said case, it was also stated that no ratio emerged from the decision of the Supreme Court in Hindustan Steel Ltd.'s case because the matter was ultimately remanded for submitting additional statement.
19. The learned counsel for the petitioner apart from contending that the contention raised by the learned counsel for the petitioner is not supported by the decisions rendered in R.S. Joshi's case or D.P. Metals's case rendered by the Supreme Court or by the decision of the Division Bench in Lalji Mulji's case (supra), contends that the view taken by this Court in Mahaveer Conductors' case (supra), and the decision of the Supreme Court in Hindustan Steel v. State of Rajasthan (7), has been reaffirmed and reiterated by the Supreme Court in later decisions. Reliance in this connection was placed on Karnataka Rare Earth v. Senior Geologist, Department of Mines & Geology (8), K.C. Builders & Anr. v. Assistant Commissioner of Income Tax, (9), and Commercial Tax Officer v. Swastik Roadways (10). It was also pointed that in Karnataka Rare Earth's case (supra), the Court has reiterated and reaffirmed the view expressed by the Supreme Court in its earlier decision in Alankar Granites Industries v. P.G.R. Scindia (11), and Hindustan Steel Ltd. v. State of Orissa (12). It was contended by the learned counsel that penalty provision specifically require an opportunity of hearing before levy of penalty, in cases a breach of Section 22A is found. Therefore, it is reasonable to infer that giving this opportunity, after the breach of statutory provision is complete cannot be an empty formality. It cantmly be for the purpose of giving an opportunity to the defaulter to produce the correct and genuine document containing requisite information, and if his conduct is not found to be dishonest or contumacious, the breach may be treated as venial and technical. In that event the authority ought to exercise his discretion of not levying penalty.
20. Before considering in detail the rival contentions and referring to the decisions referred to at the Bar, one distinction needs be borne in mind, which is reflected from the question raised before us, between considering the requirement of mens rea as pre-condition before legislating penal provision on the one hand and establishing nexus between the conduct of the person acting in breach of some statutory provision with the object of levy of penalty before levying penalty, which is imposable under the law.
21. Whether a provision can be validly made providing penal consequences for breach or non-compliance of any statutory obligation, which are short of criminal liability in the sense the existence of mens rea or guilty intention is a necessary ingredient constituting offence? That question falls in the domain of considering the validity of any law which may be challenged inter alia on the ground that it provides for penal consequence without making mes rea as an essential ingredient, as a necessary legislative requirement. This question is apart from the question whether in fact any particular statute carries with it a provision, for the breach of which is visited with penal consequences, carries with it the necessity of proof of intentional breach or it is not so required.
22. The second question that arises is that even where mens rea is not necessary ingredient of the provisions to become operative, is it mandatory that in case where a breach of statutory provision is committed, the penalty must invariably follow without exception or still a discretion has to be exercised by the authority vested with the power to impose or not to impose the penalty for the alleged breach of the provision
23. The question of legislating provision within the legislative competence which includes competence to legislate on all matters ancillary and incidental to make the levy effective be not entwined with the question whether the levy of penalty is in absolute terms or automatic on breach of certain obligation or discretion is vested in the authority to be exercised on well founded principles.
24. We are concerned with the latter question.
PRINCIPLE OF MENS REA IN CRIMINAL OFFENCE VIS A VIS PENALTY FOR BREACH OF STATUTORY OBLIGATION NOT AMOUNTING TO PUNISHMENT FOR A CRIME:
25. Mens rea in its technical sense means knowledge of the wrongfulness of the Act. In the context of offences entailing punishment for a crime, the mens rea is ordinary construed as an essential ingredient of offence. Absense of mens rea really consists in honest and reasonable belief entertained by the accused of the existence of facts which, in turn, would make the act charged against him innocent.
26. However, in the context of penalty for breach of statutory obligations, not amounting to offence, mens rea in the aforesaid technical sense in most cases may not be necessarily recognized before penalty is imposed. But the term has often been used to draw distinction between honest and bona-fide conduct in breach of statutory obligation on the one hand and dishonest and contumacious conduct on the other. The principle is invoked in cases where before levy of penalty an enquiry into probable defence is to be held by envisaging an opportunity of hearing by issue of show cause notice, even in cases where breach is complete. In some cases, penal consequences follow in absolute terms on principle of strict liability, such as penalty is considered compensatory for loss caused to revenue or a token or light penalty is provided commensurating with the nature of breach, where such distinction may not be present. It ultimately depends on the consideration of scheme of relevant Statute, its object and machinery provisions to implement it.
27. In most cases, where penalty is to be levied after affording an opportunity of hearing, this distinction is maintained almost uniformally by considering it to be matter of discretion to be exercised by authority concerned to take into account all attending circumstances, nexus of conduct of defaulter in breach of statutory obligation with the object of the provision, for the breach of which penal consequences are envisaged and decide whether to levy or not to levy a penalty. In a given case, where nexus of breach with the object for which provision is made is established, the penalty is to be imposed otherwise discretion may be exercised otherwise, unless principle of absolute liability is discernible clearly from the object of the provision.
28. In this connection, reference to the principle enunciated by the Supreme Court in Indo China Steam Navigation Co. Ltd. v. Jasjit Singh, Addl. Collector of Customs, Calcutta and Ors. (13), will not be out of place. A question had arisen under the Sea Customs Act which inter alia provides under Section 167 (12- A) that where a vessel answering the description prescribed by the Section 52-A enters within the limits of an Indian Water and it is found that certain construction, adaptation or alteration have been carried out in a ship for the purpose of concealing goods, the vessel was liable to be seized and confiscated. Section 183 prescribes option to be given to the owner of the vessel to pay penalty in lieu of confiscation.
29. The Court held that so far as confiscation of vessel of a description stated under Section 52 A found in Indian water is concerned, the consequence Under Section 167 (12-A) is absolute in terms and no extenuating circumstances are to be taken into consideration.
30. However, giving an option to opt for penalty in lieu of confiscation is a statutory obligation. On exercise of such option, in determining the penalty to be levied in lieu of confiscation, the Court found different consideration to prevail, which includes consideration of extenuating circumstances will apply and it was held that the discretion vested in the authority concerned in determining the quantum of penalty to be imposed in lieu of confiscation. This case demonstrates the distinction between rule of strict liability which follows with the completion of breach of obligation and imposition of penalty to be considered after breach is complete after an opportunity being given to defaulter.
31. The Court said that the confiscation of offending vessel under clause 12A is not the end of the matter. In dealing with the offences under clause 12A of Section 167, the Customs Officer has also to exercise his jurisdiction under Section 183 of the Act. The court further said that though confiscation is statutory corollary of the contravention of Section 52A, the legislature realised that confiscation of the vessel may cause unnecessary hardship to the owners of the vessel and so, Section 183 expressly requires the adjudicating officer to give an option to the owners of the offending vessel. Confiscation is no doubt authorised and required by Section 167 (12A), but the statutory obligation makes it necessary for the officer to give an option to the owners, and so, in substance, the ultimate penalty which may be imposed on the owners does fall to be determined in the discretion of the said officer. Section 183 confers discretion on the officer to determine what amount of fine should be imposed in lieu of confiscation and in doing so, he will undoubtedly have to take into account all relevant and material circumstances, including the extenuating factors on which the owners may rely. Thus, the confiscation of the offending vessel is indirectly brought within the discretion of Customs Officer under Section 183 though it was taken out of the domain of the Customs Officer's discretion under clause 12A of Section 167. This made it clear that though penalty was to be imposed in lieu of confiscation, it would commensurate with the gravity of default and not with the value of confiscated property. In coming to this conclusion, the Court has also taken into account that to make a provision of confiscation in absolute terms may cause undue hardship in mattes in which such a harsh penalty may not be called for.
32. The principle also appears to be settled even while considering the question of mens rea in criminal offences that the severity of penalty envisaged is a relevant consideration and which may prima facie indicate that mens rea is a constituent part of an offence and was not intended to be excluded, though rule is not absolute and depends upon the scheme of the Act.
33. The principle was accepted by the Supreme Court in Nathulal v. State of Madhya Pradesh (14), after referring to the Privy Council decision in case of Srinivas Mall v. King Emperor (15). Its application has been well demonstrated in Indo China Steam Navigation Co., (supra), while considering the question of exercise of discretion in imposing penalty not amounting to criminal offence.
OPINION OF THIS COURT:
34. This Court in Mahaveer Conductor's case (supra), had occasion to consider the provisions of levy of penalty Under Section 22-A (7) in detail which are subject matter of the levy of the penalty in the present case also. The Court examined the issue in the light of following postulates:-
'There cannot be any doubt that Section 22A is on statute book, as a preventive measure to tax evasion and avoidance through fictitious or unaccounted transporting of goods. But it is equally true that provision are of ancillary nature, providing the manner and mode of transporting goods. The fact that on occasion, the goods are trans- ported unaccompanied with documents does not mean that in all such cases, penalty has to be levied or if it is to be levied, maximum penalty has to be levied. It is to be noticed that provision casts an obligation only to the extent of carrying of requisite documents alongwith the goods by the carrier. If the required documents are accompanied, no breach is committed, except in case documents are found to be fictitious or forged. If the goods are carried unaccompanied with the documents requisite, the breach of the conditions for carrying goods is complete. Can it be said that in latter case, levy of penalty is not only lawful but in all circumstances, obligatory?'
35. Considering this aspect of the matter, the Court observed that law does not provide that once the goods in transit are found to be unaccompanied by the requisite documents, the levy of penalty is automatic. If that were so, the provision for issuing a show cause notice to the owner or transporter before imposing penalty will be meaningless. Notices are issued to the persons likely to be affected by the order, only with a view to give him an opportunity against the proposed penalty. Such opportunity must necessarily include opportunity to show that no penalty is leviable or can be levied in the circumstances.
36. In all cases, the question of levy of penalty will arise before the goods are delivered to consignee and it is found, while the goods are in transit, with the transporter, that they are unaccompanied with documents or documents are not produced on demand. On the face of it, in such cases, if that is sufficient to levy penalty, no meaning can be attached to giving ah opportunity to owner of the goods or transporter to show cause against levy of penalty inasmuch as in all such cases, the fact of breach is established as soon as goods are found unaccompanied by documents or documents are not produced on demand. If that were the intention to levy penalty in all cases, there being no possible defence available to other side, statute could have provided for imposition of penalty straight way. That is not the case.
37. The Court observed:
'When the law requires giving of opportunity to a person against the proposed levy of penalty, it is not mere empty formality to make an order as a matter of course as foregone conclusion but it implies that the person against whom the action is proposed has a fair opportunity to show that no penalty can be levied in the facts and circumstances of the case..... .The finding that the goods are unaccompanied with the requisite documents, is a accomplished fact and if penalty was to be levied only on that account, then the provisions of Section 21-A(7) requiring an opportunity to be given to the owner or person in whose in charge the goods were and enjoining a duty on the authority to hold an inquiry as it deems fit, would be a meaningless formality, resulting in nothing. That obviously cannot be intention of the provision.'
38. It is also to be noticed that the penalty provided is not commensurating with venial or technical breach which follows automatically, nor it is compensatory in nature like penalty for delayed returns or delayed payments but is substantively deterrent connected with the object of preventing and checking tax evasion or avoidance and which at the relevant time could extend to 30 per cent of the value of goods, much heavier than the tax itself that could be evaded or avoided and can only be imposed after the defaulter is given an opportunity of hearing that is to defend himself. The provision also provides for the seizure of goods and penalty in case documents are found to be forged or not genuine. Since then the penalty has been provided equal to 30% of value of the goods.
39. These provisions are indicative of the fact that the penalty is to be levied where the breach committed or the default for which penalty is levied, is substantive and is related and has a rational nexus with the purpose for which the provisions of Section 22-A have been enacted, namely, that the breach must be related to evasion or avoidance of tax. If that be so, mens rea or deliberate defiance of the provision with intention to evade or avoid liability of tax that may arise as a result of the transaction which was sought to be shielded by keeping it out of accounts, must be necessary ingredient before penalty could be levied. It may further be noticed that where the goods are found in transit unaccompanied with requisite documents when the vehicle is checked, the breach is complete. In defence, the person concerned can only produce the relevant documents that too only after the event, regarding which, breach has been committed and not earlier. Therefore, the mere fact that the goods were not accompanying by documents and the documents were produced later on, during the proceedings by itself does not lead to any conclusion that such documents have been prepared later on by ante-dating the same. That finding must depend upon an enquiry into the facts and not merely on the presumption, solely on the basis that documents were not accompanying the goods when the same was checked. That would be the case, in every case of breach of provisions of Section 22-A.
40. With the aforesaid premise, the Court further opined:
'Even assuming the alternative, that whatever a breach is found, to have been committed, of the provisions of Section 22-A, penalty has to be levied and it is lawful for the authority to levy penalty and, the question germane in the enquiry is the quantum of penalty to be imposed, inasmuch as the law provides only the maximum limit upto which penalty can be imposed and leaves actual quantum of penalty to be levied on the discretion of the authority concerned. Assuming that to be so, even in that event, the guidelines inhibiting the discretion of authority under the provisions is, the purpose for which the provisions have been enacted and the relation of the breach to the purpose, can furnish the criteria for varying the quantum. Obviously, in such circumstances, where the alleged breach is mere technical, not infested with any wanton default committed with a view to evade or avoid tax by concealing the transaction, only a token penalty would be justified for technical breach. On the other hand, if it is found that the breach is deliberate, with a view to evade for avoid tax, the quantum of penalty have to be substantial within the maximum limit provided, depending upon the other attending facts and circum- stances, which may vary from case to case.'
41. In coming to its conclusion, the Court relied on the following observations of the Supreme Court in Hindustan Steel Ltd. (supra):
'......penalty may be imposed for failure to register as a dealer.
But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. 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 be- cause 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. 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.'
42. Finding that the assessee has offered the documents at the stage, opportunity was available to him and which was not found to be fictitious or forged, the levy of penalty was not sustained.
43. The principle was followed and applied while deciding the case under the Act, 1994 in ACTO v. Voltas (16), the SLP against the said decision was rejected.
44. The principle was upheld and applied earlier by the Division Bench of this Court in ACTO v. RTT (Amrit Automobiles) (17), wherein the principle enunciated in Hindustan Steel Ltd. (supra), was applied.
45. The Division Bench of this Court in State of Rajasthan v. Jinendra & Company (18), reiterated the principle repelling the contention raised by the revenue that Section 78 (corresponding to Act, 1994) nowhere provides that penalty can only be imposed if the intention to avoid tax is established. The Court said:-
'Courts have held that the proceedings for imposition of penalty are declared to be quasi criminal in character. When the conduct of the respondent in producing all the documents, including the unfilled Form 18A disclosing all the details, it is incomprehensible as to how the respondent can be blamed for lapses, if any. In this case, the penalty has been proposed to be levied solely on the ground that Form ST 18A which was accompanying the goods in transit at the time of checking was incomplete in some respects. The respondent has produced all the relevant documents. There is no evasion of tax or mens rea on the part of the respondent to evade the tax.'
46. Consequently, the penalty was quashed. This principle in appeal in a large number of decisions by the Single Bench as well as Division Benches of this Court while considering penalty imposable Under Section 22-A(7) of the Act of 1954 or Section 78 of the Act, 1994.
47. However, in two Single Bench decisions in Mutha Premraj (supra), and M/s Shiv Shambhu (supra), a different note has been struck with reference to decision of the Apex Court in D.P. Metal's case (supra), R.S. Joshi's case (supra), and a Bench decision of this Court in Lalji Moolji's case (supra), which are also relied on by the learned counsel for the Revenue.
48. It will be profitable to consider the aforesaid decisions before we consider the two Single Bench decisions taking a different view.
(A) R.S. JOSHI v. AJIT MILLS CASE (SUPRA):
49. In this connection, reference to the decision in R.S. Joshi's case may also be made, on which, reliance has been placed by the learned counsel for the respondents.
50. R.S. Joshi's case also, in our opinion does not militate against the view expressed by the Supreme Court in the case of Hindustan Steel Ltd. case Bombay Sales Tax Act, 1959 has made a provision that the stamps collected by the dealers by way of sales tax on the transactions which are not exercisable under the State law shall be forfeited to the public exchequer. The Guwahati High Court has held the provision as unconstitutional. The constitutionality of the provision was challenged on the ground of legislative competency as well as being violative of Articles 14 and 19 of the Constitution of India. The provision was 'where there has been a contravention referred to in clause (a), a penalty of an amount not exceeding two thousand rupees .....and, in addition........any sum collected by the person by way of tax in contravention of Section 46 shall be forfeited to the State Government.
51. Thus, the matter related to the constitutional validity of law providing for forfeiting of tax illegally collected by a dealer or by a person who is not dealer and not paying it to the public exchequer for which it has been collected.
52. The High Court opined that the collections made by the person who was not a dealer was ex hypothesi not sales tax, but were illegal collections by the dealer along with price. The case was set up that a claim may be laid by those from whom the money has been collected in the name of tax, which was not leviable, but the State could not by law provide for its forfeiture, to state, as it will be extortion of money without any element of tax in it. The provision was attacked as not falling within the purview of matters incidental or ancillary to authority of State to levy tax on sale or purchase of goods. It was contended that since the forfeiture provided was in absolute term, it does not partake the character of penalty. The law providing for the penalty must provide far mens rea as an essential condition before its imposition.
53. It is in that context, the Court rejected the notion that a penalty or punishment cannot be cast in the form of an absolute or no fault liability but must precede by mens rea. The Court said:
'the terms 'fine', 'forfeiture', and 'penalty', are often used loosely, and even confusedly; but when a discrimination is made, the word 'penalty' is found to be generic in its character, including both fine and forfeiture. A 'fine' is a pecuniary penalty, and is commonly [perhaps always] to be collected by suit in some form. A 'forfeiture' is a penalty by which one loses his rights and interest in his property'.
54. However, the Court did not say that in all cases where penalty is levied under any statute, the liability is absolute in terms, irrespective of the. nature and object of making such provision.
55. It may be noticed that distinction between an honest breach and dishonest breach of statutory provision of consequence of forfeiture of amount collected as tax was maintained in R.S. Joshi v. Ajit Mill's case (supra). The rigour of principle of strict liability or absolute liability was toned down. While excluding the application of principle of mens rea in the sense that the defaulter acted knowingly that he is committing wrong is not essential for upholding the constitutionality of the provision, the rigour of provision was mitigated by reading down the words 'collected' and 'shall be forfeited'. It was held that expression 'collected' did not include amounts gathered tentatively to be given back, if found non exigible. And expression 'shall be forfeited' was read as 'shall be liable to be forfeited' leaving a discretion to the authorities not to forfeit the sums collected returned to persons from whom they were collected.
56. The Court said that there is authority to hold that 'shall be forfeited' means 'liable to be forfeited'. Referring with approval the above connotation of phrase in Attorney General v. Persons (19), Krishna Iyer J, in his leading judgment said:
'It is sufficient to state that such a construction is tenable. Moreover, Section 37 itself contains a clear clue indicating of the sense in which 'shall be forfeited' has been used. Section 37 (2) directs the Commissioner to issue notice to the assessee to show cause why a penalty, with or without forfeiture should not be imposed on him. Such a notice, with specific reference to forfeiture points to an option in the Commissioner to forfeit or not to forfeit or partly to forfeit. This is made plainere in Section 37(3) which reads: 'The Commissioner shall, thereupon, hold an enquiry and shall make such order as he thinks fit'. This order embraces penalty and forfeiture. Therefore, the Commissioner is vested with a discretion to forfeit the whole or any lessor sum or none at all. We limit the sense of 'shall be forfeited' as meaning 'shall be liable to be forfeited'.
57. Thus, the provision of giving notice of show cause before ordering forfeiture was read to mean vesting a discretion in the Commissioner to levy or not to levy penalty of forfeiture by considering the attending extunating circumstances by reading the expression 'shall be forfeited' in the setting and sense of the statute as what can be mitigating circumstances was spelt out with reference to object of the provision viz. The unauthorized collection of amount as tax shall not remain with the person making such collection, leaving it for the payers to litigate upon it. The Court said:
'This signification of 'forfeiture' as 'liability to forfeiture' saves the equity of the statute. The Commissioner must have regard to all the circumstances of the case, including the fact that amounts illegally collected have been returned to the purchasers to whom they belong before passing the final order. We are clear in our mind that the forfeiture should operate only to the extent and not in excess of, the total collections less what has been returned to the purchasers. We may go a step further to hold that it is fair and reasonable for the Commissioner to consider any undertaking given by the dealer that he will return the amounts collected from purchasers to them. The humanism of a provision may bear upon its constitutionalism.'
58. Thus, notwithstanding the fact that breach of provision was completed when collection of any amount as tax was made, but which was not leviable, yet penalty by forfeiture of said was not held to follow automatically in absolute term but was left to be imposed at the discretion of the authority concerned depending upon the enquiry whether the purpose of provision is fulfilled or not. In case the person collecting the amount as tax has at the initial stage acted with bonafide intention to return the amount to customer if the tax is not found leviable or even the defaulting person undertook before the authority to return the amount so collected to customers, the penalty of forfeiture was held to be not imposable in the decision of the Commissioner. This principle was evolved for maintaining the 'equity and humanism in the Statute was made to bear upon its constitutionality'.
59. The decision also maintains the distinction between consideration of constitutionality and consideration for exercise of such power.
60. Thus, ultimately the Court construed the provision in terms of Hindustan Steel Ltd.'s case holding the penalty shall not be imposed merely because it is lawful to do so, unless the conduct of defaulter is found to be dishonest or contumacious, when the question of its implementation was considered. It ultimately rests in the discretion of the authority to levy or not to levy a penalty, where it becomes imposable.
61. It also read the provision in the context of object and restricted the penalty of forfeiture to the extent, it retained its nexus with the object of the provision by clearly pointing out that if in response to show cause notice, it is shown that collection was made only tentatively and were to be returned to customer if ultimately it was found not liable to tax or even if the person gives an undertaking to return the same to customer, it was in the discretion of the Commissioner not to levy penalty.
62. It appears that this aspect of the judgment in R.S. Joshi's case was not brought to the notice of the Single Bench that the Apex Court sustained the penalty of forfeiture only to the extent it retained its nexus with object, by clearly giving out that where compliance was brooked either by action or undertaking to return the amount to payers, penalty may not be imposed. This is also in tune with very recent decision in Swastic Roadway's case (supra), rendered about 27 years later.
(B) THE DECISION IN D.P. METALS CASE:
63. It has been argued with some emphasis that in D.P. Metals case while reversing the decision of the Rajasthan High Court, the principle of absolute liability was laid down which is contrary to principle laid down in Hindustan Steel Ltd.'s case by the Apex Court earlier.
64. It may be useful to refer to the issue raised in D.P. Metal's case (supra). In the said case, the constitutional validity of Section 78(5) of the Act, 1994 was challenged. The Division Bench of this Court following the decision of the Supreme Court in State of Haryana v. Sant Lal (20), and referring to other decisions of the Supreme Court had opined:
'the penalty Under Section 78(5) linked with value of goods equal to 30 percent thereof imposable on person in-charge of the goods in transit who is not owner of the goods and who is also not a dealer in the goods, for breach of obligation of divulging information and particulars relating to goods in his charge and the consignor and the consignee is highly unreasonable having no reasonable and proximate nexus with the obligation cast on the transporter and the object of the provision, the same, therefore, is unconstitutional.
However, a reasonable penalty is imposable on transporter as a consequence of breach of an obligation to divulge such information truly and faithfully which is in his possession and can reasonably be required of them to obtain from other sources while booking goods for transport. Until any specific provision for levy of tax is enacted by the legislature, he may be subjected to penalty as envisaged Under Section 68 of the Act.'
65. Apparently, the High Court has held the provision levying penalty Under Section 78(5) on the person in charge of the goods in transit who is not the owner of the goods nor he is dealer of the goods as unreasonable and the penalty leviable on the transport was permissible to a limited extent provided Under Section 68. However, this judgment was reversed by the Supreme Court in D.P. Metals' case (supra).
66. The question directly which fell for consideration before the Supreme Court was about the constitutionality of Section 78(5) enacted in the Act of 1994 and the question about validity of any order of penalty passed in particular facts and circumstances of the case was neither raised nor decided whether the mens rea is an ingredient to be enquired into before penalty is to be levied and whether there is a connection between the levy of penalty and evasion or avoidance of tax in respect of the alleged breach of statutory provisions. Still the observation made by the Court while considering the question of validity of the provision and the purpose of giving opportunity of hearing before levy of penalty fully support the view expressed by this Court in Mahaveer Conductor's case (supra), and later on followed in other cases referred to above. The Court said:-
'Penalty under Section 78(5) is leviable under two circumstances. Firstly, if there is non-compliance with Section 78 (2) (a) i.e. not carrying the documents mentioned in that sub- clause or, secondly, if false or forged documents or declaration is submitted.'
67. It may be noticed that the present is not a case where there was breach of not carrying the document. Nor it is a case in which documents, which were carried with goods by transporter were false or forged. Thus, the basic condition for levy of penalty had not even arisen.
68. The Court further observed that:-
'Levy of penalty is only on the person in-charge of the goods. It is he who should have be all the requisite documents relating to the title or sale of the goods which are being transported.'
69. With this premise, the Court first took up the matter of levy of penalty in respect of submission of false and forged document and said:-
'Such submission of the false or forged documents or declaration at the check post or even thereafter can safely be presumed to have been motivated by desire to mislead the authorities. Hiding the truth and tendering falsehood would per se show existence of men rea even if required. Similarly, where, despite opportunity having been granted under Section 78(5) if the requisite documents referred to in Sub-clause (2A) are not produced even though the same should exist, would clearly prove the guilty intent.'
70. Thus, in the context of the cases of production of false or forged document or non-production of documents even after opportunity for producing the same has been granted, a presumption arises about the existence of guilty intention, the Court said:
'It is not possible to agree with the counsel for the respondents that breach referred to in Section 78(5) can be regarded as technical or venial.'
71. The aforesaid observations appear in the context of production of false or forged documents or non-production of documents even after opportunity is given, which carries with it presumption of guilty intention and contumacious conduct. Also it is to be noticed that while production of false or forged document or non-production of document raises a presumption of dishonest intention, the Court did not say nor it can be inferred on any principle that the documents produced are presumed to be false or forged or dishonest conduct is to be assumed on mere failure to produce the document at the check-post without giving an opportunity of hearing. The falsity or forgery of document has to be proved as a fact. The purpose of giving hearing was viewed as giving an opportunity to produce the requisite documents bona- fide and genuinely can be seen from the following observations:
'Once the ingredients of Section 78(5) are established, after giving a hearing and complying with the principle of natural justice, there is no discretion not to levy or levy less or amount of penalty. If by mistake some of the documents are not readily available at the time of checking, principles of natural justice may require some opportunity being given to produce same.'
72. Obviously, it is with reference to the fact that before levy of penalty, the opportunity for hearing is required to be given, it was relatable to enabling the parties to produce those documents which could not be produced inadvertently or by mistake at the time the checking took place or to prove that documents produced are false or forged. Mere production of documents at the check-post or later on does not result in moksha from penalty. But in such cases the burden to prove that documents are false or forged or information contained therein is incorrect, is on the revenue, because no presumption can be raised to that effect to shift the burden on the assessee.
73. That being so, where such documents are produced, which are genuine and earlier non-production having no nexus with evasion or avoidance of sales tax, the breach of statutory provision remains a technical or venial breach, for which the penalty is not to be imposed. On the other hand, when required the documents are not produced despite opportunity is offered or if produced are found to be false, forged or carrying incorrect information, presence of guilty intention is presumed. In such event, the breach of the provisions cannot be treated as venial or technical. Consequently, the levy of penalty cannot be avoided.
74. The observations made by the Supreme Court in D.P. Metal's case no way militates against the view expressed by the Supreme Court in Hindustan Steel Ltd. and followed by this Court earlier that the purpose of giving opportunity is to give an opportunity to produce the relevant documents to show the bona fide and genuineness of the transaction and if it is done, no penalty is imposable. If that is not done, of course, the presumption of guilty intent or contumacious conduct or remissness arises. If the documents are false or forged which obviously is not a matter of presumption but rather a matter of inquiry, and falsity and forgery carries with it, the presumption of desire to mislead the authorities which necessarily amounts to presence of guilty intent. Therefore, the principle founded on considering the purpose of providing an opportunity of hearing before levy of penalty and the presumption from the falsity or forgery or non production of document and the different consequence flowing in the two cases makes it abundantly clear that the judgment of the Supreme Court in D.P. Metals case fully support the view consistently expressed by this Court and does not militate against the view expressed by this Court as noticed above nor is contrary to principle enumerated in Hindustan Steel Ltd.'s case.
(C) LATER DIVISION BENCH DECISION IN LALJI MULJI'S CASE (SUPRA):
75. The Bench Decision of this Court in Lalji Moolji (supra), also reiterates the same principle that a person acting honestly cannot be subjected to penalty but the penalty follows dishonest tax payer. Referring to the aforesaid observations of the Supreme Court, the Court drew the distinction between honest and dishonest act on the part of the assessee. The Court observed:-
'It will not be correct to protect a tax evader saying that there is absence of mens rea. The apex court in D.P. Metal's case supra has rejected the submissions regarding absence of mens rea by observing that the submission of false or forged documents or declaration at the check post or even thereafter can safely be presumed to have been motivated by desire to mislead the authorities. The Court further observed that hiding the truth and tendering falsehood would per se show existence of mens rea, even if required.'
76. Thus, laying emphasis on the observations made in D.P. Metal's case (supra), the Division Bench too clearly drew distinction between honest and dishonest conduct of the tax payer and referred to production of document at check-post or elsewhere required by authorised person refers to availing of opportunity of hearing. This can be noticed from the following observations:
'The plain and simple scheme of Section 78 is that the vehicle passing through the State of Rajasthan carrying goods to be delivered in another State and carries the documents as referred in Section 78(2) and produces at the check post or anywhere else where a person authorised ask him to do so, if it is done honestly and faith- fully, there is absolutely no problem. However, if a transporter or a trader is entering into an adventurism with a view to evade tax, he must be ready to face the consequence of penalty at the rate of 30% seizure of vehicle and in aggravated case, the confiscation of the vehicle.'
77. Again, it may be noticed that the aforesaid observations have been made while examining the constitutional validity of Section 78. The emphasis is on the levy of penalty where the transporter or trader enters into an adventurism with a view to evade tax but there is no problem if he acts honestly by producing the document either at the check post or elsewhere, where a person authorized asked him to do so does clearly reflect distinction in between a person acting honestly by producing bona fide and genuine documents, on notice of hearing is given before levying penalty for giving him opportunity to show his genuineness and to correct the bona fide mistake by producing the same at a later stage when opportunity is given on the one hand and other committing breach of such statutory duty 'with a view to evade tax'. The emphasis on relating the levy of penalty to actions accentuated with the motive to avoid or evade the tax by producing the false or forged documents or by not producing the documents at all even when opportunity of hearing is provided approves the distinction between a bona fide breach and not genuine breach.
78. Both the decisions do not in any way show that the levy of penalty is automatic when the breach is completed at the check post. Production of genuine documents later on bona fide, on an opportunity being given as part of natural justice does not carry with it liability to penalty, but an act actuated with dishonesty does.
79. Thus, in our opinion, the decision of the Supreme Court in Ajit Mill's case and D.P. Metals case and the Bench decision of this Court in Lalji Mulji case do not militate against the decision rendered by this Court in Mahaveer Conductor's case or the Jitendra's case, or the Voltas case and a host of other cases. On the contrary, these two judgments reaffirm the view expressed in the aforesaid decisions that the levying penalty is not automatic, and there is distinction between honest and dishonest acts. The opportunity of hearing envisaged before levying the penalty is primarily to enable an honest tax payer to comply with the provisions of Section 22-A of the Act of 1954 or for that matter Section 78 of the Act of 1994 by producing before the authority giving notice genuine documents containing correct information as required by law. If the documents were produced by him whether at the check post or in response to the opportunity afforded to him are found to be false or forged or no documents are produced either at the check post or even after opportunity of producing the same is given, by giving notice before levy of penalty, are to be treated differently. This distinction is clearly made out from the aforesaid decisions.
RECENT DECISIONS OF SUPREME COURT:
80. In a recent decision in Karnataka Rare Earth & Anr. v. Sr. Geologist Deptt. of Mines and Geology & Ors. (21), the Supreme Court pointed out difference between demand which is compensatory in nature and demand which is penal in nature. The question arose in a case where quarry leases were granted on government land contrary to prohibition contained in Rule 3-A of the Karnataka Minor Mineral Concession Rules, which became subject matter of challenge under a public interest litigation. The writ petition was allowed by a learned Single Judge of Karnataka High Court and all the grants were quashed. The judgment of the learned Single Judge was affirmed firstly firstly by a Division Bench of the High Court and then by the Supreme Court. However, during this period, by interim orders, the quarries were allowed to operate in terms of grant. Granite was excavated by quarry license holders and royalty and dead rent was duly paid. After dismissal of appeal by the Supreme Court, affirming the order quashing quarry licenses, the State raised demand of the price of mineral carried by the quarry licence holder. Demand' of price of mineral, so excavated under illegal grant was challenged. The principle enunciated in Hindustan Steel's Ltd. Case was pressed into service.
81. Considering demand for price vis a vis penalty for a wrong, the Court said :
'A penal statute or penal law is a law that defines an offence and prescribes corresponding fine, penalty or punishment. Penalty is a liability imposed as a punishment on the party committing the breach. The very use of the term 'penal' is suggestive of punishment and may also include any extraordinary liability to which the law subject a wrong doer's in favour of the person wronged not limited to the damages suffered.
82. With the aforesaid premise, the Court referred to the ratio in Hindustan Steel Ltd. (supra), as under:-
'The Court held that liability to pay penalty did not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out the statutory obligation is the result of a quasi criminal proceedings and penalty will not ordinarily be imposed unless the party obliged has either acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of its obligation. Penalty will also not be imposed merely because it is lawful to do so. In spite of a minimum penalty prescribed, the authority competent to impose the penalty may re- fuse to impose penalty if the breach complained of was a technical or venial breach or flew from a bona fide though mistaken belief.'
83. However, the Court found that demand for the price of mineral was not by way of penalty but was by way of compensation to the purpose for the mineral taken by the petitioner without payment of full price by operating quarry licence under an invalid lease though under the interim orders of the Court. No element of penalty was found in that demand to apply ratio of Hindustan Steel Ltd. in said case.
84. But the fact remains the Court clearly culled out the ratio of decision in Hindustan Steel Ltd., as applicable to levy by way of penalty which is not compensation in nature but is by way of punishment.
85. In yet another recent decision in CTO v. Swastic Roadways (22), the matter received attention of the Supreme Court directly arising in respect of M.P. Sales Tax Act in somewhat similar circumstances as in the present case.
86. Under Section 57 of M.P. Act, the commissioner is empowered to call for the information from the clearing and forwarding agents to give certain particulars in respect of transaction with any dealer. On failure to furnish the requisite information, a penalty equal to three times the amount of tax payable in respect of goods was envisaged to be imposed by the commissioner after giving an opportunity of hearing.
87. Challenge to the constitutional validity of said provision was made on very much the same ground as has been raised in D.P. Metal's case in connection with Section 78 of the Act, 1994 which also required furnishing of certain information contained in prescribed document at the check-post and consequence of failure to comply with it, was that penalty equal to 30% of the price of goods could be imposed. It was contended that the power of State Legislature to legislate in respect of incidental and ancillary matters relating to entry 54 in Second List (Tax on sale or purchase of goods) do not extend to legislature in respect of clearing and forwarding agents who are not dealers. The M.P. High Court has struck down the provision as ultra vires Entry 54 of the second list by following the decision of Supreme Court in State of Haryana v. Santlal (23), on almost the same line as was done by this Court in D.P. Metals case.
88. The Supreme Court following its recent decision in D. Pt Metal's case (supm), and in the case of Tripura Goods Transport Association (24), in which earlier decision of the Supreme Court in Santlals case (supra), has been distinguished, reversed the decision of M.P. High Court and upheld the constitutionality of Section 57 of the M.P. High Court.
89. The contention that penalty Under Section 57 was an additional tax and could not be imposed on the clearing and forwarding agent as there was no sale or purchase in their law on which above tax could be levied was repelled by saying that penalty was not tax. The Court said :
'In our view, the basis of penalty was three times the amount of tax evaded by the dealer. This basis was a measure or yardstick. It cannot convert a penalty on defaulting clearing and forwarding agent into a tax. The object of Section 57(2) is to penalise any person who abates in or facilitates the evasion of tax. Therefore, a heavy penalty is pre- scribed to check tax evasion subject to condition laid down in sub- sec.'
90. Significantly, like in D.P. Metal's case, the object of provision was found to check evasion and avoidance of tax justifying levying penalty. The Court went on to explain the scope of penalty proceedings and necessary pre-requisite before penalty could be levied to effectuate the object of the provision as under:-
'The nexus between tax evasion by the owner of goods and the failure on the clearing and forwarding agent to furnish information required by the Commissioner is implicit in Section 57(2) and the con- cerned Assessing Authority has to necessarily record a finding to this effect before levying penalty Under Section 57(2).'
91. Like Section 57 of the M.P. Sales Tax Act, Section 22A of the Act, 1954 or for that matter Section 78 of the Act, 1994 are provisions enacted with the object to prevent or check avoidance or evasion of tax. Both provisions are for eliciting information relating to transactions that may be also exigible to tax and failure to submit such information at the point and to the authority as provided under the statute envisaged visitation with deterrent penalty. While upholding the constitutionality of the provisions in D.P. Metal's Case, the Court drew the distinction between honest and dishonest breach of condition. Furnishing of false or forged documents or non furnishing of requisite documents imply dishonest intention. But if by mistake, the documents are not furnished at the checkpoint, the natural justice required to be followed provides an opportunity to produce bona fide genuine and correct documents before the con- cerned officer within the time allowed. Obviously, in later case, no penalty is envisaged as per view expressed in D.P. Metal's case. The distinction between a bona lick- mistake and dishonest non compliance is clearly visible in aforesaid statement in D.P. Metals case, which is also the foundation of ratio in Hindustan Steel's Ltd. referred to above.
92. The said principle is restated in Swastik Roadways case very clearly by emphasizing on need to establish nexus between failure to give information with evasion or avoidance of tax, before levy of penalty. This ratio fortifies the view which has been expressed by this Court in the decisions referred to above, and clinches the issue at end.
93. In all the cases referred to above, on the question of levy of penalty, a clear line of distinction has been drawn between dishonest breach of statutory provision and mere breach of statutory provision which has no nexus with evasion or avoidance of tax, the object with which such provisions are made which is consistent with the view expressed by the Supreme Court in Hindustan Steel Ltd.'s case (supra), noticed above.
CONTRARY VIEW EXPRESSED IN TWO SINGLE BENCH DECISIONS OF THIS COURT:
94. Two single bench decisions of this Court have struck a discordant note contrary to the ratio emerging from all the aforesaid decisions of the Supreme Court making it apparent that levy of penalty for breach of any statutory provision, though become lawful to be imposed when the breach is complete, the penalty does not follow automatically, but the distinction has to be drawn in giving effect to such penalty provision between a dishonest breach of statutory provision and a breach of the statutory provision which falls in the category of a bona fide mistake. In the former the penalty follows the dishonest or contumacious conduct, and in the latter, it remains a venial or technical breach, within the ratio of Hindustan Steel Ltd. and discretion to levy penalty or not to levy penalty has to be exercised accordingly in the other manner the penalty followed.
95. In the latter class of cases, the Supreme Court has taken the view that discretion vests in the authority not to levy penalty. As we have discussed above, in fact, neither any Supreme Court decision nor the larger bench decision of this Court has held to the contrary.
(a) - MUTHA PREMRAJ'S CASE (SUPRA) :-
96. The learned counsel for the respondents has placed reliance on the decision of Mutha Premraj v. Assistant Commissioner & Ors. (supra), a judgment rendered by the learned Single Judge of this Court to contend that penalty becomes imposable as soon as the breach is committed at the check post where the goods in transit include the requisite documents or the documents which are produced when demanded by the person on check-post and no further inquiry is necessary into the conduct of the person concerned before imposition of penalty. It was also pointed out by the learned counsel for the respondent that M/s Mutha Premraj case is founded on the ratio laid down by the Supreme Court in D.P. Metal's case and R.S. Joshi's case and a Bench decision of this Court in Lalji Mulji's case.
97. We have noticed in detail above, the decision rendered in D.P. Metal's case, R.S. Joshi's case and Lalji Moolji's case and have come to the conclusion that demonstrably none of the cases held against or overruled, the principle laid down in Mahaveer Conductor's case or for that matter subsequently by a Division Bench of this Court in M/s Jitendra & Co. & Ors' case and Amrit Automobiles's case referred to above. The conclusion of the learned Single Judge in Mutha Premraj has been recorded as under:-
' While deciding the case in Mahaveer Conductors (supra), any of the judgments of the Apex Court referred to above including the Seven Judges judgment in R.S. Joshi (supra), wherein the scope of applica- bility of mens rea in fiscal statute and even other statutes had been examined and explained, could not be brought to the notice of the Court. The Court had taken note of Hindustan Steel Ltd. Only, there- fore, it can be safely inferred that taking the view that whenever a provision provides for imposition of penalty, the proceedings be- come quasi-criminal in nature, is ner incurrium and no such principle of universal application can be laid down. One of the appropriate way would have been to refer the matter to a Larger Bench doubting the correctness of the said judgments in Mahaveer Conductors (supra), and Voltas Ltd. (supra), but as the Hon'ble Apex Court, in a large number of its judgments, dealing with various subjects, including Foreign Exchange Regulation Act, Customs Act, Essential Commodities Act, Income Tax Act, General Sales Tax Acts of the State and Central Sales Tax Act, has elaborately held that the proceedings are not criminal or quasi-criminal in nature nor the penalty imposed under these statutes can be held to be penal in its strict legal sense as understood in criminal jurisprudence and penalty so imposed remains merely an additional tax to be paid by the assessee for breach of a statutory provision or his contumacious conduct because Section 22-A(7) does not deal with a case of merely furnishing a false declaration. There may be, like instant, cases of no declaration at all.'
98. After expressing the aforesaid opinion, the learned Single Judge further stated that in the light of the view taken by this Court in Lalji Moolji's case and after considering the judgments of the Supreme Court in R.S. Joshi's case and D.P. Metal's case, it would not be correct to protect a tax evader saying that there was absence of mens rea.
99. The learned Single Judge was right when he stated that in the matter of applying the test of mens rea, no principle of universal application can be laid down. However, quite contrary to the aforesaid conclusion, the learned Single Judge without examining any of the provisions of the statute in consideration, the object and subject matter of the provision concerned and the nature and character of the Act sought to be penalised, has held in absolute terms by reference to the decisions rendered in the context of Foreign Exchange Regulation Act, Customs Act, Essential Commodities Act, Income Tax Act, General Sales Tax Acts of the States and Central Sales Tax Act, that the proceedings are not criminal or quasi criminal in nature nor the penalty imposed under these Statutes can be said to be penal in its strict legal sense as understood in criminal jurisprudence and penalty so imposed remains merely an additional tax to be paid by the assessee for the breach of statutory provisions or his contumacious conduct because Section 22-A (7) does not deal with a case of mere furnishing a false declaration. There may be, like the case before the Court there was no declaration at all.
WHETHER PENALTY IS AN ADDITIONAL TAX FOR ALL PURPOSES AS ASSIGNED IN MUTHA PREMRAJ'S CASE:
100. The decision in Mutha Premraj case also erroneously assumed that principle laid in number of cases by the Apex Court that the penalty proceedings are quasi-criminal in nature, while holding that levy of penalty is not equivalent to an offence inviting criminal proceedings and invocation of principles applicable to criminal trials.
101. The decision in Mutha Premraj case stems from the premise, which the learned single Judge has applied, that the penalty is nothing, but an additional tax, therefore, it is a civil liability and the principle applicable to the penalty or fine imposable in criminal proceedings cannot be invoked.
102. In coming to this conclusion, in absolute terms, the learned Single Judge has placed reliance on C.A. Abrahim v. Income Tax Officer (25), Commissioner of Income Tax, Andhra Pradesh v. Bhikaji Dadabhai & Co. (26), and M/s Jain Brothers v. Union of India (27).
103. Suffice it to state that no such principle of general application has been stated in any of the cases.
104. The concept of additional tax adverted to in absolute in Mutha Prem Raj case appears to be incorrect and out of context in which penalty has been treated as additional tax for certain purposes only, in some of the cases.
105. In C.A. Abraham's case (supra), the Court was considering in the context of Section 44 of the Indian Income Tax Act, 1922. Under Section 44 of the Income Tax Act, a general provision has been made requiring assessment of a firm where business has been closed. However, no separate provision has been made providing machinery for imposing penalty. The assessee has been assessed for suppressed income of the firm under the Travancore Income Tax Act for the assessment year 1949-50 and for assess- ment year 1950- 51 under the Indian Income Tax Act. The assessee challenged the levy of the penalty inter alia on the ground that after the firm was dissolved on account of death of one of its partners in 1949, no order imposing a penalty could be passed against it. The Revenue has relied on Section 44 of the Indian Income Tax Act, 1922 which provided for computing the assessment of the income of the firm, business whereof has been discontinued. In the aforesaid reference, the expression 'assessment' used in Section 44 was construed of wide connotation and it was held to include penalty proceedings also since assessment is a part of machinery provision for computing the tax due. As a part of machinery provision, it will also include the assessment of penalty as an additional tax to take the debt complete. It is in the aforesaid context, the Supreme Court has said:-
'The expression 'assessment' used in these Sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding that when by Section 44, it is declared that the partners, or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income Under Section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof. By Section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee. In effect, the Legislature has enacted by Section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place. It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms.'
106. The decision in Commissioner of Income Tax, Andhra Pradesh v. Bhikaji Dadabhai & Co. (supra), also deals with the meaning to expression 'assessment' to encompass the proceedings for imposing penally also which has arisen in almost similar circumstances in which the C.A. Abraham's case had arisen albeit, the decision in Bhikaji Dadabhai (supra), arose under the Hyderabad Income Tax Act which has, in fact followed the decision rendered in C.A. Abraham's case by stating that it is true that under the Hyderabad Income Tax Act, distinct provisions are made for recovery of tax due and penalty, but that in our judgment does not alter the true character of penalty imposed under the two Acts. The Court declined to draw parity with other enactments on the ground that under different Acts, separate provisions were made for procedure to be followed for assessment and penalty.
107. In CIT v. Anwar Ali (28), the Court referred to the aforesaid observations in C.A. Abraham's case and explained the distinction between the penalty to be considered as additional tax for the purposes of machinery provisions and penalty to be dealt with as the part of substantive law. The Court said:
'It is true that penalty proceedings Under Section 28 are included in the expression 'assessment' and the true nature of penalty has been held to be additional tax. But one of the principal objects in enacting Section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The Section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. It is significant that in C.A. Abraham's case this Court was not called upon to determine whether penalty proceedings was penal or of quasi penal nature and the observations made with regard to penalty being an additional tax were made in a different context and for a different purpose.'
108. The Court further emphasised that it appears to have been taken as settled by now in the Sales Tax Law that an order imposing penalty is the result of quasi criminal proceedings and in reaching to this conclusion, the Court referred to the decision of the Supreme Court in Hindustan Steel Ltd. Co.'s case.
109. A Division Bench of the Andhra Pradesh High Court in Sait Bansilal & Rangisetti Veeranna v. Commissioner of Income Tax, A.P. (29), after referring to the decision in C.A. Abraham's case as well as Bhikaji Dadabhai & Co.'s case had opined that:
'tax and penalty, like tax and penal interest, are distinct and different concepts under the Income Tax Act. Penalty is in addition to the tax determined as payable by the assessee. Penalty, in our opinion, cannot be taken as additional tax for all purposes.'
110. Referring to the decisions in C.A. Abrahim's case, the Court said:-
'In C.A. Abraham, the Supreme Court was construing the expression 'assessment' occurring in Section 44 of the Act, in order to find out whether the word 'assessment' included procedure for the imposition of penalty on a dissolved firm.'
'By those observations we understand that what Their Lordships meant was that the word 'assessment' covered penalty proceedings, if it is used (as it is in some sections) to denote the whole procedure for imposing penalty on the taxpayer.'
111. In view of decision of apex court in Anwar Ali's case (supra), which was not brought to notice of the Court while deciding Mutha Prem Ram's case, the context in which penalty has been described as additional tax could not be noticed.
112. The ratio in Jain Brother's case (supra), relied on by the Court in Mutha Prem Raj's case is in fact to the contrary. Jain Brother's case is founded on the premise that there is a difference between the penalty proceedings and the assessment proceedings which provide rational criteria for making different provision. The observation made in Jain Brother's case have been taken wholly out of the context in which they have been made.
113. While repealing Indian Income Tax Act, 1922 under Section 297(1) of the Income Tax Act, 1961, certain transitory provisions were made in Sub-Section (2) of Section 297 for the proceedings relating to assessment year completed on or before 31.3.1962, which fell otherwise within the Act of 1922. Under Clause (f) of Section 297(2), the penalty proceedings which were pending as on the date of commencement of the Act of 1961, were to continue under the Act of 1922. However, in cases where assessment for the year ending on the 31st day of March, 1962 or any earlier year which is completed on or after 1st April, 1962, the proceedings for imposition of penalty in respect of it could be initiated and penalty could be imposed under the Act of 1961 as per Sec, 297(2) (g).
114. Clause (g) of Section 297(2) was challenged as ultra-vires Article 14 of the Constitution being discriminatory. It was contended that penalty has been held to be an additional tax. Therefore, by providing different procedure for imposition of penalty relating to assessment year ending prior to 1.4.1962 on the basis of the date of completion of assessment proceedings, classification has been made which is not founded on intelligible differentia. Support was also drawn from the fact that where return Under Section 34 was filed before commencement of the Act, the assessment proceeding were to continue under the Old Act but on a mere chance of date of completion of proceedings, different provision for imposition of penalty would apply and it will result in hostile discrimination between the same class of assessees.
115. Repelling the contention that the penalty is nothing, but an additional tax and different procedure cannot apply to proceeding for assessment of tax and imposing penalty, the Court maintained that the two proceedings are distinct and distinction is not without reason. The Court said :
'although penalty has been regarded as an additional tax in a certain sense and for certain purpose, it is not possible to hold that penalty proceedings are judicial and essentially a continuation of the proceedings relating to assessment where a return has been filed.'
116. Thus, the above decision made it clear that the penalty is not in all senses or for all purposes an additional tax, but distinction do exist between nature of penalty and nature of tax, and distinct procedure could be envisaged by legislature. Significantly, it also noticed that penalty proceedings are initiated on satisfaction of Assessing Authority during the course of assessment proceedings, and findings recorded in assessment order are relevant evidence. Yet the same are not conclusive nor binding. In the course of penalty proceedings a finding has to be reached independent of finding in assessment proceedings. Burden of proof is different in two proceedings.
117. The question about existence of distinction between dishonest and contumacious conduct of the assessee or deliberate remission on the one hand and a bona-fide or inadvertent mistake on the other hand, while exercising jurisdiction to levy penalty was neither raised nor decided in Jain Brother's case.
118. The decision in M/s Gujarat Travancore Agency v. Commissioner of Income Tax, Kerala (30), also cannot be considered to be germane for the present purposes. It was a case where the question arose about the penalty leviable Under Section 271(1)(a) of the Income Tax Act, 1961 which provided penalty for delayed furnishing of return without reasonable cause, where there was an obligation to pay tax as was due as per return. Considering the object and purpose of provisions of Section 271(1)(a), the Court found it to be compensatory in nature primary and penalty was to make such compensation payable through coercive law when it observed.:
'however, it seems that the intention of the legislature is to emphasis the fact of loss of revenue and to provide a remedy for such loss, although no doubt, an element of coercion is present in the penalty'.
119. Thus, finding that the consequence for breach of obligation Under Section 271(1)(a) was compensatory in nature, the question of conduct became immaterial as was also explained by the Supreme Court in the case of Hindustan Steel Ltd. case, wherein the Court found liability to pay interest under the Statute arose not by way of mere breach of statutory duty but by way of compensation for withholding payment of tax due and therefore, irrespective of the reason for which the delay in payment of tax has been caused, the liability of interest on delayed payment of tax is not affected. Similarly, in Gujarat Travancore's case, penalty was provided for delayed furnishing of return which was found to compensate the loss of revenue of the amount, was held penal not in nature as such, but was enacted as a coercive measure for securing timely return and timely payment of tax. The question of mens rea became immaterial.
120. In referring to the decision in Gujarat Travancore Agency case laying down principle different from Hindustan Steel Ltd.'s case,, the Court noticed the provision of Section 271(1)(a) which was being construed and its legislative history. Prior to amend- ment in 1986, the penalty Under Section 271(1)(a) was leviable where assessee has failed to furnish the return without reasonable cause within the time allowed under various provisions. The 'reasonable cause' provided a defence and penalty was not leviable automatically on such failure in absolute terms but it needed an opportunity of hearing before penalty was levied so that the assessee could plead and prove existence of reasonable cause which might have prevented him from filing return in time. However, existence of reasonable cause was not dependent on having an information to delay the filing of return deliberately or for some other purpose. However, with amendment of 1986 this defence was taken out and penalty became a statutory mandate in absolute terms. Subsequent to decision in N.K. Jain case, Clause (a) of Section 271(1)(a) itself was omitted w.e.f. 1.4.1989 vide Direct Tax Laws (Amendment) Act, 1989.
121. The question of existence of reasonable cause in the scheme of the Act was thus not relatable to altitude of mind but something independent of altitude of mind. The defence for offence was provided in the Statute itself, hence, it was not essential to search the defences in common law.
122. The decision in CIT v. I.M. Patel (31), is also relating to imposition of penalty Under Section 271(1)(a) of the Income Tax Act, 1961, and follows the principle laid in Gujarat Travancore Agency's case (supra).
123. The decision in Director of Enforcement v. Ms MCTM Cap. Pvt. Ltd. (31), has been referred to in the Mutha Prem Raj's case. Said case had arisen in particular scheme of FERA. The question was whether two separate and independent penalties are envisaged for breach of Section 10 (1) and 10 (2). Keeping in view the object and purpose below the substantive obligation cast on recipient of Foreign Exchange in India to rapatriate the same within reasonable time and keeping in view that penalty followed the breach in absolute term, the Court held that non repatriation within reasonable time Under Section 10(1) and not responding to directions issued Under Section 10(9) constituted distinct and separate breaches inviting separate penalties. Sub-section (2) of Section 10 was not a provision requiring opportunity of hearing before imposing penalty Under Section 10(1). However, in D.P. Metals case Supreme Court has specifically said that opportunity of hearing required to be given before imposition of penalty for default Under Section 78 of the Act, 1994, is an opportunity which the defaulter can avail to produce correct and genuine document before the authority concerned. This judgment resulted in an altogether different statutory scheme cannot be applied in the present case as it has to be decided on the basis of statutory scheme of Act under which the penalty is imposable.
124. Reference to Divisional Personnel Officer Southern Railway v. T.R. Challappan (32), in the first place was inapt as it related to service matters, a field vastly different from taxation. Secondly, it took notice of the ratio only partially by ignoring the full impact of the decision. The Apex Court was considering the ambit and scope of proviso (a) to Article 311(2) which envisage dismissal of a civil servant without holding an enquiry as contemplated in substantive provision contained in Article 311(2) where he is convicted of a criminal charge. While holding that Departmental Enquiry is not a criminal proceeding, the Court further held that dismissal from service is not automatic. Yet the court held that order of dismissal does not automatically follow conviction on criminal charge. The proviso is merely enabling provision and does not enjoying the disciplinary authority to impose extreme penalty of dismissal in every case of conviction say for trivial offences or technical offences not involving moral turpitude. In fact, the Supreme Court said that before imposing any punishment, which is not of criminal nature, entire conduct of the delinquent has to be considered. This is apparent from the following excepts from the judgment:
'(1). - Looking to provisions of Article 311(2) proviso (a) and Rule 14(i) it is fallacy to presume that conviction of delinquent employee simplicitor without anything more will result in his automatic dismissal or removal from service.
(2) - That there should be active application of mind by the disciplinary authority after considering entire circumstances of the case in order to decide nature and extend of penalty to be imposed on the delinquent employee on his conviction on criminal charge. This matter can be objectively determined only if the delinquent officer is given a chance to satisfy the authority regarding the final orders that may be passed by the said authority.
(3) - This provision confers power on disciplinary authority to decide whether in the facts and circumstances of a particular case what penalty, if at all, should be imposed on the delinquent employee. In considering the matter disciplinary authority will have to take into account the entire conduct of the delinquent employee, the gravity of misconduct committed by him the impact which his misconduct is likely to have on the administration and other extenuating circum- stances or redeeming feature, if any, present in the case and so on and so forth.'
125. Thus, the Court clearly indicated that notwithstanding there being a conviction on criminal charge, it being lawful to impose penalty of dismissal by the departmental authority, the question of mens rea in the sense it is used in the context of criminal offence being not relevant still it may not be imposable in the facts and circumstances of the case. Notwithstanding the fact of conviction on criminal charge being uncontrovertable, and condition for invoking clause (a) of proviso to Article 311(2) having come into existence, it was held to be within the discretion of the Disciplinary Authority to impose the penalty of dismissal, or lesser penalty or no penalty at all, the gravity and nature of conduct which led to conviction remained the guiding factor in exercise of the discretion.
126. This principle, enunciated under service jurisprudence, if at all, it supports the contention that penalty provision, though not criminal in nature, in all cases the breach of statutory provision, penalty imposable need not necessarily follow in absolute term in all cases. The provision being enabling one, power must be exercised with discretion on relevant consideration after giving an opportunity of hearing to the defaulter, it is not an empty formality. The conduct of the delinquent and object of punishment as an Administrative necessity are relevant consideration. It also dispels the doubt if any that even in case of conviction on criminal charge, the penalty of dismissal to be imposed in domestic proceedings, though not criminal in nature, is not automatic in absolute term but discretion to use enabling power has to be exercised on findings having nexus with object for which penalty is imposable.
127. The provision with which we are concerned has direct nexus with the avoidance or evasion of tax. In such event, the earlier as well as latest decisions of Supreme Court say in no uncertain terms that where the object of the provision is to check and prevent avoidance or evasion of tax, the order levying penalty must record a finding that nexus between the breach and the avoidance or evasion of tax resulting from such breach was established. At the cost of repetition, we may notice that, in fact D.P. Metal's case also, the Court observed false and forged documents and non production of document even after opportunity was offered implies the dishonest intention and that opportunity of hearing provided under the Act is only to enable the person concerned to discharge the obligation about production of requisite documents within the time allowed by the authority, therefore, if bona fide and genuine documents are produced before the authority containing correct information within the time allowed by it, that is the end of the matter. However, if within the time allowed, the person concerned fails to produce the relevant documents which are produced and found to-be false of forged or incorrect, penalty becomes imposable.
128. Once the distinction between honest and dishonest conduct is required to be made, then in the cases where the requirement of law is unfulfilled bona fide and genuinely, the discretion is not to be exercised for imposing the penalty merely because it is lawful to do so when such breach was complete, in the first instance. But in case, the conduct is found to be contumacious dishonest or wanton, it no more remains a bona-fide, technical or venial breach of provision, but becomes a serious matter and penalty must be imposed.
129. In fact, there has been consistent view that on substantive plateau, penalty is different from tax in its nature so much so that no penalty can be levied without specific provision by merely extending machinery provision generally. Where substantive and independent provision has been made for imposition of penalty, extension of machinery provision relating to assessment has been held to include within it the proceedings for levy of penalty also as machinery for levying penalty as an additional tax. But provision of charging tax does not by itself include authority to levy penalty with reference to general machinery provision to sustain imposition of penalty as an additional tax.
130. In this connection, we may notice the decision of Supreme Court in Khemka's case (33). Central Sales Tax Act, 1956 originally did not by itself contain provision for imposition of penalty in certain matters. Under Section 9 of the Central Sales Tax Act, machinery provision of respective General Sales Tax Laws of State were made applicable to assessment of tax under CST Act. The authorities under State laws sought to levy penalty for default in payment of tax in time, as was leviable under the State law on the ground that since provision of assessment have been extended, the penalty leviable under State enactments can be imposed for like breaches of provisions of Central Sales Tax. Act. The contention was implicitly founded on the premise that the penalty is an additional tax that could be assessed with reference to the provision for assessment of tax.
131. The Court did not countenance the stand taken by the Revenue as there was no legislative sanction to impose penalty for default in payment of tax under the CST Act, as was the case of State Act. The Court emphasised requirement of independent enactment of substantive provision authorising levy of penalty, independent of extending machinery provision. It was said:
'The deeming provision in the Central Act that tax as well as penalty levied under the Central Act will be deemed as if payable under the General Sales Tax Law of the State cannot possibly mean that tax or penalty imposed under any State Act will be deemed to be taxed or penalty payable under the Central Act.'
132. The Court reasoned that
'in the absence of any specific provision for imposition of penalty for such default in Central Act, the provision for imposition of penalty for such defaults in State Sales Tax Acts are not attracted and hence no penalty could be levied under the State Sales Tax Act.'
133. Subsequent to this decision, by retrospective amendment the lacunae in CST Act was removed by amending the Central Act, 1976, retrospectively the validity of which was upheld by the apex court in Shivdutt Rai Fatehchand v. U.O.I. (34).
134. The Division Bench of this Court in Lalji Mulji as noticed above, also did not accept the penalty as merely as additional tax, not different from tax, when it said that the penalty provision cannot be used as revenue yielding provision.
135. In view of above discussion, the foundation of Mutha Prem Raj's case that penalty is only additional tax and not different from it for all purposes, cannot be accepted as stating the law correctly.
136. In fact, a consistent thread of linking the penalty with dishonest or contumacious conduct is perceptible, in most of the decisions referred to by the learned Single Judge in his judgment wherever penalty is imposed for the breach of procedure required of furnish information. It is perhaps overlooked by over emphasising the fact that mens rea need not in all cases be present, because proceeding for penalty is distinct from the criminal liability and on the assumption that penalty and tax are not disntinguishable concept but penalty is only an additional tax in all circumstances and like in levy of tax, the conduct of assessee is immaterial for levy of penalty also, the conduct and the circumstances in which the breach has been committed are immaterial before the authority exercises its jurisdiction to levy penalty.
137. In C.A. Abrahim's case (supra), also, the Supreme Court did say that substantially the penalty is an additional tax imposed on person in view of his dishonest or contumacious conduct while holding the procedure for imposition of penalty as a part of the machinery included in the expression 'assessment' of liability under the IT Act as an additional tax, the liability to pay additional tax is penalty of the assessee.
138. The same view was reiterated in Bhikaji Dadabhai's case (supra).
139. In the Cement Marketing Co. of India Ltd. v. The Asstt. Commissioner of Sales Tax, Indore & Ors. (35), the Apex Court said while considering the provisions of M.P. Central Tax Act that imposition of penalty is penal in character and unless the filing of an inaccurate return is accompanied by a guilty mind, the Section cannot be invoked for imposing penalty. If the contrary view is taken, the result would be that even if the assessee raises a bonafide contention that a particular item is not liable to be included in the taxable turnover, he would have to show it as forming part of the taxable turnover in his return and pay tax upon it on pain of being held liable for penalty in case his contention is ultimately found by the Court to be not accepted.
140. Again the Supreme Court in M/s. Shivduttraj Fateh Chand and M/s Om Prakash Sheo Prakash & Ors. v. Union of India & Anr. (36), said that the degree of remissness involved in the default is a relevant factor to be taken into account while levying penalty.
141. In Central India Motors v. C.L. Sharma, Asstt. Commissioner of Sales Tax, Indore Region, Indore and Anr. (37), while holding that penalty under a fiscal law cannot be equated with a criminal offence, so as to attract inhibition under Article 20 against making an act or offence retrospectively, the Court clearly observed that:
'imposition of penalty under a fiscal law requiring payment of an extra sum of money is in reality a requirement of an additional tax imposed upon a person in view of his dishonesty and contumacious conduct.'
142. Thus, while distinguishing penalty provision from criminal proceedings, dishonest or contumacious conduct was considered to be a normal ingredient of penalty provisions unless in the very scheme of the Statute authorising levy of penalty can be assumed to be absolute in terms, without any defence possible, which may not even require a show cause notice before levy of penalty.
143. Madras High Court in Vijay Electricals v. State of Tamil Nadu (38), is a case in which information furnished by the person by way of declaration in 'C' form was found to be false; which carry with presumption of dishonesty and contumacious conduct. Hence, independent of falsity of information, no separate mens rea was required to be proved. It was not a case of a violation which was bona-fide mistake and not contumacious. In fact, the Court found that the plea of bona-fidc was unsustainable because the declaration was found to be false. Apparently falsity and bona fide do not stand together.
144. The aforesaid principle too is in line with the Supreme Court decision in Hindustan Steel Ltd.'s case and other cases noticed above that penalty is not necessary to be imposed in all cases. It need not necessarily be imposed where the breach complained of statutory provision is venial or technical in nature. Obviously this refers to the degree of remissness in the breach of statutory provision. An obligation to furnish required information, as part of collecting relevant material for giving effect to the fiscal statute, if breached bona fide but obligation is fulfilled on opportunity being granted, the breach remains venial or technical in nature, the object of statutory requirement having been fulfilled. On the other hand, if breach is contumacious or dishonest, it cannot be considered a venial or technical breach, and penal consequence can neither be avoided nor mitigated.
PROVISIONS TO BE CONSIDERED IN THE CONTEXT OF THE SCHEME OF STATUTE AND NOT ON ABSTRACT PRINCIPLE:
145. The guiding factor in considering the material which should go in consideration before levying penalty and which has been referred to by the learned Single Judge was stated by Wright, J. in Sherras v. De Ruten (39), wherein it was observed as under:-
'.....In order to find out whether mens rea i.e. A guilty mind is an ingredient or not, reference has to be made to the language of the enactment, the object and subject matter of the statute and the nature and character of the Act sought to be punished.'
146. The same principle was stated in N.K. Jain v. C.K. Shah (40), wherein the Court said about construing penal provision in any statute as under:
'It is true that all penal statutes should be constrained strictly and the Court must see that the things charged as an offence is within the plain means of the words used but it must also be borne in mind that context in which the words are used is impartial. The legislative purpose must be noted and statute must be read as a whole.'
147. Considered in the above light, the provisions of Section 22A of Act, 1954 are to be read keeping in mind the object with which it has been enacted to check and prevent evasion and avoidance of Sales Tax leviable within the State. In the context levy of penalty, it must also have a nexus to the object for furtherance of which it is being levied.
148. It may be that in some cases, it becomes irrelevant to hold an enquiry except to final factum of non compliance because of nature and the object with which the penalty provisions have been made, for example, the provision for confiscation of vessel which was found in Indian water and which was not conforming to description prescribed Under Section 52-A of Sea Custom Act, in Indo-china Steam Navigation case was found to be absolute but imposition of penalty in lieu of confiscation was found to be vesting in the discretion of the authority. Similarly, the levy of penalty for late filing of return which was found to be compensatory in nature was held to be absolute in Gujarat Travancore's case (supra); and another decisions Under Section 271(1)(a) of the Income Tax Act, 1961. However, in Swastik Roadway's case, where the Court found that the provisions under the M.P. Sales Tax Act empowering the Commissioner to require agent or broker to submit information about the transactions was with the object to check and prevent evasion of tax and failure to submit such information on requisition was made punishable with different levy of penalty, equal to three times the tax on those transactions, about which the information was not furnished, the Court looking to the object with which the provision for penalty was made, held that it clearly communicated that in such cases, nexus between the alleged breach of statutory provision and the evasion or avoidance of tax is to be established before levying the penalty.
149. The present case is in the genre of Swastic Roadways's case.
150. A great deal of emphasis has been laid on providing detrimental penalty to dishonest dealers and it is indicated that those who adventures into producing false or forged documents, does not deserve consideration. However, if one has to consider the fact of falsity or forgery of information given or document produced, it brings with it an element of deliberateness with it. We have referred to the decision of Apex Court in Anwar Ali's case (supra). The Supreme Court had said in Cement Marketing Co. of India v. Asstt. Income Tax Commissioner (supra), that a return cannot be said to be false unless there is an element of deliberateness in it.
151. The principle was restated very recently in K.C. Builder v. C.I.T. (41), that it is implicit in the word concealment that there has been a deliberate act on the part of the assessee. The omission of word 'deliberate' from the Statute Book was held to be of little consequence.
152. As the decision in Mutha Premraj case is founded on erroneous assumption about the tax being additional tax in absolute terms and consideration of dishonest or contumacious conduct to be irrelevant in all circumstances for imposing penalty, contrary to the decisions rendered by the Supreme Court in D.P. Metal's case and R.S. Joshi's case as well as Hindustan Steel Ltd.'s case referred to above and Division Bench judgment of this Court in Lalji Moolji's case, and which do not run contrary to the earlier decisions of this Court and in view of recent decision of Supreme Court in Swastic Roadway's case, it cannot be held to be laying down the law correctly.
[bl SHIV SHAMBHU'S CASE (42) :
153. The Single Bench decision in Shiv Shambhoo's case (supra), followed the decision rendered in Mutha Premraj's case and therefore, for the reasons stated above, the same also cannot be considered as laying down the principles correctly.
154. However, we may notice that while referring to the decision of the Su- preme Court in Hindustan Steel Ltd., the Court in Shiv Shambhoo's case has said that 'because the Supreme Court has ultimately come to the conclusion that it is unable to decide the appeals unless additional statements of facts are brought on record, the Court was considering the question in the absence of complete statement of facts and the observations were made 'Broadly'. Thus, nothing could be decided in the absence of facts required to be submitted............it would not be inferred that the law has been given final shape in the decision.'
155. With utmost respect, this, in our opinion is complete misreading of the decision.
156. The Supreme Court has laid down the principle which is to be applied by the concerned authorities while determining the question of levy of penalty where breach of obligation under the statutory provisions has been complete and the Assessing Authority has levied the penalty without further determining the nexus of breach of the object of the provision imposing obligation and providing consequence of breach of such obligation. In other terms the Assessing Authority has considered the liability to penalty in absolute term, which must be followed mandatory irrespective of the conduct of the defaulter. The Tribunal has reduced the penalty. In appeals before the Supreme Court, the questions which fell for consideration were related to both liability of the assessee to be taxed under Sales Tax Act and validity of imposition of penalty for failure to register.
157. The Court formulated three questions for its consideration as under :-
'In these appeals filed with special leave substantially three matters fall to be determine :
1. Whether the company sold building material to the contractors during the quarters in question ?
2. Whether the company was a dealer in respect of building material within the meaning of the Orissa Sales Tax Act?
3. Whether imposition of penalties for failure to register as a dealer was justified?'
158. The third question related to penalty. The Court in the first instance said :
'Solution to first and third matter does not present much difficulty.'
159. The first question was decided by holding that there was concurrence of four elements that constitute the sale.
160. Third question was also decided in the manner noticed above by holding that no case for holding penalty was made out.
161. However, while considering the second question 'whether the company was a dealer', the Court has made the observation referred to by learned Single Judge in Shiv Shambhu's case, pointing out that the facts necessary for dealing with said issue have not been stated and important piece of evidence has not been referred to by the Tribunal or the High Court, which necessitated the remand only to secure finding on fact whether the appellant has charged any profit, apart from the storage charges for supplying cement and structural steel, and whether difference between the price paid or price charged represents storage charges.
162. In fact, question about imposition of penalty was answered in negative specifically as noticed above. It cannot by any stretch of imagination be found not deciding the principle governing the levy of penalty for breach of statutory obligation by drawing distinction between breach simplicitor without nexus with the object of the provision, which is not in deliberate defiance of law nor as a result of dishonest and contumacious conduct on the one hand, and on the other hand breach of obligation which is in deliberate defiance of law or dishonest or tainted with contumacious conduct.
163. The judgment in Hindustan Steel Ltd. could not have been ignored and its binding force under Article 141 could not have been belittled and whittled down.
164. The reference to the decision in Haryana Financial Corporation (43), which arose in the context of exercise of power of State Financial Corporation Under Section 29 does not afford any parallel to the controversy at hand for ignoring the decision in Hindustan Steel Ltd.
165. Be that as it may, without repeating in detail the reason for which we have regretted our inability to agree with, the single Bench decision rendered in Mutha Premraj's case (supra), since the decision in Shiv Shambhoo's case which follows M/s Mutha Premraj's case suffers from the same infirmity and cannot be held to be laying down the principles correctly in the matter of exercising the jurisdiction in levy of penalty for breach of provisions of Section 22-A of the Act, 1954 or for that matter, Section 78 of the Act, 1994.
166. From the above discussion, it emerges that the consistent view of the Supreme Court and of this Court (apart from the two single bench decisions in Mutha Premraj's case and Shiv Shambhu's case) is that where a provision has been made with an object to check and prevent evasion and avoidance of tax and certain thing is required to be done by any person for furnishing certain information in furtherance of the statutory provision and the time is fixed, therefore, the breach is committed if at the relevant time the requisite information is not supplied or document is not produced. And such non compliance of the statutory provisions is visited with the penalty which is required to be imposed after affording an opportunity of hearing. The opportunity of hearing is meant to find-out the existence of nexus between the object of preventing and checking evasion and avoidance of tax and breach complained off, to give an opportunity to the defaulting party to furnish or to produce relevant information or documents bona fide and correctly. If he has done that, then the penalty is not imposable. However, if the information furnished at the relevant time or within time allowed by affording an opportunity of hearing turns out to be false or incorrect or the documents produced are found to be false or forged, or in-spite of making available such opportunity, the information is not furnished or documents are not produced, the finding is recorded by drawing inference that the conduct of the person acting in breach of such duty to furnish information or to produce documents is not bona-fide but is dishonest and contumacious having nexus to evasion or avoidance of tax. Penalty in such event becomes imposable. The decision rendered in Hindustan Steel's case (supra), D.P. Metal's case (supra), R.S. Joshi v. Ajit Mills (supra), Swastik Roadway's case (supra), and Lalji Mulji's case (supra), and other decisions as discussed above are not contrary to the principle laid down by this Court in Mahaveer Conductor's case (supra), Voltas Ltd.'s case (44), and Jinendra & Co.'s case (supra).
167. In the Swastik Roadways case, the Supreme Court after considering the case in D.P. Metal's case has clearly pointed out that where the object of the provision is to prevent evasion and avoidance of tax and the consequence of the non-compliance of the provision is to be visited with deterrent penalty, and reasonable opportunity is to be afforded before levy of penalty, the finding has to be recorded about existence of nexus between defaulter and the evasion or avoidance of tax, before penalty is actually imposed. This, in our opinion, is true import of all the decisions referred to above and is guiding factor that how and in what manner, the power conferred under the Statute for levying the penalty for not complying with the provisions of Section 22-A of the Act, 1954 or for that matter, Section 78 of the Act, 1994 has to be exercised by the Assessing Authority with discretion.
168. In the present case, as per the facts found by the Tribunal and about which there is no dispute that the requisite documents were sent by the petitioner with the goods and delivered to the Driver. The Driver for some reason had not produced these documents at the time of checking, but the same were found at that very time from the possession of the Driver accompanying with goods. Thus, the requisite documents were accompanying the goods in transit. The said documents are not found to be false or forged. In these circumstances, it is apparent that neither the goods were being carried unaccompanied with requisite documents nor the petitioner has committed any default or breach of the statutory obligation imposed upon him to furnish requisite documents to the carrier to be delivered at the time of the checking. The fact that the Driver has not shown the documents which were given to him for some reason cannot make the petitioner guilty of breach of statutory obligation placed on him. It may be apposite to circumstance noticed by Rajasthan Sales Tax Tribunal that perhaps penalty is the outcome of the fact that ACTO felt offended by the attitude of drivers. In the circumstances, the conduct of the petitioner cannot be considered as dishonest or contumacious nor any link with evasion or avoidance of tax has been found.
169. Consequently, notwithstanding that the Driver has failed to show the Bill accompanying the goods at the time of checking but it was recovered from his possession, which rules out the possibility of document being subsequently prepared and was not found to be incorrect or not genuine, no nexus between the breach and object of the provision viz. Evasion or avoidance of tax is established, the principle in Swastik Roadway's case (supra), fully governs the facts of this case. Consequently, the order imposing penalty as sustained by the Rajasthan Taxation Tribunal under challenge cannot be sustained.
170. The writ petition is allowed. The order of the Rajasthan Taxation Tribunal dated 1.1.1998 along with orders of Assessing Officer dated 16.11.1990 and Dy. Com- missioner (Appeals) dated 7.1.1991 are quashed and the order passed by the Rajasthan Sales Tax Tribunal dated 31.3.1993 is restored by which the penalty levied Under Section 22-A (7) of the RST Act was set aside.
171. No costs.