SC ruling on whether mens rea is required for the imposition of a fine under tax legislation
Fact and issue of the case
Feeling aggrieved and dissatisfied with the impugned judgment and order dated 04.08.2016 passed by the High Court of Gujarat at Ahmedabad in Tax Appeal No. 1283/2006, by which, the Division Bench of the High Court has set aside the penalty and interest levied under subsection (6) of Section 45 of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as the Act, 1969), the State of Gujarat has preferred the present appeal.
The respondent company assessee is engaged in the business of executing indivisible works of undertaking contract of coal tar and enamel coating on pipes. The respondent assessee had opted for payment of lumpsum tax as provided under Section 55A of the Gujarat Sales Tax Act, 1969. The respondent assessee deposited tax at the rate of 2% on sales involved in the execution of works contract of coating of pipes by treating the same as civil works contract as prescribed in Entry1 of the notification dated 18.10.1993 issued by the Government of Gujarat. The Assessing Officer (AO) vide order dated 30.03.2005 for assessment year (AY) 200203 held that the contract of coating of pipes is not a civil works contract and therefore, the composition amount is payable not at the rate of 2% as deposited by the respondent but it falls under Residuary Entry8 to the notification dated 18.10.1993. The AO raised the total demand as under: –
|Intrest u/s 47 (4A)||1,04,56,181/-|
|Penalty undersaction 45(6)||1,41,93,312/-|
The assessee preferred a first appeal before the First Appellate Authority i.e., Joint Sales Tax Commissioner. By order dated 30.07.2005, the First Appellate Authority dismissed the said appeal. The assessee approached the Gujarat Value Added Tax Tribunal by filing Second Appeal No. 820/2005. The learned Tribunal vide order dated 29.09.2006 dismissed the appeal and confirmed the orders passed by the AO as well as the First Appellate Authority and thereby confirmed the aforesaid demand of difference in tax as well as the levy of interest under Section 47 (4A) and penalty under Section 45(6) of the Act, 1969. The assessee preferred a further appeal before the High Court being Tax Appeal No. 1283/2006. Before the High Court, the learned Senior Advocate appearing on behalf of the assessee fairly conceded that looking to the fact that the authority has passed the assessment order on the basis of material available with it, they were required to pay the tax on the basis of 12% and that has been paid by the assessee since the opinion of the expert was turned out, however, the respondent – assessee restricted the appeal to the extent of challenging the levy of penalty and interest only by submitting that the assessee was under a bonafide belief that the works contract of the assessee would fall under Entry1 requiring payment of tax at the rate of 2% only. Reliance was placed on the decision of the High Court in the case of Brooke Bond India Limited Vs. State of Gujarat; 1998 JX (Guj) 128 and it was prayed that the imposition of penalty and interest not be upheld. By the impugned judgment and order, the High Court has set aside the penalty and interest on the ground that the assessee was under the bonafide opinion and following the advice, paid the tax at 2% and that thereafter, when the enhanced tax as imposed has already been paid by the assessee, the penalty and interest is not required to be paid by the assessee. The High Court allowed the appeal to the aforesaid extent, deleting the penalty and interest levied under Section 45(6) and Section 47 (4A) of the Act, 1969.
Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court whereby the penalty and interest has been set aside, the State has preferred the present appeal.
Ms. Aastha Mehta, learned counsel has appeared with Ms. Deepanwita Priyanka, on behalf of the State.
Ms. Mehta learned counsel appearing on behalf of the State has vehemently submitted that in the facts and circumstances of the case, the High Court has committed a serious error in deleting the penalty and interest levied under Section 45(6) and Section 47(4A) of the Act, 1969.
It is further submitted that while deleting the penalty, the High Court has not at all considered subsection (6) of Section 45 of the Act, 1969 in its true spirit.
It is next submitted that the High Court has not properly considered the fact that the penalty leviable under Section 45(6) of the Act, 1969, is a statutory penalty and hence, is compulsorily leviable.
Observation of the court
In so far as the reliance placed by the learned counsel on behalf of the respondent – dealer on the decision of this Court in the case of Hindustan Steel Ltd. (supra) is concerned, at the outset, it is required to be noted that the learned Tribunal specifically found that there was nothing on record to prove that there was in fact a bonafide belief of the respondent herein, that it would be required to pay tax at 2% only. As observed hereinabove and on plain reading of Section 45 and Section 47 of the Act, 1969 and as observed hereinabove, on the eventualities occurring under subsection (5) of Section 45, there shall be levied penalty mentioned in subsection (6) of Section 45 and the liability to pay the interest is incurred as mentioned in Section 47(4A). The impugned judgment and order passed by the High Court on the grounds that the amount of tax has already been paid by the assessee – dealer; that the assessee – dealer was under the bonafide belief that it was liable to pay the tax at the rate of 2%, is unsustainable. None of the aforesaid grounds would justify deletion of the penalty and interest leviable/payable under Section 45(6) and Section 47(4A) of the Act, 1969. As observed hereinabove, in the case of Shriram Mutual Fund (supra), this Court distinguished the decision in the case of Hindustan Steel Ltd. (supra) and even set aside the order passed by the Tribunal which was relying upon the decision in case of Hindustan Steel Ltd. (supra).
In view of the above and for the reasons stated above, the present appeal succeeds. The impugned judgment and order passed by the High court is hereby quashed and set aside. The order(s) passed by the Assessing Officer confirmed up to the Tribunal to levy penalty and interest under Section 45(6) and Section 47(4A) of the Act, 1969, are hereby restored. Present appeal is accordingly allowed. In the facts of the case, there shall be no order as to costs.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
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