Supreme Court of India
M/S. BHARJATIYA STEEL INDUSTRIESversusCOMMISSIONER, SALES TAX, U.P.
- Citation
- 2008 INSC 313
- Decided
- 5 March 2008
- Disposal
- Dismissed
- Bench
- S B SINHA
Holding
The penalty was rightly imposed because the appellant acted with mens rea, and the authority’s discretion to levy penalty under Section 4‑8(5) was correctly exercised.
Summary
Mis. Bharjatiya Steel Industries, a manufacturer of steel ingots, purchased iron scrap at a concessional tax rate under a recognition certificate granted by the Uttar Pradesh Trade Tax Act. In the assessment year 1985-86 it bought 2,532.989 MT of scrap and later sold about 10% of it to other dealers, claiming the material was unfit for use, thereby breaching its undertaking to utilize the entire quantity for manufacturing. The assessing authority levied a penalty under Section 4‑8(5) of the Act, finding that the appellant had knowingly sold the scrap to evade tax. The Tribunal set aside the penalty, holding there was no mens rea; the High Court reversed that decision and reinstated the penalty. The Supreme Court upheld the penalty, concluding that the appellant’s conduct demonstrated mens rea and that the authority’s discretionary power to impose penalty required proof of such intent. Consequently, the appeal was dismissed.
Issues considered
- The penalty under Section 4‑8(5) of the Uttar Pradesh Trade Tax Act requires proof of mens rea.
- Whether the appellant’s sale of 10% of the purchased scrap constitutes a breach of the undertaking and attracts penalty.
- Whether sub‑section (a‑1) of Section 4‑8 permits sale of the material to another recognized dealer without penalty.
- Whether the assessing authority’s discretion to levy penalty mandates consideration of mens rea.
Legislation cited
- Sales Tax Acts. 48(6)
Subjects
penaltymens reaUttar Pradesh Trade Tax Actrecognition certificateconcessional taxsale of raw materialtax evasiondiscretionary authoritystatutory interpretation
Judgment
(2008] 3 S.C.R. 1165
• MIS. BHARJATIYA STEEL INDUSTRIES A
f.c-
\/.
COMMISSIONER, SALES TAX, U.P.
(Civil Appeal No. 1768 of 2008)
MARCH 5, 2008
B
·I-
[S.B. SINHA AND V.S. SIRPURKAR, JJ.]
~
Uttar Pradesh Trade Tax Act: s.48(6) - Penalty -
Imposition of, when assessee sold raw material purchased by
it to other manufacturers - Iron scrap purchased by assessee c
in P.Ublic auction on "as is where is basis" for manufacturing
steel ingots at concessional rate of duty - Undertaking to the
effect furnished that entire scrap would be utilized for
manufacturing purposes - 10% of such scrap sold by
assessee to other dealers at concessional rate of duty, on the
..._. D
ground that it was not fit for use - Imposition of penalty by
• authorities - Correctness of - Held: Penalty rightly imposed -
Existence of mens rea on part of assessee was evident - No
information furnished by assessee as to when it sold the goods
and what was consumption during relevant period - It was
obligatory on the part of assessee to furnish proof in regard to E
its inability to use it for manufacturing purposes as it had special
knowledge in regard thereto - Find~ng of fact also arrived at
by authorities that assessee sold goods knowingly - In facts
+ and circumstances, no case made out for interfering with the
order of imposition of penalty. F
Penalty- Existence of mens rea - Relevancy of- When
discretion is conferred upon adjudicatory authority and when
discretion is not conferred thereupon - Distinction between.
Appellant-assessee had been purchasing iron scrap G
in pubic auction for the purpose of manufacture of steel
ingots. It was accorded recognition under s.4-8(2) of U.P.
I-
Trade Tax Act, in terms thereof it became entitled to
purchase raw material at concessional rate of duty. In
1165 H
1166 SUPREME COURT REPORTS [2008] 3 S.C.R.
4
A 1985-86, it purchased lots of iron scrap on "as is where is
-<
basis". Assessee sold 10% of the scrap to other dealers
at a concessional rate of duty on the pretext that it was
not fit for use. The Assessing Officer imposed penalty on
assessee on the ground of breach of the undertakings
B given by assessee to utilize the entire material for
manufacturing purposes. Deputy Commissioner upheld ...
the order of assessing Officer. On appeal, the tribunal held
~
that there was no mala fide on the part of assessee, hence
no penalty was imposable under s.48(6) of the Act.
Department filed revision petition before the High Court
c which was alloW;ed. Hence the present appeal.
Dismissing the appeal, the Court
HELD: 1.1. Sub-section (a-1) of s.4-B of the U.P. Trade
Tax Act would not be attracted. In a case of this nature
D where a tax benefit had already been granted to a dealer, f..
a further tax benefit cannot be granted in case he violates
..
the condition of certificate. [Para 13] [1176-G; 1177-A]
1.2. Sub-section (5) of s. 4-B of the U.P. Trade Tax Act
E is in two parts. Penalty is levied if the goods have been
utilized for the purpose other than that for which the
recognition certificate was granted or the dealer
otherwise had disposed of the said goods. The statutory
provision speaks of penalty and not duty. The stage of
realization of the duty was over. Only penalty could be
F levied. Levy of penalty, ordinarily, unless there exists any
statutory interdict, requires proof of mens rea. [Para 14]
[1177-B, C, D]
Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627;
G R.S. Joshi, S. TO., Gujarat v. Ajit Mills Ltd. and Anr. (1977) 4
sec 98 - held inapplicable.
1.3. The question as to whether mens rea is an
1
essential ingredient or not will depend upon the nature of
the right of the parties and the purpose for which penalty
H is sought to be imposed. A distinction must also be borne
MIS. BHARJATIYA STEEL INDUSTRIES v. 1167
COMMISSIONER, SALES TAX, U.P.
• in mind between a statute where no discretio_n is A
k
conferred upon the adjudicatory authority and where
such a discretion is conferred. Whereas in the former case
the principle of mens rea will be held to be imperative, in
the latter, having regard to the purport and object thereof,
it may not be held to be so. Lt, therefore, cannot be B
,,_ contended that under no circumstances, absence of mens
rea would not be a plea for levy of penalty. An assessing
~
authority has been conferred with a discretionary
jurisdiction to levy penalty. By necessary implication, the
authority may not levy penalty. If it has the discretion not
to levy penalty, existence of mens rea becomes a relevant
c
factor. [Paras 17-19] [1180-C, D, E, F; 1181-G; 1182-A]
2.1 The appellant was liable to be imposed with a
punishment. The authority did not say that the duty which
A;
was otherwise due from the appellant would be realized. D
• However, in the facts and circumstances of this case,
existence of mens rea on the part of the appellant is
evident. Ordinarily a dealer must abide by the undertaking
given by it. If it is not in a position to comply with the
requirements contained in the statute, it is expected that
E
it would inform thereabout to the assessing authority. It
purchased the goods in the assessment year 1985-86. It
did not disclose as to when it sold out the goods. What
was its consumption during said assessment year or the
... next assessment year had not been disclosed. A finding
of fact has been arrived at that the dealer had not F
furnished any proof in regard to its inability to use it for
manufacturing purposes. It was obligatory on the part of
the appellant as it has special knowledge in regard thereto
to show as to why the entire quantity of goods could not
b~ utilized. A finding of fact has also been arrived at by G
the assessing authority that the vendee had utilized the
,__ self-same goods for manufacturing. 10% of the purchased
goods, namely, 2532.989 M.T. is not such which could be
ignored by the assessing authority. Although duty was
payable thereon, it may be that the auction of lots was on H
1168 SUPREME COURT REPORTS (2008] 3 S.C.R.
A "as is where is basis", the same would not mean that a
part of it could not be melted for manufacturing the ingots.
If that was the position, it could have informed the
authorities in.that behalf even prior to affecting the sale
to a third party. Moreover, the assessing authority as also
B the appellate authority had held that the appellant sold
the goods knowingly and, it must, therefore, be inferred
that the finding in regard to mens rea had also been
arrived at. In the facts and circumstances of this case,
no case has been made out for interfering with the
c impugned judgment. [Paras 20-24] [1182-D, E, F, G, H;
1183-A, 8, C, D, E]
CIVILAPPELLATE JURISDICTION : Civil Appeal No. 1768
of 2008.
From the final Judgment and Order dated 01.04.2004 of
0
the High Court of Judicature atAllhabad in Sales Tax Revision ,.
No. 1453 of 1993.
Puneet Jain, Sushi! Kumar Jain, Christi Jain, H.D. Thanvi,
Piyush Jain and Pratibha Jain for the Appellant.
E Ga.urav Banerjee, Manoj Kr. Dwivedi, Vandana Mishra and
Gunnam Venkateswara Rao for the Respondent.
The Judgment of the Court was delivered by
S.8. SINHA, J. 1. Leave granted.
F
2. Appellant manufactures Steel Ingots. It purchased iron
scrap from the Railways in public auction. Iron scrap is melted
and converted into the finished products. Appellant had been
accorded recognition under Section 4-8 (2) of the U.P. Trade
G Tax Act (for short "the Act") in terms whereof it became entitled
to purchase raw-materials for manufacturing purpose at a
concessional rate of tax. In the year 1985-86, it purchased
2532.989 M.T. of iron scrap. Allegedly, the lots contained various i
categories of iron scraps as it was purchased on "as is where
H is basis". Appellant allegedly was not allowed to sort out the
M/S. BHARJATIYA STEEL INDUSTRIES v. 1169
COMMISSIONER, SALES TAX, U.P. [S.B. SINHA, J.]
scrap at the time of purchase as the conditions specified therein A
were:
"1. The material will be sold of "AS IS WHERE IS" basis.
2. No sorting, picking whatsoever under any circumstances
will be allowed. B
3. The purchaser will be required to take delivery of the
material from the lots.
4. The purchaser should inspect the lots prior to the
auction ... " c
3. Appellants stated that about 9.47% of the total amount
of scrap purchased, i.e., 239.966 M.T., could not be utilized by
it. It sold the said goods to other dealers at a concessional rate
of tax.
D
Inter alia, on the plea that the appellant for the purpose of
obtaining the tax concession in terms of Section 4-8(2) of the
Act had furnished an undertaking whereby and whereunder it
undertook to utilize the entire material for manufacturing
purposes, which was breached by reason of the said transfer, a
proceeding for levy of penalty was initiated against it whereupon E
a show-cause notice was issued. Cause was shown by the
appellant on 5.03.1990 contending that the said quantity of scrap
being not usable, it had no other option but to dispose of the
same.
F
4. By reason of an order dated 26.03.1990, the assessing
officer rejected the said contention. It levied penalty of
Rs.85,619/- on the appellant.
5. An appeal preferred thereagainst before the Deputy
Commissioner (Appeals) was dismissed by an order dated G
8.02.1991. An appeal to the Tribunal preferred by the appellant
was, however, allowed by an order dated 29.04.1993, stating:
"6. Having given our deep consideration and anxious
thoughts to the rival submissions and perused the relevant H
1170 SUPREME COURT REPORTS [2008] 3 S.C.R.
A record, we feel that the Id. Authorities below have not
appreciated the facts of the case in right perspective. It is
not disputed that the scrap has been purchased by the
Appellant in lots from the railway, in which there remains
existence of several types of scrap. During the course of
8 arguments, the Id. Counsel produced copy of tender invited
by Railway Department. We have gone though this
document and we find that in general conditions of the
said document, there is specific mention in condition No.
..
1 that the material will be sold on "AS IS WHERE IS"
c basis and in condition No. 2, no sorting, picking
whatsoever under any circumstance will be allowed. It is
worth consideration that no purchaser can violate the
conditions of purchaser. The purchases have been made
in lots, in which different types of scrap exists, out of which
maximum usable scrap has been consumed by the
D
Appellant in the manufacture and only that type of scrap
was sold against the Form 3-8 which was not usable in
the unit of Appellant in any condition. In these
circumstances, to our mind, there appears no malafide on
the part of the Appellant, hence no penalty could be initiated
E against the assessee U/s 4-8(6) of the Act..."
6. Respondent preferred a revision petition thereagainst
before the High Court which has been allowed by the impugned
judgment dated 1.04.2004.
•
F 7. Mr. Puneet Jain, learned counsel appearing on behalf
of the appellant, in support of the appeal, inter alia would submit
(1) On a plain reading of the provisions of Section 4-8
of the Act, it is evident that in terms of Sub-section
G
(a-1) thereof, a dealer is entitled to sell the goods to
anoti1er;
(2) From a perusal of Sub-section (5) of Section 4-8 of
the Act, it would appear that a discretion has been
H conferred upon the authority to levy or not to levy
MIS. BHARJATIYA STEEL INDUSTRIES v. 1171
COMMISSIONER, SALES TAX, U.P. [S.B. SINHA, J.]
• penalty and in that view of the matter the High Court A
k
committed a serious error in opining that the principle
of mens rea has no application in the instant case
as for technical or venial breaches no penalty should
be levied particularly when the action of the assessee
does not defeat the very object for which the provision B
jt has been inserted.
. (4) In view of the fact that 90% of the scrap purchased
by the appellant has been utilized for the purpose of
manufacture of steel ingots, only because due to.
certain unavoidable reasons the rest 10% of it could c
not be utilized, the appellant could not be said to
have any mens rea in relation thereto.
8. \ Mr. Gaurav Banerjee, learned senior counsel appearing
on behalf of the respondent, on the other hand, would contend:
-\ D
• (1) In a case of this nature as no duty can be imposed,
the minimum penalty which has been prescribed
would amount to the duty payable to the State.
(2) The High Court, in a case of this nature, had ordinarily
been ordering levy of penalty only twice the amount E
of the duty keeping in view the fact that the dealer
admittedly has not utilized. the goods for
manufacturing purposes wherefor it had furnished
1· an undertaking.
F
(3) In any event, as the assessing authority and the
appellate authority had assigned sufficient and
cogent reasons for imposition of the penalty having ·
found that:
(i) it has not been proved that the goods were not G
suitable for manufacturing purposes;
~
(ii) the goods which were sold to another dealer
had been used by the vendee for manufacturing
. purposes;
H
1172 SUPREME COURT REPORTS [2008] 3 S.C.R.
~
A (iii) the appellant could have given an advance
intimation to the authorities pointing out its
genuine difficulty;
'
(iv) 10% of the total stock cannot be said to be a
miniscule portion which can be ignored by the
B authorities and, thus, there must be something
<t.
. more than which meets the eye; and
(v) In any event such a process of getting away in
..
regard to payment of duty should not be
c encouraged.
the impugned judgment should not be interfered
with.
9. Before embarking upon the rival contentions, as noticed
hereinbefore, we may notice the relevant part of Section 4-B of
D f-
the Act, which reads as under:
•
"4-8 - Specific relief to certain manufacturers - (1)
Notwithstanding anythi~g contained in Sections 3, 3-A, 3-
AAAA and 3-D-
E
(a) Where any goods liable to tax under sub-section (1) of
Section 3-D are purchased by a dealer who is liable to tax
on the turnover of first purchases under that sub-section or
where any goods are purchased by any dealer in
circumstances in which such dealer is liable to trade tax
F on purchase of such goods under Section 3-AAAA, and
the dealer holds a recognition certificate issued under
sub-section (2) in respect thereof, he shall be liable in
respect of those goods to tax at such concessional rate,
or be wholly or partly exempt from tax, whether
G unconditionally or subject to the conditions and restrictions
specified in that behalf, as may be notified in the Gazette
by the State Government in that behalf ;
1
(a-1) Where any declared goods liable to tax under sub-
section ( 1) of Section 3-D are sold or supplied by a dealer,
H
M/S. BHARJATIYA STEEL INDUSTRIES v. 1173
COMMISSIONER, SALES TAX, U.P. [S.8. SINHA, J.]
who is the first purchaser thereof, to another dealer, holding A
a valid recognition certificate under sub-section (2), in
respect thereof, the State Government may, subject to such
conditions and restrictions as may be specified by a
notification in that behalf, grant the same relief as mentioned
in clause (a) to such first purchaser: B
xxx xxx xxx
.,.
.
(2) Where a dealer requires any goods, referred to in sub-
section (1) for use in the manufacture by him in the State,
of any notified goods, or in the packing of such notified c
goods manufactured or processed by him, and such
notified goods are intended to be sold by him in the State
or in the course of inter-State trade or commerce or in the
course of export out of India, he may apply to the assessing
authority in such form and manner and within such period D
as may be prescribed, for the grant of a recognition ·
certificate in respect thereof, and if the applicant satisfies
such requirements including requirement of depositing late
fee, and conditions as may be prescribed, the assessing
authority shall grant to him in respect of such goods a
recognition certificate in such form and subject to such E
conditions, as may be prescribed.
xxx xxx xxx
(5) Where a dealer in whose favour a recognition certificate
has been granted under sub-section (2) has purchased F
the goods after payment of tax at concessional rate under
this section or, as the case may be, without payment of tax
and has used such goods for a purpose other than that for
which the recognition certificate was granted or has
otherwise disposed of the said goods, such dealer shall· G
be liable to pay as penalty such amount as the assessing
authority may fix, which shall not be less than the difference
between the amount of tax on the sale or purchase of such
goods payable under this section and the amount of tax
payable under any other provisions of this Act but not H
1174 SUPREME COURT REPORTS [2008) 3 S.C.R.
A exceeding three times the amount of such difference ... " ~
.
10. It is not in dispute that the appellant was exempted
from payment of the entire amount of tax, subject to the
conditions and restrictions specified in the notification. For the
said purpose, it holds a recognition certificate. The assessing
B authority while opining that the appellant should have taken all
precautions to see that the goods it had purchased were capable ..
of being utilized or consumed for manufacture of ingots, arrived ...
inter alia at the following finding of fact:
c (i) "The trader could have very well properly looked into
the fact at the time of purchase of the goods as to
which of the purchased goods by them would be fiV
proper for their manufacture, and purchase of the
same should have been carried out through the
assistance of the Form 3-8 ... "
D ,...
(ii) "... Now the conclusion arrives is that the trader has •
knowingly carried out purchases of such goods,
without utilizing the same in their manufacture, they
have sold away the same with the assistance of the
E Form 3-8, because there is no such evidence
available on the records, by which it may be proved
that the goods sold away was not worth to be utilized
in the manufacture. Because the purchases of old
iron scrap have been made against the Form 3-B,
~
F and the goods sold away was also old iron scrap
and the iron scrap traders are utilizing the same in
their manufacture, therefore, their such averment is
not proved that the sold away iron was not fit for
being utilized in their manufacture ... "
G (iii) " ... Therefore, the conclusion is arrived at that these
goods were worth being utilized in the manufacture,
but the same had been sold away knowingly with the
intention of escaping the tax against the Form 3-8.
Therefore, the trader was under the impression that
H even if each goods is not in consonance with the
M/S. BHARJATIYA STEEL INDUSTRIES v. 1175
COMMISSIONER, SALES TAX, U.P. [S.B. SINHA, J.]
. conditions of the provisions of Section 4-8, even A
.le then at the time of purchases, they could have paid
the tax against the same, but the trad.er had desired
to escape from the payment of the tax to such kind
of sale-purchase till the decision about the final
assessment of the tax, and from the same, the ;B,
conclusion is arrived at that the trader has committed
•· violation of the provisions of Section 4-B of the Act,
. knowingly and in planned manner. .. "
On the said findings, the minimum penalty of Rs. 85,619.00
was imposed. c
11. The appellate authority agreed with the said finding of
the assessing authority stating:
"... Clearly, the appellants
.
while violating
.
the provisions of
..... Section 4(8)(2) of the Act had carried out the sale of the D
.. raw material purchased against Form 3-8. Therefore, this
offence of the appellant was naturally punishable under
the provisions of Section 4(8)(5) of the Act. The appellants
have committed this sale knowingly with a view to escape
from the liability of the tax. Had this sale would not haveE·
been carried out knowingly to escape from the liability of
the tax, then the appellants, while extending his
cooperation/ bone tides and informed the learned Tax
Assessing Authority and got inspected the goods which
.,_.
they intended to sale and that that material could not be F
utilized in the manufacturing of the notified articles
produced by them. But the appellants have not done so.
The appellants have also not paid any tax against such
sales and have knowingly sold away the aforesaid goods
to other manufacturers and have also obtained the Form
G
3-B from them. In this way, the appellants have also not
paid any tax against such sales ... "
!-:- (Emphasis supplied)
The Tribunal, however, as noticed hereinbefore, allowed
H
1176 SUPREME COURT REPORTS [2008] 3 S.C.R.
A the appeal on the ground that the appellant did not have any ~
mens rea.
'
12. The High Court by reason of its impugned judgment,
following some of its earlier decisions, opined:
8 "This Court in the case of Sai Electrical (P) Ltd. (supra)
has placed reliance upon three judgments of the Supreme
Court given in the case of Hindustan Steels Limited Vs. "
State of Orissa AIR 1970 S.C. 253, R.S. Gujarat S.T.O. ...,
Vs. Ajeet Mills Ltd. 1979 U.P.T.C. 171 and Director of
c Enforcement Vs. M.C.T. Municipal Corporation J.T. 1996
(1) S.C. 79 to hold that classic view that "no mens rea no
crime" is not applicable to the economic crimes and
departmental penalties. Plain language of sub-section (5)
of Section 4-8 also does not show that mens rea is an
essential ingredient for imposition of penalty. The
D ,__
reasoning given by the tribunal in para 6 of its order that
since the goods were purchased in lots and there appears •
no mala fide on the part of the appellant, for deleting
penalty under Section 4-8(5) of the Act cannot be
sustained. It appears that sub-section (5) to Section 4-8
E was not brought to the notice of the tribunal. The tribunal
has failed to decide the case within the four corners of
Section 4-8(5) of the Act.
The other reasoning given by the tribunal for deleting
F the penalty is that the tax has been paid by the purchasers
to whom the sale of unusable iron scrap has been made
by the appellant. Substantial proofs have been produced
before it about the payment of tax. These factors are hardly
germane for deleting penalty under Section 4-8 (5) of the
Act."
G
13. It is difficult to accede to the contention of the learned
counsel that Sub-section (a-1) of Section 4-8 of the Act would
be attracted. Apart from the fact that no such contention has .1
been raised before the authorities concerned, the notification
H purported to have been issued by the State Government has
M/S. BHARJATIYA STEEL INDUSTRIES v. 1177
COMMISSIONER, SALES TAX, U.P. [S.B. SINHA, J.]
;. also not been placed on record. A
J<
It is furthermore difficult to accept that in a case of this
nature where a tax benefit had already been granted to a dealer,
a further tax benefit would be granted even if he violates the
condition of certificate.
B
14. Sub-section (5) of Section 4-8 of the Act is in two parts.
i.
Penalty is levied if the goods have been utilized for the purpose
.... other than that for which the recognition certificate was granted
or the dealer otherwise had disposed of the said goods. The
statutory provision speaks of penalty and not duty. It is, therefore, c
difficult to accept the contention of Mr. Banerjee that the said
provision merely purports to recover the duty which was
<?therwise payable by the dealer. Mr. Banerjee himself submitted
that the stage of realization of the duty was over. If that be so,
only penalty could be levied. Levy of penalty, ordinarily, unless
D
x there exists any statutory interdict, requires proof of mens rea.
- It was so held in Hindustan Steel Ltd. v. State of Orissa
[(1969) 2 sec 6271 stating:
"8 ... An order imposing penalty for failure to carry out a
E
statutory obligation is the result of a quasi-criminal
proceeding, and penalty will not ordinarily be imposed
unless the party obliged either acted deliberately in
defiance of law or was guilty of conduct contumacious or
dishonest, or acted in conscious disregard of its obligation.
Penalty will not also be imposed merely because it is F
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 G
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 ... " H
1178 SUPREME COURT REPORTS [2008] 3 S.C.R.
A Mr. Banerjee, however, urged that Hindustan Steel Ltd.
(supra) is not applicable to the facts of the present case. We do
not agree.
15. Reliance placed by Mr. Banerjee on R.S. Joshi, S. TO.,
Gujarat v. Ajit Mills Ltd. and another [( 1977) 4 SCC 98] has no
B application in the instant case. The question which arose for
consideration therein .was as to whether the word 'penalty' would
include forfeiture. The core question therein was as to whether
...
the enactment by the State legislature providing that sums
collected by dealers by way of sales tax but are not exigible
C under the State law - and, indeed, prohibited by it - shall be
forfeited to the public exchequer punitively. It was held that it is
permissible, stating :
''There is a tendency for valiant tax executives clothed with
judicial powers to remember their former capacity at the
D
expense of the latter. In a welfare state and in appreciation
of the nature of the judicial process, such an attitude,
motivated by various reasons cannot be commended. The
penalty for deviance from these norms is the peril to the
order passed. The effect of mala tides on exercise of
E administrative power is well-established."
P.S. Kailasam, J, in his concurrent but separate judgment,
stated:
"63. Mr Kaji as well as Mr B. Sen, learned Counsel for
F some of the assessees, further brought to our notice cases
in which by the application of the provisions of the sales
tax enactment considerable hardship and injustice has
been caused to the dealers. It was submitted that where
the assessee innocently collected amounts on the
G impression that tax was leviable, the amounts so collected
were forfeited while his obligation to the purchasers to
refund the amounts continued. If the assessee by a mistake
failed to collect tax, from the purchasers, tax was levied j
and collected from the assessee making him suffer in any
H event. When after a costly litigation, the assessee
M/S. BHARJATIYA STEEL INDUSTRIES v. 1179
COMMISSIONER, SALES TAX, U.P. [S.B. SINHA, J.]
' succeeded in establishing that sales tax cannot be A
"" collected on the railway freight on cement bags or i,nter-
State sales, the Government promptly forfeited such
amounts. We agree these are instances of hardship to
the assessees and deserve Government attention. But for
that reason the Courts cannot say that the act is beyond B
Jr
the legislative competence. The fact that in some cases
the dealers are prejudiced would not affect the validity of
"'
the legislation which is the question we are called upon to
decide. On a careful consideration of the points raised, r
am satisfied that the provisions of Section 37(1) are within c
the competence of the State Legislature."
We are not concerned with such a question here.
16. Reliance has also been placed on Director of
·;..; Enforcement v. M. C. T M. Corporation Pvt. Ltd. & Others
D
4 [(1996) 2 SCC 471]. This Court was dealing therein with Foreign
Exchange Regulation Act, 1947. It was opined that Section.
23(1 (a) of the Act confers adjudicatory function on the conduct
of the delinquent, stating :
"8. It is thus the breach of a "civil obligation" which attracts E
'penalty' under Section 23(1)( a ), FERA, 1947 and a
finding that the delinquent has contravened the provisions
of Section 10, FERA, 1947 that would immediately attract
~- the levy of 'penalty' under Section 23, irrespective of the
fact whether the contravention was made by the defaulter F
with any "guilty intention" or not. Therefore, unlike in a
criminal case, where it is essential for the 'prosecution' to
establish that the 'accused' had the necessary guilty
intention or in other words the requisite "mens rea" to
commit the alleged offence with which he is charged before
G
recording his conviction, the obligation on the part of the
Directorate of Enforcement, in cases of contravention of
\;
the provisions of Section 10 of FERA, would be discharged
where it is shown that the "blameworthy conduct" of the
delinquent had been established by wilful contravention
H
1180 SUPREME COURT REPORTS [2008] 3 S.C.R.
;
A by him of the provisions of Section 10, FERA, 1947. It is
the delinquency of the defaulter itself which establishes "'
his 'blameworthy' conduct, attracting the provisions of
Section 23(1 )( a) of FERA, 194 7 without any further proof
of the existence of "mens rea". Even after an adjudication
B by the authorities and levy of penalty under Section 23(1 )(
a ) of FERA, 1947, the defaulter can still be tried and ...
punished for the commission of an offence under the penal ...
law, where the act of the defaulter also amounts to an
offence under the penal law and the bar under Article 20(2)
c of the Constitution of India in such a case would not be
attracted. The failure to pay the penalty by itself attracts
'prosecution' under Section 23-F and on conviction by the
'court' for the said offence imprisonment may follow."
17. The attention of the Court, therein, however, was not
D drawn to the earlier binding precedent in Hindustan Steel ,..
(supra). Furthermore, the question as to whether mens rea is ..
an essential ingredient or not will depend upon the nature of the
right of the parties and the purpose for which penalty is sought
to be imposed.
E 18. A distinction must also be borne in mind between a
statute where no discretion is conferred upon the adjudicatory
authority and where such a discretion is conferred. Whereas in
the former case the principle of mens rea will be held to be
imperative, in the latter, having regard to the purport and object
F thereof, it may not be held to be so.
In Dilip N Shroff v. Joint Commissioner of Income Tax,
Mumbai & Anr. [(2007) 6 SCC 329], it was opined :
"86. It is of some significance that in the standard pro
G forma used by the assessing officer in issuing a notice
despite the fact that the same postulates that inappropriate
words and paragraphs were to be deleted, but the same j
had not been done. Thus, the assessing officer himself
was not sure as to whether he had proceeded on the
H basis that the assessee had concealed his income or he
M/S. BHARJATIYA STEEL INDUSTRIES v. 1181
COMMISSIONER, SALES TAX, U.P. [S.B. SINHA, J.]
• had furnished inaccurate particulars. Even before us, the A
•,-
learned Additional Solicitor General while placing the order
of assessment laid emphasis that he had dealt with both
the situations. The impugned order, therefore, suffers from
non-application of mind. It was also bound to comply with
the principles of natural justice. (See Malabar Industrial B
'I: co. Ltd. v. c1n
..,
87. We have, however, noticed hereinbefore that the
Income Tax Officer had merely held that the assessee is
guilty of furnishing of inaccurate particulars and not of
concealment of income; which finding was arrived at also c
by the Commissioner of Income Tax and the Income Tax
Appellate TribunaL"
In Chairman, SEBI v. Shriram Mutual Fund [(2006) 5
\.)\' SCC 361), this Court held:
D
• "35. In our considered opinion, penalty is attracted as soon
as the contravention of the statutory obligation as
contemplated by the Act and the Regulations is established
and hence the intention of the parties committing such
violation becomes wholly irrelevant. A breach of civil E
obligation which attracts penalty in the nature of fine under
the provisions of the Act and the Regulations would
immediately attract the levy of penalty irrespective of the
-r fact whether contravention must be made by the defaulter
with guilty intention or not. We also further held that unless i=
the language of the statute indicates the need to establish
the presence of mens rea , it is wholly unnecessary to
ascertain whether such a violation was intentional or not.
On a careful perusal of Section 15-D( b ) and Section 15-
E of the Act, there is nothing which requires that mens rea
G
must be proved before penalty can be imposed under
these provisions. Hence once the contravention is
t established then the penalty is to follow."
19. It is, therefore, difficult to accede to the contention of
Mr. Banerjee that under no circumstances absence of mens H
1182 SUPREME COURT REPORTS [2008] 3 S.C.R.
A rea would not be a plea for levy of penalty. An assessing authority -<
has been conferred with a discretionary jurisdiction to levy "'
penalty. By necessary implication, the authority may not levy
penalty. If it has the discretion not to levy penalty, existence of
mens rea becomes a relevant factor. We may notice that in the
B show cause notice itself, the authorities stated:
.,:
"You have sold away 239.966 tons of iron and steel without
payment of any sales tax with the assistance of the Form ..,
No. 3(8), amounting to Rs. 10,73,850.89, whereas the
receipt thereof was also issued under the provisions of
c Section 4-8 on the basis of full exemption from the tax,
with the assistance of the Form No. 3(8). In this way, the
material purchased for the purposes of production under
the provisions of Section 4-8, while utilizing the same for
the same purposes, was sold away in the same condition,
D which is a violation of the provisions of Section 4-8, and .•.
is punishable under the aforesaid sub-section of the Act." •
20. The assessing authority, therefore, understood the said
provision to mean that the appellant was liable to be imposed
with a punishment. The authority did not say that the duty which
E was otherwise due from the appellant would be realized.
21. We, however, are of the opinion that in the facts and
circumstances of this case, existence of mens rea on the part
of the appellant is evident.
F 22. Ordinarily a dealer must abide by the undertaking given
by it. If it is not in a position to comply with the requirements
contained in the statute, it is expected that it would inform
thereabout to the assessing authority. It purchased the goods in
the assessment year 1985-86. It did not disclose as to when it
G sold out the goods. What was its consumption during said
assessment year or the next assessment year had not been
disclosed.
J
As a finding of fact has been arrived at th.at the dealer had
not furnished any proof in regard to its inability to use it for
H
MIS. BHARJATIYA STEEL INDUSTRIES v. 1183
COMMISSIONER, SALES TAX, U.P. [S.B. SINHA, J.]
• manufacturing purposes. It was obligatory on the part of the A
'<:
appellant as it has special knowledge in regard thereto to show
as to why the entire quantity of goods could not be utilized.
A finping of fact has also been arrived at by the assessing
authority that the vendee had utilized the self-same goods for
manufacturing. 10% of the purchased goods, namely, 2532.989 8
M.T. is not such which could be ignored by the assessing
authority. Although duty was payable thereon, it may be th~t the
auction of lots was on "as is where is basis", the same would
not mean that a part of it could not be melted for manufacturing
the ingots. If that was the position, it could have informed the C
authorities in that behalf even prior to affecting the sale to a
third party.
23. Moreover, the assessing authority as also the appellate
authority had held that the appellant sold the goods knowingly
0
*• and, it must, therefore, be inferred that the finding in regard to
mens rea had also been arrived at.
24. In the facts and circumstances of this case, we are of
the opinion that no case has been made out for interfering with
the impugned judgment. The appeal is dismissed accordingly. E
No cos'ts.
D.G. Appeal dismissed.
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