A finding of mens rea is a condition precedent for levying penalty under section 10(b) read with section 10A of Central Sales Tax Act



  • The use of the expression “falsely represents” is indicative of the fact that the offence under Section 10(b) comes into existence only where a dealer acts deliberately in defiance of law or is guilty of contumacious or dishonest conduct; therefore, in proceedings for levy of penalty under Section 10A burden would be on the revenue to prove the existence of circumstances constituting the said offence

[2010] 7 taxmann.com 31 (SC)

SUPREME COURT OF INDIA

CST
v
Sanjiv Fabrics
Civil Appeal Nos. 2344-2347 of 2004
September 10, 2010

RELEVANT EXTRACTS
Thus, the first and the foremost issue arising for our consideration is whether the requirement of mens rea is an essential ingredient for the levy of penalty under Section 10(b) read with Section 10A of the Act?

In order to answer the point formulated for consideration, it would be necessary to refer to the relevant provisions of the Act. Section 10 of the Act deals with penalties. It reads as under:
“10. Penalties.—If any person—
(a) furnishes a declaration under sub-section (2) of section 6 or sub-section (1) of section 6A or sub-section (4) or subsection (8) of section 8, which he knows, or has reason to believe, to be false; or (aa) fails to get himself registered as required by section 7 or fails to comply with an order under sub-section (3A) or with he requirements of sub-section 3(C) or sub-section (3E) of that section;
(b) being a registered dealer, falsely represents when purchasing any class of goods that goods of such class are covered by his certificate of registration; or
(c) not being a registered dealer, falsely represents when purchasing goods in the course of inter-State trade or commerce that he is a registered dealer; or
(d) after purchasing any goods for any of the purposes specified in clause (b) or clause (c) or clause (d) of sub-section  (3) or sub-section (6) of section 8 fails, without reasonable excuse, to make use of the goods for any such purpose;
(e) has in his possession any form prescribed for the purpose of sub-section (4) or sub-section (8) of section 8 which has not been obtained by him or by his principal or by his agent in accordance with the provisions of this Act or any rules made thereunder;
(f) collects any amount by way of tax in contravention of the provisions contained in section 9A, he shall be punishable with simple imprisonment which may extend to six months, or with fine or with both; and when the offence is a continuing offence, with a daily fine which may extend to fifty rupees for every day during which the offence continues.”

Section 10A of the Act provides for the imposition of penalty in lieu of prosecution. Sub-section (1) of the said Section, relevant for our purpose, reads as follows:

“10A. Imposition of penalty in lieu of prosecution— (1) If any person purchasing goods is guilty of an offence under clause (b) or clause (c) or clause (d) of section 10, the authority who granted to him or, as the case may be, is competent to grant to him a certificate of registration under this Act may, after giving him a reasonable opportunity of being heard, by order in writing, impose upon him by way of penalty a sum not exceeding one and a half times the tax which would have been levied under sub-section (2) of section 8 in respect of the sale to him of the goods, if the sale had been a sale falling within that sub-section:
Provided that no prosecution for an offence under section 10 shall be instituted in respect of the same facts on which a penalty has been imposed under this section.”

Section 10 of the Act not only enumerates seven types of violations of the provisions of the Act which constitute an “offence”, it also makes them punishable by prosecution and punishment, which ranges from simple imprisonment for a period, which may extend to six months, or fine or both and in a case of continuous offence, the Section provides for a daily fine. Section 10A of the Act provides for the imposition of penalty in lieu of prosecution. It provides that if any person purchasing goods is guilty of an offence under clause (b) or clause (c) or clause (d) of Section 10 of the Act, a penalty of fine may be imposed. Thus, the violations enumerated in clause (b), clause (c) and clause (d) of Section 10 may not necessarily result in prosecution with the possible imposition of sentence of imprisonment as an alternative is provided in respect of these violations.

In view of the above, we are of the considered opinion that the use of the expression “falsely represents” is indicative of the fact that the offence under Section 10(b) of the Act comes into existence only where a dealer acts deliberately in defiance of law or is guilty of contumacious or dishonest conduct. Therefore, in proceedings for levy of penalty under Section 10A of the Act, burden would be on the revenue to prove the existence of circumstances constituting the said offence. Furthermore, it is evident from the heading of Section 10A of the Act that for breach of any provision of the Act, constituting an offence under Section 10 of the Act, ordinary remedy is prosecution which may entail a sentence of imprisonment and the penalty under Section 10A of the Act is only in lieu of prosecution. In light of the language employed in the Section and the nature of penalty contemplated therein, we find it difficult to hold that all types of omissions or commissions in the use of Form ‘C’ will be embraced in the expression “false representation”. In our opinion, therefore, a finding of mens rea is a condition precedent for levying penalty under Section 10(b) read with Section 10A of the Act.

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