The State of Gujarat and Anr. vs M/s Saw Pipes Ltd. (Known as Jindal Saw Ltd.)

State of Gujarat and Anr. …Appellant(s)

Versus

M/s Saw Pipes Ltd. …Respondent(s) (known as Jindal Saw Ltd.)

JUDGMENT

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the

impugned judgment and order dated

Signature Not Verified 04.08.2016 passed by the High Court of Digitally signed by R Natarajan

Gujarat at Ahmedabad in Tax Appeal No. Date: 2023.04.17 17:02:04 IST Reason:

Page 1 of 64

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.

2. 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

Page 2 of 64 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: ­

Particulars Amount Tax 2,36,55,529/­ Interest u/s 1,04,56,181/­ 47(4A) Penalty u/s 45(6) 1,41,93,312/­ Total 4,83,05,013/­

2.1 The assessee preferred a first appeal before

the First Appellate Authority i.e., Joint Sales

Tax Commissioner. By order dated

Page 3 of 64 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

Page 4 of 64 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

Page 5 of 64 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.

2.2 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.

Page 6 of 64

3. Ms. Aastha Mehta, learned counsel has

appeared with Ms. Deepanwita Priyanka, on

behalf of the State.

3.1 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.

3.2 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.

3.3 It is next submitted that the High Court has

not properly considered the fact that the

penalty leviable under Section 45(6) of the

Page 7 of 64 Act, 1969, is a statutory penalty and hence,

is compulsorily leviable.

3.4 It is contended by Ms. Mehta, learned counsel

appearing on behalf of the State that the

penalty leviable under Section 45(6) of the

Act, being a statutory penalty, there is no

discretion vested with the Commissioner to

levy or not to levy, as long as the assessee

falls under Section 45(5) of the Act, 1969.

3.5 It is further contended that even the

Commissioner has no discretion and/or

authority to levy the penalty other than the

penalty provided under Section 45(6) of the

Act, 1969.

3.6 It is submitted by the learned counsel

appearing on behalf of the State that the

moment it is found that the amount of tax

assessed or reassessed exceeds the amount of

Page 8 of 64 tax already paid by the dealer under Section

47 in respect of such period by more than

25% of the amount of tax so paid, the dealer

can be deemed to have failed to pay the tax to

the extent of the difference between the

amount so assessed or reassessed and the

amount paid and in that eventuality the

dealer is liable to pay a penalty not exceeding

one and one­half times the difference and/or,

on such dealer, who is deemed to have failed

to pay the tax to the extent mentioned in sub­

section (5) of Section 45, a penalty shall be

levied not exceeding one and one­half times

the difference. It is further submitted that

even the Commissioner has no jurisdiction

and/or authority to levy the penalty lesser

than one and one­half times the difference.

Page 9 of 64 3.7 It is contended by Ms. Mehta learned counsel

appearing on behalf of the State that the

phrase used in sub­section (6) of Section 45

of the Act is “shall be levied”. Reliance was

placed on the decision of a three­judge bench

of this Court in the case of Union of India

and Ors. Vs. Dharamendra Textile

Processors and Ors.; (2008) 13 SCC 369

wherein it has been held that when the term

is used “shall be leviable” the adjudicating

authority will have no discretion.

3.8 It is further submitted that the penalty

leviable under sub­section (6) of Section 45 of

the Act, is a statutory penalty and legislature

has consciously used the word “shall” and

even for interest the same language is

employed in Section 47(4A) of the Act. That

Page 10 of 64 the assessee is statutorily liable to pay the

penalty and interest. That therefore, the High

Court has committed a serious error in

deleting the penalty and interest, mainly, on

the ground that the amount of tax has

already been paid by the assessee and that

the assessee was under the bonafide belief

that it was liable to pay the tax at rate of 2%.

3.9 It is further contended by Ms. Mehta, learned

counsel appearing on behalf of the State that

the non­payment of penalty is met with

consequences under Section 45 of the Act,

1969, and is recoverable as an arrear of land

revenue. That it is well­settled that when

non­compliance or violation of a provision is

met with a consequence, then, the language

of the provision is deemed to be mandatory in

Page 11 of 64 nature. It is therefore submitted that the

statutory penalty cannot be done away with.

3.10 It is submitted that in case the penalty is a

statutory penalty, there is no requirement to

prove mens rea or to consider the aspect

regarding bonafide belief of the assessee while

computing payment of penalty and interest. In support of the above submissions, learned

counsel appearing on behalf the State has

heavily relied upon the decisions of this Court

in the cases of State of Gujarat Vs. Arcelor

Mittal Nippon Steel India Limited; (2022) 6

SCC 459 and Chairman, SEBI Vs. Shriram

Mutual Fund and Anr.; (2006) 5 SCC 361;

Guljag Industries Vs. Commercial Taxes

Officer (2007) 7 SCC 269; Competition

Commission of India Vs. Thomas Cook

Page 12 of 64 (India) Limited and Anr. (2018) 6 SCC 549,

as well as the decisions of the Gujarat High

Court in the cases of Riddhi Siddhi Gluco

Biols Ltd. Vs. State of Gujarat; (2017) 100

VST 305 (Guj) and State of Gujarat Vs. Oil

and Natural Gas Corporation Limited;

(2017) 97 VST 506 (Guj).

3.11 It is submitted that mens rea can only be

expressly included in the law by the

legislature. The Court cannot fill in the gaps

and purport the requirement of an intention

or guilty mind of the assessee before levying

penalty and interest where the same is not

prescribed by the legislature.

3.12 In so far as the decision of this Court in the

case of Hindustan Steel Ltd. Vs. State of

Orissa; 1969 (2) SCC 627 relied upon on

Page 13 of 64 behalf of the assessee is concerned, it is

vehemently submitted by the learned counsel

appearing on behalf of the State that the said

decision shall not be applicable while

considering penalty and interest levied under

Section 45(6) and 47(4A) of the Act, 1969. It

is contended that even otherwise in the

present case, the learned Tribunal had

specifically recorded findings that the said

decision shall not be applicable since there is

nothing on record to prove that there was in

fact a bonafide belief of the respondent ­

assessee.

3.13 In so far as the reliance placed on behalf of

the assessee upon the decision of this Court

in the case of Dharamendra Textile

Processors (supra) is concerned, it is

Page 14 of 64 submitted by Ms. Mehta, learned counsel

appearing on behalf of the State that the said

decision also shall not be applicable to the

facts of the case at hand, more particularly,

considering the statutory provisions, namely,

Section 45(6) and Section 47(4A) of the Act. It

is submitted that in the said case, this Court

was considering Section 11AC of the Central

Excise Act. That the Parliament in its wisdom

has specifically incorporated the element of

mens rea in Section 11AC by employing the

words, “fraud, collusion or any wilful

misrepresentation or any wilful misstatement

or suppression of facts” and “intent to evade

payment of duty”. It is submitted that only

when an intention is built into the provision

and when the assessee’s intention is made

Page 15 of 64 relevant by the Parliament, can the courts

interpret and go into the issue as to whether

or not the evasion was bonafide or malafide.

No such language is employed in Section

45(6) and Section 47(4A) of the Act, 1969. That a similar decision of this Court relied

upon on behalf of the assessee in the case of

Commissioner of Central Excise,

Chandigarh Vs. Pepsi Foods Ltd; (2011) 1

SCC 601 is misconceived and shall not be

applicable to the facts of the case at hand

since it interprets Section 11AC of Central

Excise Act and the language of the provision

at hand and that in Section 11AC is starkly

opposite.

3.14 Ms. Mehta, learned counsel appearing on

behalf of the State has further contended that

Page 16 of 64 even the reliance placed by the assessee upon

the decision of the Gujarat High Court in the

case of Jyoti Overseas P. Ltd. Vs. State of

Gujarat; 2017 SCC Online Guj 2511: (2017)

6 GSTL 388, is also misconceived and shall

not be applicable to the facts of the case at

hand. It is submitted that in the said case,

the High Court was dealing with Section 34(7)

of Gujarat VAT Act, in which the language

used is “If the Commissioner is satisfied that

the dealer, in order to evade or avoid payment

of tax…” That under the VAT Act, not only is

the Commissioner vested with discretion but

the said penalty provision is applicable

specifically when the assessee has an

intention to “evade or avoid payment of tax.”

That in the present case, the legislature in its

Page 17 of 64 wisdom imposed a liability of penalty and

interest without reference to any requirement

of mens rea on the part of the assessee.

3.15 Making the above submissions and relying

upon the above decisions, it is prayed that

the present appeal be allowed and the

impugned judgment and order deleting the

penalty and interest levied under Section

45(6) and Section 47(4A) of the Act, 1969 be

quashed and set aside.

4. The present appeal is vehemently opposed by

Shri V. Lakshmikumaran, learned counsel

appearing on behalf of the respondent –

assessee – dealer. It is submitted at the

outset that the penalty and interest is not

payable by the assessee in the facts of the

present case. It is further submitted that with

Page 18 of 64 reference to imposition of penalty, as per

statutory provision, penalty is leviable only if

differential tax liability (difference between tax

assessed and tax paid) is more than 25%.

That according to the assessee, the

differential tax liability on merits is less than

25%, however, for the sake of argument, it is

assumed that the condition of 25% is fulfilled.

4.1 Learned counsel appearing on behalf of the

respondent – assessee has made the following

submissions in support of the case on behalf

of the assessee that the assessee is not liable

to pay the penalty and interest: ­

(1) That for the purpose of argument that

penalty is not payable, the respondent is

within his legal rights to argue that

quantum of tax demand is not correct,

Page 19 of 64 even if the same was not pressed before

the High Court.

(2) That section 45(5) of Gujarat Sales Tax

Act, 1969 creates a presumption which

is rebuttable in nature.

(3) That for the purpose of imposition of

penalty under Section 45(6) Gujarat

Sales Tax Act, 1969, mens rea,

blameworthy conduct, deliberate

violation, evil doing, fraud, suppression

(either one or more of them) must be

proved.

(4) That section 45(6) of the Act, 1969

provides for imposition of penalty not

exceeding one and one­half times the

differential tax. The provision provides

for an upper limit for imposition of

Page 20 of 64 penalty; however, no minimum penalty

is prescribed. This indicates that in

appropriate cases where there is no

mens rea, the authority has the

discretion to impose no penalty.

(5) That in case the claim of the dealer for

payment of composition amount of 2% is

rejected, the dealer could pay the tax on

actual value of goods involved in the

execution of a works contract. Even in

such a scenario, the additional tax

payable would be less than 25% and

hence, the provision for penalty will not

be attracted.

(6) No interest is payable under Section

47(4­A) of Gujarat Sales Tax Act, 1969.

Page 21 of 64 4.2 Elaborating the above submissions, it is

submitted that the levy of penalty under

Section 45(6) of the Act would depend upon

the liability of the dealer to pay tax. That

accordingly, in case where there is a dispute

regarding imposition of penalty under Section

45(6), it becomes necessary to determine if

the dealer is liable to pay additional tax. It is

submitted that this position would remain

unaltered even when the correctness of

imposition of tax has not been argued before

the High Court.

4.3 It is next submitted that the respondent can,

in an appeal filed by the opposite party, re­

canvass for reversal of a finding reached

against him in the judgment. Reliance is

placed upon the decisions of this Court in the

Page 22 of 64 case of J.K. Cotton Spg. and Wvg. Mills Co.

Ltd. Vs. CCE; (1998) 3 SCC 540 and BHEL

Vs. Mahendra Prasad Jakhmola; (2019) 13

SCC 82. Learned counsel appearing on behalf

of the assessee has also relied upon the

decision of the Gujarat High Court in the case

of Elecon Engineering Vs. State of Gujarat;

(1994) 93 STC 397.

4.4 Relying upon the decision of this Court in the

case of Director of Elementary Education

Vs. Pramod Kumar Sahoo; (2019) 10 SCC

674, it is submitted that as held by this

Court any concession in law made by either

counsel would not bind the parties, as it is

legally settled that advocates cannot throw

away legal rights or enter into arrangements

contrary to law.

Page 23 of 64 4.5 It is contended that in the present case, since

the penalty and interest were proposed to be

waived by following the decision in case of

Brooke Bond India Limited (supra), the

advocate of the dealer did not press the issue

of demand on merits. That in case the

judgment of High Court is proposed to be

reversed and penalty is proposed to be

imposed, it will become necessary to

adjudicate the dispute on merits as the same

is detrimental to the imposition of penalty.

4.6 It is further contended that Section 45(5) of

the Act, 1969, provides that in case difference

between assessed tax and tax paid by the

dealer is more than 25%, the dealer shall be

deemed to have failed to pay the tax to the

extent of the difference. That therefore,

Page 24 of 64 Section 45(5) creates presumption against the

dealer.

4.7 It is submitted that as held by this Court in

the case of Nandlal Wasudeo Badwaik Vs.

Lata Nandlal Badwaik; (2014) 2 SCC 576,

there is a clear distinction in law between a

legal fiction and presumption. Legal fiction

assumes existence of a fact which may not

really exist. However, a presumption of a fact

depends on satisfaction of certain

circumstances. In support of above

submissions, reliance is also placed on

another decision of this Court in case of

Bhuwalka Steel Industries Ltd. Vs. Union

of India; (2017) 5 SCC 598.

4.8 It is next submitted that even otherwise

Section 45(5) of the Act creates a

Page 25 of 64 presumption against the dealer and such

presumption is rebuttable in nature. That the

term “burden of proof” connotes the

obligation to prove a fact or facts, by

adducing the necessary evidence. It is

submitted that any statutory provision by

way of which penalty is imposed by tax

authorities, the burden of proof to prove

mens rea lies with revenue, however, a

statute can shift the burden on the dealer in

certain circumstances. That therefore, such

presumption would be rebuttable in nature.

4.9 It is submitted that Section 45(5) provides a

presumption that in case differential tax is

more than 25%, the dealer shall be deemed to

have failed to pay the tax. That the

presumption contained in sub­section (5) is

Page 26 of 64 not irrebuttable but rebuttable in nature.

That this is specifically so because, sub­

section (6) of Section 45 grants discretionary

power to the assessing officer to impose

penalty. It is submitted that in case the

presumption is rebutted by the dealer, the

assessing officer will not impose penalty in

exercise of its discretionary power. Reliance is

placed upon the decision of this Court in the

case of State of M.P. Vs. Bharat Heavy

Electricals; (1997) 7 SCC 1. That therefore,

Section 45(5) of the Act, 1969, merely shifts

the burden of proof, however, the

presumption contained in the Section is not

irrebuttable.

4.10 As regards the other preposition that for the

purpose of imposition of penalty under

Page 27 of 64 Section 45(6), mens rea, etc., must be proved,

it is vehemently submitted that it is a general

principle of law, based on the maxim of

“actus non facit reum mens sit rea” that an act

does not make a man guilty, unless it can

also be shown that he was aware that he was

doing wrong. It is submitted that legislative

attitude towards the concept of mens rea in

tax laws and the judicial practice in

emphasising its importance therefore,

deserves careful consideration. Learned

counsel appearing on behalf of the

respondent ­ assessee has also relied upon

the decision of this Court in the cases of

Hindustan Steel Ltd. (supra); Cement

Marketing Co. of India Ltd. Vs. Assistant

Commissioner of Sales Tax, Indore and

Page 28 of 64 Ors.; 1980 (6) ELT 295 (S.C.) and

Commissioner of Central Excise,

Chandigarh (supra) in support of his above

submissions to the effect that before levy of

penalty and interest mens rea has to be

proved by the department.

4.11 It is further submitted by the learned counsel

appearing on behalf of the respondent –

assessee that Section 45(6) of the Act, 1969,

provides for imposition of penalty “not

exceeding” one and one­half times the

differential tax demand. That employment of

the term “not exceeding” postulates that the

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

Page 29 of 64 penalty, existence of mens rea becomes

relevant factor. Relance is placed upon the

decision of the Gujarat High Court in the case

of Jyoti Overseas P. Ltd. (supra).

4.12 Learned counsel appearing on behalf of the

assessee has submitted that on the aforesaid

grounds the interest levied under Section

47(4A) of the Act, 1969, is also bad in law and

therefore, the High Court has rightly set aside

the same.

4.13 Making the above submissions, it is prayed

that the present appeal be dismissed.

5. We have heard learned counsel appearing on

behalf of the respective parties at length.

6. At the outset, it is required to be noted that

the assessing officer levied the penalty and

interest against the respondent – assessee

under the provisions of Section 45(6) and

Page 30 of 64 Section 47(4A) of the Act, 1969, which levy

came to be confirmed by the learned

Tribunal. However, by the impugned

judgment and order, the High Court has set

aside the levy of penalty and interest, mainly

on the grounds that the tax imposed had

already been paid and that the assessee was

under a bonafide opinion as to its tax liability

and was following expert advice and

therefore, paid the tax at the rate of 2%.

Therefore, according to the High Court,

though not specifically mentioned/opined,

there was no mens rea on the part of the

respondent – assessee in not paying the tax

at the rate of 2% and in making the payment

of the tax at 2%. Therefore, the short question

which is posed for consideration of this Court

Page 31 of 64 is whether while imposing/levying penalty

and interest leviable under Section 45(6) and

Section 47(4A) of the Act, 1969, mens rea on

the part of the assessee is required to be

considered.

6.1 While appreciating the submissions made on

behalf of the respective parties on the levy of

the penalty and interest under Section 45(6)

and Section 47(4A) of the Act, the relevant

sections i.e., Section 45 and Section 47(4A) of

the Act, 1969 are required to be referred to,

which are as under: ­ “45. Imposition of penalty in certain cases and bar to prosecution.

(1) Where any dealer or Commission agent becomes liable to pay purchase tax under the provisions of sub­section (1) or (2) of section 16, then, the Commissioner may impose on him, in addition to any tax payable –

Page 32 of 64

(a) if he has included the purchase price of the goods in his turnover of purchase as required by sub­ section (1) of section 16, a sum by way of penalty not exceeding half the amount of tax, and

(b) if he has not so included the purchase price as aforesaid, a sum by way of penalty not exceeding twice the amount of tax.

(2) If it appears to the Commissioner that such dealer ­

(a) has failed to apply for registration as required by section 29, or

(b) has without reasonable cause, failed to comply with the notice under section [41, 44 or 67] or

(c) has concealed the particulars of any transaction or deliberately furnished inaccurate particulars of any transaction liable to tax,

the Commissioner may impose upon the dealer by way of penalty, in addition to any tax assessed under section 41 or reassessed under section 44 or revised under section 67 a sum not exceeding one and one­half times the amount of the tax.

(3) If a dealer fails to present his licence, recognition or as the

Page 33 of 64 case may be, permit for cancellation as required by section 35 or 36, the Commissioner may impose upon the dealer by way of penalty, a sum not exceeding two thousand rupees.

(3A) If a dealer fails to furnish any declaration or any return by the prescribed date as required under sub­section (1) of section 40, the commissioner shall impose upon such dealer by way of penalty for each declaration or return, a sum of two hundred rupees for every month or part of a month comprised in the period commencing from the day immediately after the expiry of prescribed date and ending on the date on which a declaration or return is furnished.

(4) If a dealer fails without sufficient cause to furnish any declaration or any return [as required by proviso to sub­section (1) or sub­ section (2) of section 40], the Commissioner may impose upon the dealer by way of penalty, a sum not exceeding two thousand rupees.

(5) Where in the case of a dealer the amount of tax ­

(a) assessed for any period under section 41 or 50; or

Page 34 of 64

(b) reassessed for any period under section 44;

exceeds the amount of tax already paid under sub­section (1), (2) or (3) of section 47 by the dealer in respect of such period by more than twenty five per cent of the amount of tax so paid, the dealer shall be deemed to have failed to pay the tax to the extent of the difference between the amount so assessed or reassessed as aforesaid and the amount paid.

(6) [Where under sub­section (5) a dealer is deemed to have failed to pay the tax to the extent mentioned in the said sub­ section, there shall be levied on such dealer a penalty not exceeding one and one­half times the difference referred to in sub­ section (5).]”

XXX XXX XXX

“47. Payment of Tax and Deferred Payment of Tax, etc.

(4A) (a) Where a dealer does not pay the amount of tax within the time prescribed for its payment under sub­ section (1), (2) or (3), then there shall be paid by such dealer for the period commencing on the date of expiry of the aforesaid

Page 35 of 64 prescribed time and ending on the date of payment of the amount of tax, simple interest, at the rate of [eighteen per cent], per annum on the amount of tax not so paid or on any less amount thereof remaining unpaid during such period.

(b) Where the amount of tax assessed or reassessed for any period, under section 41 or section 44, subject to revision if any under section 67, exceeds the amount of tax already paid by a dealer for that period, there shall be paid by such dealer, for the period commencing from the date of expiry of the time prescribed for payment of tax under sub­section (1), (2) or (3) and ending on date of order of assessment, reassessment or, as the case may be, revision, simple interest at the rate of [eighteen per cent] per annum on the amount of tax not so paid or on any less amount thereof remaining unpaid during such period.”

6.2 On a fair reading of Section 45 of the Act, it

can be seen that as per sub­section (2) of

Page 36 of 64 Section 45 of the Act, 1969, penalty is

leviable if it appears to the Commissioner that

a dealer has concealed the particulars of any

transaction or deliberately furnished

inaccurate particulars of any transaction

liable to tax. In the present case, it cannot be

said that the dealer has concealed the

particulars of any transaction or deliberately

furnished inaccurate particulars of any

transaction liable to tax. However, in so far as

penalty leviable under sub­section (6) of

Section 45 of the Act, 1969 is concerned, the

penalty leviable under the said provision is as

such, a statutory penalty and there is no

discretion vested with the Commissioner as to

whether to levy the penalty leviable under

sub­section (6) of Section 45 of the Act, 1969

or not. Sub­section (5) of Section 45 provides

Page 37 of 64 that in the case of a dealer where the amount

of tax assessed for any period under sections

41 or 50 or re­assessed for any period under

Section 45 exceeds the amount of tax already

paid by the dealer in respect of such period

by more than 25% of the amount of tax so

paid, the dealer shall be deemed to have

failed to pay the tax to the extent of difference

between amount so assessed or re­assessed

as aforesaid and the amount paid.

Considering sub­section (5) of Section 45 of

the Act, 1969, if a dealer is deemed to have

failed to pay the tax to the extent mentioned

in sub­section (5), there shall be levied on

such dealer a penalty not exceeding one and

one­half times the difference referred to in

sub­section (5). Under the circumstances, to

Page 38 of 64 the aforesaid extent and on the difference of

tax, as per sub­section (5) of Section 45, the

respondent – assessee – dealer shall be liable

to pay the penalty as mentioned under sub­

section (6) of Section 45.

6.3 Section 45 confers power to levy/impose

penalty in certain cases. In certain cases,

enumerated in Section 45 of the Act, the

penalty imposable is distinct with the

assessment such as Section 45(1)(a)(b).

However, in so far as penalty imposable

under Section 45(5) and 45(6) of the Act is

concerned, it has a direct bearing or

connection with the order of assessment and

the determination of the tax liability. Sub­

section (5) of Section 45 provides that where

in the case of a dealer the amount of tax

assessed for any period under Section 41 or

Page 39 of 64 50; or re­assessed for any period under

Section 44; exceeds the amount of tax already

paid by the dealer under sub­section (1), (2)

or (3) of Section 47 of the Act, in respect of

such period by more than 25% of the amount

of tax so paid, the dealer shall be deemed to

have failed to pay the tax to the extent of the

difference between the amount so assessed or

re­assessed as aforesaid and the amount

paid. Sub­section (6) of Section 45 provides

that where under sub­section (5), a dealer is

deemed to have failed to pay the tax to the

extent mentioned in the said sub­section,

there shall be levied on such dealer a penalty

not exceeding one and one­half times the

difference referred to in sub­section (5). Thus,

on a bare reading of sub­sections (5) and (6)

Page 40 of 64 of Section 45, it is evident that it is integral

part of the assessment that the penalty be

levied on the difference of amount of tax paid

and amount of tax payable as per the order of

assessment or re­assessment as the case may

and the same shall be automatic. Therefore,

when the penalty on the difference of amount

of tax paid and tax payable is more than 25%

of the amount of tax so paid, there shall be

automatic levy of penalty under Section 45(6)

of the Act.

6.4 From the language of Section 45(6) of the Act,

it can be seen that the penalty leviable under

the said provision is a statutory penalty. The

phrase used is “shall be levied.” The moment

it is found that a dealer is deemed to have

failed to pay the tax to the extent mentioned

in sub­section (5) of Section 45, there shall be

Page 41 of 64 levied on such dealer a penalty not exceeding

one and one­half times the difference referred

to in sub­section (5). As per sub­section (5),

where in the case of a dealer the amount of

tax assessed or re­assessed exceeds the

amount of tax already paid by the dealer in

respect of such period by more than 25% of

the amount of tax so paid, the dealer shall be

deemed to have failed to pay the tax to the

extent of the difference between the amount

so assessed or re­assessed and the amount

paid. Therefore, the moment it is found that a

dealer is to be deemed to have failed to pay

the tax to the extent mentioned in sub­

section (5), the penalty is automatic. Further,

there is no discretion with the assessing

officer either to levy or not to levy and/or to

levy any penalty lesser than what is

Page 42 of 64 prescribed/mentioned in Section 45(6) of the

Act, 1969. In that view of the matter, there is

no question of considering any mens rea on

the part of the assessee/dealer.

6.5 At this stage, a few decisions of this Court as

well as decisions of the Gujarat High Court

(on levy of penalty and interest under the

Gujarat Sales Tax Act) are required to be

referred to. In the case of Dharamendra

Textile Processors (supra) after referring and

considering another decision of this Court in

the case of Shriram Mutual Fund (supra), it

is observed and held that when the term used

“shall be leviable,” the adjudicating authority

will have no discretion.

6.6 In the case of Shriram Mutual Fund (supra)

while dealing and/or considering similar

Page 43 of 64 provision under the SEBI Act, it is observed

and held that mens rea is not an essential

ingredient for contravention of the provisions

of a civil Act. While interpreting the similar

provision of SEBI Act, it is observed that the

penalty is attracted as soon as contravention

of the statutory obligations as contemplated

by the Act is established and, therefore, the

intention of the parties committing such

violation becomes immaterial. In the case

before this Court, the Tribunal relied on the

judgment in the case of Hindustan Steel Ltd.

(supra). However, this Court did not agree

with the view taken by the Tribunal relying

upon the decision in the case of Hindustan

Steel Ltd. (supra) by observing that it

pertained to criminal/quasi criminal

Page 44 of 64 proceedings. This Court observed that the

decision in the case of Hindustan Steel Ltd.

(supra) shall not have any application as the

same relates to imposition of civil liabilities

under the SEBI Act and the Regulations and

the proceedings under the said Act are not

criminal/quasi­criminal proceedings. In

paragraphs 34 and 35, it is observed and held

as under: ­

“34. The Tribunal has erroneously relied on the judgment in Hindustan Steel Ltd. v. State of Orissa [(1969) 2 SCC 627 : AIR 1970 SC 253] which pertained to criminal/quasi­criminal proceedings. That Section 25 of the Orissa Sales Tax Act which was in question in the said case imposed a punishment of imprisonment up to six months and fine for the offences under the Act. The said case has no application in the present case which relates to imposition of civil liabilities under the SEBI Act and the Regulations and is not a criminal/quasi­criminal proceeding.

35. In our considered opinion, penalty is attracted as soon as the

Page 45 of 64 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 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 fact whether contravention must be made by the defaulter with guilty intention or not. We also further held that unless 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 15­D(b) and Section 15­E of the Act, there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence once the contravention is established then the penalty is to follow.”

6.7 In the case of Guljag Industries (supra) while

considering Sections 78(2) and 78(5) of the

Rajasthan Sales Tax Act, 1994 which

provided for penalty equal to thirty percent of

the value of goods for possession or

movement of goods, whether seized or not, in

Page 46 of 64 violation of the provisions of Clause (a) of

sub­section (2) or for submission of false or

forged documents or declaration, this Court

in paragraph 9 observed as under: ­ “9. Existence of mens rea is an essential ingredient of an offence. However, it is a rule of construction. If there is a conflict between the common law and the statute law, one has to construe a statute in conformity with the common law. However, if it is plain from the statute that it intends to alter the course of the common law, then that plain meaning should be accepted. Existence of mens rea is an essential ingredient in every offence; but that presumption is liable to be displaced either by the words of the statute creating the offence or by the subject­ matter with which it deals. A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is different from the penalty for a crime. “

That thereafter, after following the

decision in the case of Shriram Mutual Fund

(supra), this Court observed and held that

mens rea is not an essential ingredient for

contravention of the provisions of a civil act.

Page 47 of 64 It is further observed that the breach of a civil

obligation which attracts penalty under the

Act would immediately attract the levy of

penalty irrespective of the fact whether the

contravention was made by the defaulter with

any guilty intention. In paragraph 30, it is

observed and held as under: ­ “30. In Chairman, SEBI v. Shriram Mutual Fund [(2006) 5 SCC 361] this Court found on facts that a mutual fund had violated the SEBI (Mutual Funds) Regulations, 1996. Under the said Regulations there was a restriction placed on the mutual fund on purchasing or selling shares through any broker associated with the sponsor of the mutual fund beyond a specified limit. It is in this context that the Division Bench of this Court held that mens rea was not an essential ingredient for contravention of the provisions of a civil act. The breach of a civil obligation which attracts penalty under the Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention. It was further held that unless the language of the provision intends the need to establish mens rea, it is generally sufficient to prove the default/contravention in

Page 48 of 64 complying with the statute. In the present case also the statute provides for a hearing. However, that hearing is only to find out whether the assessee has contravened Section 78(2) and not to find out evasion of tax which function is assigned not to the officer at the check­post but to the AO in assessment proceedings. In the circumstances, we are of the view that mens rea is not an essential element in the matter of imposition of penalty under Section 78(5).”

6.8 In the case of Competition Commission of

India (supra) while considering Section 43A

of the Competition Act, 2002 which provides

for a penalty, it is observed in paragraphs 34

to 37 as under: ­ “34. If the ultimate objective test is applied, it is apparent that market purchases were within view of the scheme that was framed. As such the subsequent change of law also did not come to the rescue of the respondents considering the substance of the transaction. The market purchases were part of the same transaction of the combination.

35. Lastly, the submission raised that there were no mala fides on the part of the respondent as such penalty could not have been imposed. We are unable

Page 49 of 64 to accept the submission. The mens rea assumes importance in case of criminal and quasi­criminal liability. For the imposition of penalty under Section 43­A, the action may not be mala fide in case there is a breach of the statutory provisions of the civil law, penalty is attracted simpliciter on its violation. The imposition of penalty was permissible and it was rightly imposed. There was no requirement of mens rea under Section 43­A or intentional breach as an essential element for levy of penalty. Section 43­A of the Act does not use the expression “the failure has to be wilful or mala fide” for the purpose of imposition of penalty. The breach of the provision is punishable and considering the nature of the breach, it is open to impose the penalty.

36. In SEBI v. Shriram Mutual Fund [SEBI v. Shriram Mutual Fund, (2006) 5 SCC 361] , with respect to imposition of penalty on failure to comply with the civil obligation this Court has laid down thus: (SCC pp. 371 & 376, paras 29 & 35) “29. … In our opinion, mens rea is not an essential ingredient for contravention of the provisions of a civil Act. In our view, the penalty is attracted as soon as the contravention of the statutory obligations as contemplated by the Act is established and, therefore, the intention of the parties committing such violation becomes immaterial. In other words, the breach of a civil obligation which

Page 50 of 64 attracts penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not. This apart [that] unless the language of the statute indicates the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred. … the penalty has to follow and only the quantum of penalty is discretionary.

***

35. In our considered opinion, a penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence intention of the parties committing such violation becomes wholly irrelevant. … We also further hold that unless 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 15­D(b) and Section 15­E of the Act, there is nothing which requires that mens rea must be proved before a penalty can be imposed under these provisions. Hence once the contravention is established then the penalty is to follow.”

37. The imposition of penalty under Section 43­A is on account of breach of a civil obligation, and the proceedings are neither criminal nor quasi­criminal;

Page 51 of 64 the penalty has to follow. Only discretion in the provision under Section 43­A is with respect to quantum of penalty.”

6.9 The Gujarat High Court while considering the

very provision and penalty and interest

imposed under Section 45(6) and Section

47(4A) of the Act, 1969, has taken a

consistent view in the cases of Riddhi Siddhi

Gluco Biols Ltd. (supra) and Oil and Natural

Gas Corporation Limited (supra) that the

penalty leviable under Section 45(6) of the Act

is a statutory and mandatory penalty and

there is no question of any mens rea on the

part of the assessee to be considered. In the

aforesaid decisions, it is observed and held

that levy of penalty is automatic on the

eventualities occurring under sub­section (5)

of Section 45 of the Act, 1969.

Page 52 of 64 6.10 In the recent decision in the case of Arcelor

Mittal Nippon Steel India Limited (supra),

while dealing with the very provision of

Section 45 of the Act, 1969, it is observed and

held in para 23 and 23.1 as under: ­ “23. Now, so far as the levy of penalty is concerned, it is to be noted that the penalty is leviable under Section 45 and such a penalty is leviable under sub­ sections (5) and (6) of Section 45 of the Act, 1969 and the penalty is leviable on purchase tax assessed. It provides that if the difference of tax paid and tax leviable/assessed is more than twenty­five percent, in that case, the dealer shall be deemed to have failed to pay the tax to the extent of the difference between the amount so assessed/re­ assessed and the amount paid and, in that case, there shall be levied on such dealer a penalty not extending one and one­half times the difference as per sub­section (5). Therefore, there being difference of more than twenty five percent, penalty to the aforesaid extent shall be leviable. This is a clear case of false and wrong claim of exemption, as the exempted goods were

Page 53 of 64 transferred to a third person and used in an ‘ineligible’ industry. This is a case of deliberate violation and evil doing.

23.1 In the present case, as the difference between total tax paid and the purchase tax is more than twenty­five percent, the respondent is deemed to have failed to pay the tax as per sub­section (5) of Section 45 and, therefore, liable to pay the penalty not exceeding one and one­ half times. The words used in sub­ section (6) of Section 45 is “there shall be levied on such dealer a penalty not exceeding one and one­ half times the difference”. As noted above, in the present case, the modus operandi which was adopted by the respondent ­ Essar Steel warrants a penalty. Though, the raw material was required to be used by itself for the manufacture of their goods, after availing the exemption as eligible unit and instead of using the same for itself/himself, the ESL sold the raw materials to an ‘ineligible’ entity ­ EPL, who used it for manufacture of its own goods ­ generating the electricity, which again came to be sold to ESL under the power purchase agreement.” 6.11 Even otherwise, the word used in Section

45(6) is “shall be levied”. The dealer shall be

Page 54 of 64 liable to pay the penalty not exceeding one

and one­half times of the difference of the tax

as mentioned in sub­section (5) of Section 45

of the Act, 1969. The language used in

Section 45 is precise, plain and

unambiguous. The intention of the legislature

is very clear and unambiguous that the

moment any eventuality as mentioned in

Section 45(5) occurs, the penalty shall be

leviable as mentioned in sub­section (6) of

Section 45. No other word like mens rea

and/or satisfaction of the assessing officer

and/or other language is used like in Section

11AC of the Central Excise Act. It is a well

settled principle in law that the Court cannot

read anything into a statutory provision

which is plain and unambiguous. A statute is

Page 55 of 64 an edict of the legislature. The language

employed in a statute is the determinative

factor of legislative intent. As per the settled

position of law, the intention of the legislature

is primarily to be gathered from the language

used, which means that attention should be

paid to what has been said as also to what

has not been said. The courts cannot aid the

legislatures' defective phrasing of an Act; they

cannot add or mend, and by construction

make up deficiencies which are left there.

6.12 Under the circumstances, on strict

interpretation of Section 45 and Section 47 of

the Act, 1969, the only conclusion would be

that the penalty and interest leviable under

Section 45 and 47(4A) of the Act, 1969 are

statutory and mandatory and there is no

discretion vested in the

Page 56 of 64 Commissioner/Assessing Officer to levy or

not to levy the penalty and interest other than

as mentioned in Section 45(6) and Section 47

of the Act, 1969. It is needless to observe that

such an interpretation has been made having

regard to the tenor of Sections 45 and 47 of

the Act, 1969 and the language used therein.

6.13 In so far as the decisions relied upon by the

learned counsel appearing on behalf of the

respondent – assessee – dealer, referred to

hereinabove, are concerned, none of the

decisions shall be applicable to the facts of

the case at hand, while dealing with Section

45 and Section 47 of the Act, 1969. The

words/language of the relevant provisions

that fell for consideration in the decisions

relied upon on behalf of the respondent is

altogether different from the language used in

Page 57 of 64 Section 45 and Section 47 of the Act, 1969. In

the case of Dharamendra Textile Processors

(supra), this Court was considering Section

11AC of the Central Excise Act. In Section

11AC, the words used are “fraud, collusion or

any wilful misrepresentation or any wilful

misstatement or suppression of facts” and

“intent to evade payment of duty.” In that

view of the matter, the mens rea will play an

important role. Therefore, the said decision

shall not be applicable while considering

Section 45 and Section 47 of the Act, 1969. A

similar decision in the case of Pepsi Foods

Ltd (supra) also shall not be applicable

and/or of any assistance to the respondent –

assessee – dealer.

Page 58 of 64 6.14 In so far as the submissions on behalf of the

respondent – dealer – assessee that as such

the dealer shall not be liable to pay the tax at

the rate of 12% and that it was incompetence

on the part of the authority to prove the

difference of more than 25% and that the

concession was wrongly given by the learned

Senior Advocate appearing on behalf of the

respondent – assessee – dealer before the

High Court are concerned, at the outset, it is

required to be noted that a conscious decision

was taken by the learned Senior Advocate

appearing on behalf of the dealer, who

appeared before the High Court and

therefore, he did not press the issue/question

on the liability to pay the tax at the rate of

12% was wrongly given. It is to be noted that

the respondent – dealer was represented

Page 59 of 64 through a very senior advocate before the

High Court. Therefore, it cannot be said that

the concession was wrongly given. While

referring the submissions made by the

learned Senior Advocate, appearing on behalf

of the respondent – assessee – dealer, the

High Court has recorded as under: ­ “4. Learned Senior Counsel Mr. S N Shel at, appearing with Mr.H A Dave, learned Advocate for the appellant has fairly conceded that looking to the fact that the respondent 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 appellant since the opinion of the expert was turned out.”

It is not true that the learned Senior

Advocate, appearing on behalf of the

respondent – assessee – dealer, was

considering the decision of the in the case of

Brooke Bond India Limited (supra). It was a

Page 60 of 64 conscious decision taken not to press into

service the issue No. 1 and 2, that is with

respect to the liability to pay the tax at the

rate of 12%. Therefore, the decision relied

upon by the learned counsel appearing on

behalf of the respondent – assessee on the

concession given by the learned Senior

Advocate, appearing on behalf of the

respondent – assessee before the High Court,

would not be applicable to the facts of the

case on hand.

6.15 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

Page 61 of 64 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

Page 62 of 64 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).

7. 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

Page 63 of 64 restored. Present appeal is accordingly

allowed. In the facts of the case, there shall

be no order as to costs.

………………………………….J. [M.R. SHAH]

………………………………….J. [B.V. NAGARATHNA] NEW DELHI;

APRIL 17, 2023

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