[2011] 46 VST 1 (Bom) - RS Goyal & Associates

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VATLaws (Readable Version) - Thursday, January 10, 2013 follows (page 81 in 1 GSTR): "The decision in Dharamendra Textile [2008] 18 VST 180 (SC); [2008] 306 ITR 277 (SC); [2008] 231 ELT 3 (SC) must, therefore, be understood to mean that though the application of section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11 A. That is what Dharamendra Textile [2008] 18 VST 180 (SC); [2008] 306 ITR 277 (SC); [2008] 231 ELT 3 (SC) decides." In the case of State of Rajasthan v. D.P. Metals [2001] 124 STC 611 (SC); AIR 2001 SC 3076, a three-Judge Bench of the Supreme Court interpreted section 78(5) of the Rajasthan Sales Tax Act, 1994 which read as follows (page 619 in 124 STC): "The incharge of the check-post or the officer empowered under sub-section (3), after having given the person in charge of the goods a reasonable opportunity of being heard and after having held such enquiry as he may deem fit, shall impose on him for possession or movement of goods, whether seized or not, in violation of the provisions of clause (a) of sub-section (2) or for submission of false or Page No: 7 forged documents or declaration, a penalty equal to the amount of five times of the tax leviable on such goods or thirty per cent of the value of such goods. . ." There, the court laid emphasis on the use of the word "shall" to hold that (pages 635 and 636 in 124 STC): ". . . This provision cannot be read as to imply that the penalty of 30 per cent is the maximum and lesser penalty can be levied. The Legislature thought it fit to specify a fixed rate of penalty and not give any discretion in lowering the rate of penalty. The penalty so fixed is meant to be a deterrent and we do not see anything wrong in this 1 . . ." Thus, the Supreme Court has held that where the Legislature makes its intention clear through the use of the word "shall", the provision would be mandatory with regard to the quantum of penalty imposable. A similar ratio has recently laid down by a three-judge Bench of the Supreme Court in Commissioner of Central Excise v. Sunil Silk Mills [2011] 267 ELT 438 (SC), where rule 96ZQ(5) of the Central Excise Rules, 1944 was being interpreted. The penalty involved there was similarly held to be mandatory due to the use of the word "shall." 2 In the present case, the State Legislature has in section 61(2) clearly conferred a discretion on the Commissioner to impose a penalty. Once that is the position, the mere use of the words "equal to one tenth per cent of the total sale" cannot lead to the conclusion that there is no discretion in regard to the quantum of the penalty and that a penalty only in an amount equal to one tenth per cent of the total sales can be imposed. Some guidance in this regard can be obtained from the judgment of the This copy was printed from VATLaws licensed to: R.S. Goyal
VATLaws (Readable Version) - Thursday, January 10, 2013 Supreme Court in State of Madhya Pradesh v. Bharat Heavy Electricals [1997] 106 STC 604 (SC); [1998] 99 ELT 33 (SC). Section 7 of the relevant Entry Tax Act in the State of Madhya Pradesh provided that every registered dealer who, in the course of his business, manufactures, produces or grows any goods specified in Schedule II in a local area in such a manner that the goods become local goods in relation to that local area, shall on the sale of such goods to any other registered dealer, issue to him a bill, invoice or cash memo specifically stating in such a manner as may be prescribed, that the goods being sold are local goods in relation to such local area and that no entry tax has been paid on such goods. Section 7(5) provided that where a registered dealer in the course of his business, sold 1 Id. at 31 2 See also Union of India v. Krishna Processors [2010] 2 GSTR 521 (SC); [2009] 15 SCC 58, Carpenter Classic Exim P. Ltd. v. Commissioner of Customs (Imports) [2010] 2 GSTR 443 (SC); [2009] 11 SCC 293. Page No: 8 local goods to other registered dealers but failed to make the statement as referred in sub-section (1), it would be presumed that he has facilitated the evasion of entry tax on the local goods so sold and would be liable to pay a penalty equal to ten times the amount of entry tax payable on such goods as if they were not goods of local origin. The High Court had held that the presumption under section 7(5) was not rebuttable and that the penalty of ten times of the amount of tax, which could not be reduced, was confiscatory. In appeal before the Supreme Court the State of Madhya Pradesh made a statement through counsel that the State treated the provision for the levy of penalty equal to ten times of the amount of entry tax as a maximum penalty and not a fixed amount of penalty leaving no discretion for imposition of a lesser penalty. Undoubtedly, therefore, there was a concession before the Supreme Court by the State. Moreover, it was urged before the Supreme Court by the State that the presumption was rebuttable. After recording the submissions, the Supreme Court held as follows (page 609 in 106 STC): "From the aforesaid it follows that section 7(5) has to be construed to mean that the presumption contained therein is rebuttable and secondly the penalty of ten times the amount, of entry tax stipulated therein is only the maximum amount which could be levied and the assessing authority has the discretion to levy lesser amount depending upon the facts and circumstances of each case. Construing section 7(5) in this manner the decision of the High Court that section 7(5) is ultra vires cannot be sustained." (emphasis 1 supplied) Now, no doubt, in that case a statement was made before the Supreme Court by the State of Madhya Pradesh that the levy of a penalty equal to ten times the amount of entry tax was the maximum and was not a fixed penalty. Equally, it was observed in paragraph 13 which has been noted earlier, that the penalty of ten times the amount of entry tax was only a maximum and the assessing authority has the discretion to levy a lesser amount, depending on the facts of each case. The fundamental principle of law is that a penalty is not imposed merely because it is lawful to do so and that the authority has a discretion in that This copy was printed from VATLaws licensed to: R.S. Goyal
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[2011] 46 VST 1 (Bom) - RS Goyal & Associates

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