Summary
A works contractor coating pipes paid lump-sum tax at 2% under the Gujarat Sales Tax Act, 1969 treating its contract as a civil works contract; the assessing officer applied the residuary entry, raised a demand and levied penalty under Section 45(6) and interest under Section 47(4A), which the Tribunal confirmed. The assessee conceded the tax before the High Court, which nonetheless deleted the penalty and interest because the tax had been paid and the assessee had acted on a bona fide belief and expert advice. The Supreme Court restored the levy: once the tax assessed exceeds the tax paid by more than 25% the dealer is deemed to have failed to pay under Section 45(5), and the words 'there shall be levied' in Section 45(6) make the penalty statutory, automatic and mandatory, leaving no discretion and no room for mens rea; the same applies to interest under Section 47(4A).
Issues
- Whether penalty under Section 45(6) and interest under Section 47(4A) of the Gujarat Sales Tax Act, 1969 are mandatory and automatic once the conditions in Section 45(5) are met, or whether the assessee's bona fide belief and absence of mens rea must be considered.
- Whether the assessee could reopen the quantum of tax, conceded before the High Court through senior counsel, in the State's appeal against deletion of penalty.
Provisions considered
- Section 45(5) and 45(6), Gujarat Sales Tax Act, 1969Where the tax assessed or reassessed exceeds the tax paid by more than 25%, the dealer is deemed to have failed to pay the difference and a penalty not exceeding one and one-half times that difference 'shall be levied'; the penalty is integral to the assessment, automatic and statutory, with no discretion to levy or not to levy and no element of mens rea. (¶¶ 6.2, 6.3, 6.4, 6.11, 6.12)
- Section 47(4A), Gujarat Sales Tax Act, 1969Simple interest at 18% is payable on the shortfall between tax assessed and tax paid; the liability is statutory and mandatory in the same way as the penalty. (¶¶ 6.1, 6.12, 6.15)
- Section 45(2), Gujarat Sales Tax Act, 1969Contrasted as a provision requiring concealment or deliberate furnishing of inaccurate particulars, which was not the case here; Section 45(6) carries no such requirement. (¶ 6.2)
- Section 11AC, Central Excise Act, 1944Distinguished: it uses words like fraud, collusion, wilful misstatement and intent to evade, so decisions under it such as Dharamendra Textile Processors and Pepsi Foods have no application to Section 45(6). (¶¶ 6.11, 6.13)
Held
- The penalty under Section 45(6) is a statutory penalty that follows automatically on the deeming fiction in Section 45(5); the language 'shall be levied' is plain and unambiguous, confers no discretion to levy or not to levy or to levy less than prescribed, and contains no reference to mens rea or the officer's satisfaction, which the Court cannot read in. Following Shriram Mutual Fund, Guljag Industries, Competition Commission v. Thomas Cook and Arcelor Mittal Nippon Steel, mens rea is not an essential ingredient for a civil penalty for breach of a statutory obligation. (¶¶ 6.2, 6.3, 6.4, 6.6, 6.7, 6.8, 6.10, 6.11, 6.12)
- Hindustan Steel v. State of Orissa, which concerned quasi-criminal proceedings, was distinguished in Shriram Mutual Fund and does not apply; in any event the Tribunal had found nothing on record to prove a bona fide belief. Payment of the tax after assessment and a claimed bona fide belief are no grounds for deleting the statutory penalty and interest. (¶¶ 6.6, 6.15)
- The concession before the High Court on liability to tax at 12% was a conscious decision by senior counsel not to press the issue, not a wrong concession on law; the assessee could not reopen the quantum of tax in the State's appeal. (¶ 6.14)
Result
Appeal allowed; High Court judgment dated 04.08.2016 deleting penalty and interest quashed and set aside; orders of the Assessing Officer, confirmed up to the Tribunal, levying penalty under Section 45(6) and interest under Section 47(4A) of the Gujarat Sales Tax Act, 1969 restored; no order as to costs.