M/S Vandana Distributors vs. The Commissioner Of Trade Tax U.P.

Held

The Court held that the governing principle is laid down by the Supreme Court in Commissioner of Sales Tax, U.P. Vs. M/s Sanjiv Fabrics, which requires penalty to be imposed only for deliberate defiance of law or guilty, contumacious, or dishonest conduct, with the burden of proof resting on the revenue. The Court found that while the petitioner admitted they might not have been entitled to purchase M-Seal against Form-C, there was no material or finding by the revenue authorities to establish a false declaration. The revenue did not dispute that M-Seal is popularly sold in hardware stores. The Tribunal's reasoning that the petitioner should have exercised utmost care and that the repeated use of Form-C established a false claim was found to be difficult to accept. The Court reasoned that the required level of care cannot be universally defined, and even if due care was not taken, it does not automatically lead to a conclusion of false declaration or mala fide intention. The test is one of false declaration, and absence of care to some extent may not be relevant. The Tribunal's reasoning was deemed to be on a wrong line, and its reversal of the first appellate authority's finding was not based on valid material or reasoning. The question of law was answered in the negative, in favour of the assessee.

Facts

The petitioner, M/s Vandana Distributors, filed a revision against an order of the Trade Tax Tribunal, Kanpur. The Tribunal had upheld a penalty of 15% on goods valued at Rs. 1,40,390/- imposed under Section 10-A of the Central Sales Tax Act, 1956, for the assessment year 1992-93. The penalty was levied because the petitioner purchased 'M-Seal' against a Form-C, despite their registration certificate only covering small tools, hardware, and portable generating sets. The assessing officer concluded this constituted a false representation. The first appellate authority had reversed this, finding no evidence of intent to make a false representation and deeming the petitioner's belief that M-Seal was a hardware item to be bonafide.

Key Issues

1. Whether the Tribunal was correct in not considering that there was no false representation or deliberate act by the petitioner in purchasing M-Seal against Form-C, and if the purchase was made in bonafide belief that it was a hardware item covered by the Registration Certificate, can a penalty be imposed? (Question of law turning on Section 10-A read with Section 10(b) of the Central Sales Tax Act, 1956). Petitioner's arguments: The petitioner argued that the purchase of M-Seal was made in a bonafide belief that it was a hardware item, as it is commonly sold in hardware shops. They contended that there was no evidence of deliberate false representation or dishonest conduct, and therefore, no penalty could be imposed. They relied on the Supreme Court decision in Commissioner of Sales Tax, U.P. Vs. M/s Sanjiv Fabrics, which held that a finding of mens rea is a condition precedent for levying penalty under Section 10(b) read with Section 10-A, requiring deliberate defiance of law or contumacious/dishonest conduct. Revenue's arguments: The revenue argued that the petitioner was aware of the items listed in their registration certificate and that acquiring items not listed constituted a false representation. They supported the Tribunal's finding that the repeated use of Form-C for an item not covered by the registration certificate established a false claim.