Supreme Court: Question of Mens Rea Not to be Considered when Levying Penalties Under Section 45 of the Gujarat Sales Tax Act, 1969

Supreme Court: Question of Mens Rea Not to be Considered when Levying Penalties Under Section 45 of the Gujarat Sales Tax Act, 1969

The Supreme Court while considering an appeal filed against judgment and order passed by the Gujarat High Court, which set aside the penalty and interest levied under Section 45(6) of the Gujarat Sales Tax Act, 1969, ruled that the moment it is found that a dealer is to be deemed to have failed to pay the tax to the extent mentioned in Section 45 (5), the penalty under Section 45(6) is automatic, there is no question of considering any mens rea on the part of the assessee/dealer.

The brief background of the case was that the respondent company/assessee, M/s Saw Pipes Ltd, is engaged in the business of executing works contract of coal tar and enamel coating on pipes. It opted for payment of lumpsum tax as provided under Section 55A of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as the Act, 1969) and deposited tax at the rate of 2% on sales, by treating the same as civil works contract, as prescribed in Entry 1 of the notification dated 18 October, 1993 issued by the Government of Gujarat.

The Assessing Officer (AO) passed an order holding that the contract of coating of pipes is not a civil works contract and therefore, the composition was not payable at the rate of 2%, as deposited by the assessee, and that it fell under the Residuary Entry-8 of the said notification.

The AO levied penalty and interest against the respondent assessee under the provisions of Section 45(6) and Section 47(4A) of the Gujarat Sales Tax Act, which was confirmed by the Income Tax Appellate Tribunal (ITAT) in appeal.

In an appeal filed by the assessee, the Gujarat High Court set aside the levy of penalty and interest on the ground that the enhanced tax imposed by the AO had already been paid by the assessee and that the assessee was under a bonafide belief that it was liable to pay the tax at the rate of 2% and not 12%.

Aggrieved, by the same the revenue department filed an appeal before the Supreme Court.

The issue that came up for consideration before the division judges’ bench of Justices M.R. Shah and B.V. Nagarathna was that 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 was required to be considered.

The bench referred Section 45(6) and Section 47(4A) of the Act, and was of the view that as per Section 45(2) 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.

The Court noted in the present case, it could not be said that the dealer had 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 Section 45(6) of the Act, 1969 was 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, stated the bench.

The Court noted that as per Section 45(5) 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 one-half times the difference referred to in sub­section (5).

The Court held, “on a bare reading of sub­sections (5) and (6) 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.”

The bench while interpreting from the language of Section 45(6) of the Act, held that penalty leviable under the provision is a statutory penalty. The phrase used is “shall be levied.”

The Court opined that the moment it is found that a dealer is deemed to have failed to pay the tax to the extent mentioned in Section 45(5), there shall be levied on such dealer a penalty not exceeding one and one-half times the difference referred to in sub­section (5).

The bench highlighted that as per Section 45(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.

In this regard, the Court held that there is no discretion with the assessing officer either to levy or not to levy and/or to levy any penalty lesser than what was prescribed/mentioned in Section 45(6) of the Act, 1969.

In that view of the matter, the Court ruled there is no question of considering any mens rea on the part of the assessee/dealer.

The bench appositely stated that, 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, and it is a well settled principle in law that the Court cannot read anything into a statutory provision which is plain and unambiguous.

Therefore, the Court on strict interpretation of Section 45 and Section 47 of the Act, 1969, concluded 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 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.

The Court thus allowed the appeal and set aside the judgment and order of the High Court, while restoring the order of the AO.