IN THE HIGH COURT OF KERALA AT ERNAKULAM
WA No. 2348 of 2002(E)
1. M/S. HIGHWAY CONTRACTORS,
... Petitioner
Vs
1. SALES TAX OFFICER,
... Respondent
2. DEPUTY COMMISSIONER,
3. THE COMMISSIONER OF COMMERCIAL TAXES,
4. DEPUTY TAHSILDAR (R.R),
5. THE STATE OF KERALA,
For Petitioner :SRI.A.KUMAR
For Respondent :GOVERNMENT PLEADER
The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice K.T.SANKARAN
Dated :26/07/2007
O R D E R
H.L.DATTU, C.J. & K.T.SANKARAN, J.
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W.A.No.2348 of 2002
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Dated, this the 26th day of July, 2007
JUDGMENT
H.L.Dattu, C.J.
This appeal arises out of an order passed by the learned Single Judge
in O.P.No.37501 of 2001 dated 10th July, 2002.
(2) In the writ petition, the assessee had called in question the orders
passed by the Sales Tax Officer imposing penalty under Section 10A of the
Central Sales Tax Act, 1956 (‘Act’ for short). The learned Single Judge has
rejected the writ petition filed by the assessee. That is how the assessee is
before us in this writ appeal.
(3) The facts in brief are: The assessee is a dealer registered both
under the provisions of the Kerala General Sales Tax Act and the Central
Sales Tax Act. The assessee is a contractor. The assessee had gone before
the registering authority for issuance of registration certificate. The assessing
authority/competent authority had granted the registration certificate to the
assessee. In the registration certificate it was made clear that the assessee
can effect inter state purchase of goods for the purpose of resale.
(4) The Sales Tax Officer being of the opinion that the assessee has
misused the C Forms, had initiated proceedings under Section 10A of the Act
for imposition of penalty. In the show cause notice issued on 9.11.1998, the
Sales Tax Officer had stated as under:
“Please take notice that on verification of the C Form
issue register and counter foils of C Forms it is noticed that you
have effected purchase of goods like machinery, machinery
spares etc., which are not been transferred for the execution of
the works contract. The details are as under.
xxx xxx xxx
W.A.No.2348/2002 2
As you are a Works Contractor and the registration
under the KGST Act and CST Act was granted accordingly,
you are not a manufacturer. Therefore you are not entitled to
the facility of using C Forms for the purchases of machinery,
parts, Motor Parts etc., as mentioned earlier, as provided under
section 8(3) of the CST Act 1956. As you have issued the C
forms you are liable for penal action as provided Under Section
10A for violation of Section 8(3). Total amount of the purchase
comes to Rs.180,25,936/-. It is therefore proposed to impose a
penalty of Rs.27,03,890/- being 15% of the tax due on the value
of the goods. Your objection if any against the proposal may be
filed at 11 AM on 17.11.98 in my office at Ernakulam.”
(5) After the receipt of the said show cause notice, the assessee had
filed his detailed reply, inter alia, bringing to the notice of the Sales Tax Officer
that the assessee was under the bona fide impression that he is entitled to
issue C Forms. The assessee also had relied upon the observations made by
the apex Court in the case of Builders Association of India and others v.
Union of India and others [(1989) 73 STC 370]. The material portion of the
objections filed by the assessee is as under:
“We have mainly undertaking Re surfacing of the road
and airport runway. We are using furnace oil, bitumin, metal
and we are mixing the same in the plant. We have purchased
Pavor Finisher, Drum Mix Plant from M/s.Gujarat Appolo
Equipments Ltd. and Asphalt Pavor Finisher from M/s. Appolo
Industries (P) Ltd. and Batching Plant from M/s.Bhai Sundardas
etc, being the plant for this purpose. We are informed that we
could buy this machinery by issue of C Form since these
machineries are used for mixing/manufacturing of ‘mix’. The
Board in their Circular No.20/93 (Tax) dated 13/8/93 directed
that C Form may be issued for works contractors. By a fiction
of law the works contract is divided in to sale of goods and
labour charges and as such after the 46th amendment the
materials used in the execution of contract is deemed to be a
sale. Supreme Court in Builders Association case (73 STC 370)
and the subsequent decisions, the position has been made
abundantly clear that by fiction of law the works contract stands
the same hutting as that of any other dealer. The Judgment of
Supreme Court in 73 STC on 31.3.89. We were under the
W.A.No.2348/2002 3
bonafide impression that we are entitled to issue of C Form
since we have followed the decision under the CST Act. The
Board has issued circular on 2.1.97. In Para 13, the Board has
given a direction that C Forms cannot be issued for the
purchase of machinery. We may submit that we have
purchased the issued C Form before 2.1.97.
We may further submit that we have not issued C Form
for purchase after 2.1.97. This also confirms bonafide and our
information that we could issue C Form for purchase of
machinery. Infact we have produced C Form register before the
Officer previously and we put his signature in the register. We
have issued C Form only after oral permission and clarification
from Sales Tax Officer at the time of issue.
We may also submit that in all these cases we have paid
4% tax on the purchases. Moreover out of the purchase the
following materials are purchased and used in the contract.”
(6) The Sales Tax Officer after considering the objections filed by the
assessee has proceeded to pass an order imposing penalty in a sum of
Rs.25,65,665/- by his order dated 30.1.1999.
(7) The first revisional authority modified the penalty imposed by the
Sales Tax Officer by reducing it to a sum of Rs.10,26,300/- by its order dated
4.6.1999.
(8) The said order was questioned by the assessee before the second
revisional authority. However, he was unsuccessful before the said authority.
That is how the assessee was before this Court in O.P.No.37501 of 2001. The
learned Single Judge has rejected the writ petition and that is how the assessee
is before us in this writ appeal.
(9) We have heard Sri.A.Kumar, learned counsel appearing for the
assessee and Sri.Mohammed Rafiq, learned Senior Government Pleader
appearing for the Revenue. Both the learned counsel have taken us through
several decisions of the various High Courts and also the Supreme Court. We
W.A.No.2348/2002 4
do not intend to refer to all those decisions, since we intend to remand the
matter to the Sales Tax Officer to reconsider the whole issue once over again.
(10) Admittedly, a show cause notice had been issued to the assessee
by the Sales Tax Officer before imposing penalty under Section 10A of the Act.
The assessee had filed his detailed objections and in that he had specifically
stated that the assessee was under the bona fide belief that he could issue C
Forms for effecting inter state purchase of the machinery and building materials
for the purpose of utilising the same in execution of the works contract. This
reasonable excuse offered by the assessee should have been taken note of by
the Sales Tax Officer and should have adverted to that aspect of the matter one
way or the other. For imposing any penalty under clause (a), (b), (c) and (d)
the guilty intention to evade tax is an essential ingredient of the offence. It is
the case of the learned counsel for the department that the offence made out
by the assessing authority would fall under clause (d) of Section 10 of the Act.
In this clause, the Parliament has used the expression “without reasonable
cause”, that only implies blameworthy conduct is an essential requirement of
the offence to fall under this clause. This fact has to be proved by the Sales
Tax Officer and the authority has to record a finding thereon. This has not
been done by the Sales Tax Officer. That only shows that there is total non
application of mind by the Sales Tax Officer. Therefore, we cannot sustain the
order passed by the Sales Tax Officer dated 30.1.1999.
(11) The aforesaid aspect of the matter should have been taken note of
by the hierarchy of officers before whom the assessee had filed revision
petitions. Even those revisional authorities have not noticed the specific
contention canvassed by the assessee in so far as the bona fide impression
W.A.No.2348/2002 5
that the assessee was entertaining while effecting inter state purchase of the
machinery and building materials for the purpose of execution of the works
contract.
(12) In view of that even those orders passed by the hierarchy of
officers before whom the revisions were filed by the assessee cannot also be
sustained.
(13) Lastly, the learned Single Judge ought to have appreciated the
aforesaid contentions canvassed by the assessee. But the learned Judge has
indicated in the order that in a case of this nature no mens rea is need not be
proved by the Sales Tax Officer. That view of the learned Single Judge may
not be correct in view of the decisions of the apex Court in the cases of
Hindustan Steel Limited v. State of Orissa [(1970) 25 STC 211] and
Cement Marketing Co. of India Limited v. Assistant Commissioner of
Sales Tax [(1980) 45 STC 197].
(14) Accordingly, the following:
Order
i) The writ appeal is allowed.
ii) The order passed by the learned Single Judge in O.P.No.37501 of
2001 dated 10th July, 2002 is set aside.
iii) The orders passed by the Sales Tax Officer and confirmed by the
revisional authorities are also set aside and the matter is remanded back to the
Sales Tax Officer to redo the matter in accordance with law after affording an
opportunity of hearing to the assessee.
iv) The assessee is also at liberty to take up all such contentions which
are available to him including certain contentions canvassed before this
W.A.No.2348/2002 6
Court.
Consequently, C.M.P.No.6176 of 2002 is dismissed.
Ordered accordingly.
(H.L.DATTU)
CHIEF JUSTICE
(K.T.SANKARAN)
JUDGE
vns/DK