ivil Appeal Nos
191 193 of 1978
Appeals by Special Leave from the Judgment and Order dated 28 12 77 of the Assistant Commissioner of Sales Tax Indore in R C No
IND1XXIX5 in case No 11872 73 for the period 1 8 71 to 31 7 72 R C No INDI1344 Central in Case No 8472 73 for the period 1 8 71 to 31 7 72 and R C No INDIXXIX5 TOT 1100 in Case No 11872 73 for the period 15 11 71 to 31 7 72 and rectified by orders dated 7 1 1978
V section Desai CA 19178 B R Agarwala and P G Gokhale for the Appellant
section K Gambhir for the Respondent
The Judgment of the Court was delivered by BHAGWATI J
These appeals by special leave raise common questions of law and it would be convenient to dispose them of by a single judgment
The assessee effected certain transactions of sale of cement in accordance with the provisions of the Cement Control Order during the assessment period Ist August 1971 to 31st July 1972 and in the course of the assessment of the assessee to sales tax under the Madhya Pradesh General Sales Tax Act 1958 and  a question arose whether the amount of freight which was included in the free on rail destination railway station  price but which was paid by the purchasers and hence deducted from the price shown in the invoices sent to the purchasers formed part of the sale price so as to be liable to be included in the taxable turnover of the assessee
The assessee proceeding on the basis that the amount of freight did not form part of the sale price and was not includible in the taxable turnover did not show it in the returns but the Assistant Commissioner of Sales Tax took the view that having regard to the provisions of the Cement Control Order the amount of freight formed part of the sale price and was includible in the taxable turnover of the assessee and on this view he passed two orders of assessment one under the and the other under the Madhya Pradesh General Sales Tax Act 1958 including the amount of freight in the taxable turnover of the assessee and levying tax upon it and also imposing heavy penalty on the assessee on the ground that the assessee had failed to disclose in its returns the amount of freight as forming part of the taxable turnover
The same position obtained also in regard to the assessment period 15th November 1971 to 31st July 1972 and a similar order bringing the amount of freight to tax and imposing heavy penalty on the assessee was passed by the Assistant Commissioner of Sales Tax under the Madhya Pradesh General Sales Tax Act 1958
Since the question as to whether in respect of transactions of sale of cement governed by the Cement Control Order the amount of freight formed part of the sale price and was liable to be included in the taxable turnover of the dealer was pending decision in this Court the assessee 1101 preferred appeals directly to this Court by special leave against the Orders of assessment made by the Assistant Commissioner of Sales Tax
The assessee challenged in the appeals not only the inclusion of the amount of freight in the taxable turnover of the assessee but also the imposition of penalty for not showing the amount of freight as forming part of the taxable turnover in the returns
So far as the first question is concerned namely whether the amount of freight formed part of the sale price and was includible in the taxable turnover of the assessee so as to be exigible to sales tax it stands concluded by a recent decision given by this Court in Hindustan Sugar Mills vs State of Rajasthan  Ors1 It has been held by this Court in that case that by reason of the provisions of the Cement Control Order 1967 which governed the transactions of sale of cement entered into by the assessee with the purchasers the amount of freight formed part of the sale price within the meaning of the first part of the definition of that term contained in sec
2 p of the Rajasthan Sales Tax Act 1954 and section 2h of the and was includible in the taxable turnover of the assessee
The definition of sale price  in section 2o of the Madhya Pradesh General Sales Tax Act 1958 is materially in the same terms as section 2p of the Rajasthan Sales Tax Act 1954 and this decision must therefore equally apply under the Madhya Pradesh General Sales Tax Act 1958 and it must be held that the amount of freight formed part of the sale price within the meaning of the first part of the definition of that term in section 2o of the Madhya Pradesh General Sales Tax Act 1958 and section 2h of the and was rightly included in the taxable turnover of the assessee
We may point out that the observations made by this Court in the Order dated 31st August 1979 allowing the Review Application of the assessee in Hindustan Sugar Mills case supra are equally applicable in the present case and the State will do what is fair and just to the appellant as indicated by this Court in that Order
The next question that arises for consideration is whether the Assistant Commissioner of Sales Tax was right in imposing penalty on the assessee for not showing the amount of freight as forming part of the taxable turnover in its returns
The penalty was imposed under section 43 of the Madhya Pradesh General Sales Tax Act 1958 and section 9 sub section 2 of the on the 1102 ground that the assessee had furnished false returns by not including the amount of freight in the taxable turnover disclosed in the returns
Now it is difficult to see how the assessee could be said to have filed false  returns when what the assessee did namely not including the amount of freight in the taxable turnover was under a bonafide belief that the amount of freight did not form part of the sale price and was not includible in the taxable turnover
The contention of the assessee throughout was that on a proper construction of the definition of sale price  in section 2o of the Madhya Pradesh General Sales Tax Act 1958 and section 2h of the  the amount of freight did not fall within the definition and was not liable to be included in the taxable turnover
This was the reason why the assessee did not include the amount of freight in the taxable turnover in the returns filed by it
Now it cannot be said that this was a frivolous contention taken up merely for the purpose of avoiding liability to pay tax
It was a highly arguable contention which required serious consideration by the Court and the belief entertained by the assessee that it was not liable to include the amount of freight in the taxable turnover could not be said to be malafide or unreasonable
What section 43 of the Madhya Pradesh General Sales Tax Act 1958 requires is that the assessee should have filed a false  return and a return cannot be said to be false  unless there is an element of deliberateness in it
It is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of the assessee and there is no reasonable explanation forthcoming from the assessee for such want of care the Court may in a given case infer deliberateness and the return may be liable to be branded as a false return
But where the assessee does not include a particular item in the taxable turnover under a bonafide belief that he is not liable so to include it it would not be right to condemn the return as a false  return inviting imposition of penalty
This view which is being taken by us is supported by the decision of this Court in Hindustan Steel Limited vs State of Orissa1 where it has been held that even if a minimum penalty is prescribed the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute  It is elementary that section 43 of the Madhya Pradesh General Sales Tax Act 1958 providing for imposition of penalty is penal in character and unless the filing of an inaccurate return is accompanied by a guilty mind the section cannot be invoked for imposing penalty
If the view canvassed on behalf of the Revenue were accepted the re 1103 sult would be that even if the assessee raises a bonafide contention that a particular item is not liable to be included in the taxable turnover he would have to show it as forming part of the taxable turnover in his return and pay tax upon it on pain of being held liable for penalty in case his contention is ultimately found by the Court to be not acceptable
That surely could never have been intended by the Legislature
We are therefore of the view that the assessee could not be said to have filed false  returns when it did not include the amount of freight in the taxable turnover shown in the returns and the Assistant Commissioner of Sales Tax was not justified in imposing penalty on the assessee under section 43 of the Madhya Pradesh General Sales Tax 1958 and section 9 sub section 2 of the 
We accordingly reject the appeals in so far they are directed against the inclusion of the amount of freight in the taxable turnover of the assessee but allow the appeals in so far as they relate to imposition of penalty of freight in the taxable turnover of the assessee but allow the appeals in so far as they relate to imposition of penalty and set aside the Orders passed by the Assistant Commissioner of Sales Tax imposing penalty on the assessee
There will be no order as to costs of the appeals
N V K Appeals partly allowed


Summary:
The assessee appellant effected certain transactions of sale of cement in accordance with the provisions of the Cement Control order
The amount of freight which was included in the free on rail destination railway station  price and which was paid by the purchaser was deducted from the price shown in the invoices sent to the purchasers
The assessee proceeding on the basis that the amount of freight did not form part of the sale price and was not includible in the taxable turnover did not show it in the returns submitted by it
The Assistant Commissioner of Sales Tax took the view that having regard to the provisions of the Cement Control Order the amount of freight formed part of the sale price and was includible in the taxable turnover of the assessee and passed two orders of assessment one under the and the other under the Madhya Pradesh General Sales Tax Act 1958 including the amount of freight in the taxable turnover of the assessee and levying tax upon it and also imposing heavy penalty on the assessee on the ground that the assessee had failed to disclose in its returns the amount of freight as forming part of the taxable turnover
In appeals to this Court on the questions of 1 inclusion of the amount of freight in the taxable turnover of the assessee and 2 imposition of penalty for not showing the amount of freight as forming part of the taxable turnover in the returns
 HELD 1
i The amount of freight formed part of the sale price within the meaning of the first part of the definition of that term in Section 2o of the Madhya Pradesh General Sales Tax Act 1958 and Section 2h of the  and was rightly included in the taxable turnover of the assessee
1101E ii In Hindustan Sugar Mills vs State of Rajasthan this Court held that by reason of the provisions of the Cement Control Order 1967 which governed the transactions of sale of cement entered into by the assessee the amount of freight formed part of the sale price within the meaning 1099 of the first part of the definition of that term contained in Section 2p of the Rajasthan Sales Tax Act 1954 and Section 2h of the and was includible in the taxable turnover of the assessee
The said decision must equally apply under the Madhya Pradesh General Sales Tax Act 1958 as the definition of sale price  in Section 2o of the Madhya Pradesh General Sales Tax Act 1958 is materially in the same terms as Section 2p of the Rajasthan Sales Tax Act 1954
1101C E 2i The Assistant Commissioner of Sales Tax was not justified in imposing penalty on the assessee under Section 43 of the Madhya Pradesh General Sales Tax Act 1958 and section 9 sub section 2 of the of 1956 as the assessee could not be said to have filed false  returns when it did not include the amount of freight in the taxable turnover shown in the returns
1103C B ii Section 43 of the Madhya Pradesh General Sales Tax Act 1958 providing for imposition of penalty requires that the assessee should have filed a false  return and a return cannot be said to be false  unless there is an element of deliberateness in it
The Section being penal in character unless the filing of an inaccurate return is accompanied by a guilty mind the section cannot be invoked for imposing penalty
1102D 1102H iii Where the assessee does not include a particular item in the taxable turnover under a bonafide belief that he is not liable so to include it it would not be right to condemn the return as a false  return inviting imposition of penalty
1102F Hindustan Steel Ltd vs State of Orissa 25 STC 211 referred to
In the instant case the assessee did not include the amount of freight in the taxable turnover under a bonafide belief that the amount of freight did not form part of the sale price and was not includible in the taxable turnover
The contention of the assessee through out was that on a proper construction of the definition of sale price  in Section 2o of the Madhya Pradesh General Sales Tax Act 1958 and Section 2h of the  the amount of freight did not fall within the definition and was not liable to be included in the taxable turnover
It cannot be said that this was a frivolous contention taken up merely for the purpose of avoiding liability to tax
This was a highly arguable contention
The belief entertained by the assessee that it was not liable to include the amount of freight in the taxable turnover could not be said to be malafide or unreasonable
It cannot therefore be said that the assessee filed false  returns necessitating imposition of penalty
1102A DE