JUDGMENT [ENTITY], J.
1. This application is directed against a Judgment and order dated 21.6.2000 passed by the West Bengal Taxation Tribunal in [CASE NUMBER], whereby and whereunder the application filed by the petitioners herein questioning an order imposing penalty purported to be in terms of the provisions of the [ACT] (hereinafter referred to and called for the sake of brevity as the 'said Act') was dismissed.
2. The fact of the matter is as follows :
A notification was published in the Extraordinary Gazette on 13.4.95 whereby and whereunder rules were framed in terms of the provisions of the said Act known as [ACT]. The said rule was made by the State in exercise of its power under [SECTION] of the [ACT]. [SECTION] of the said Rules provides for delegation of power subject to certain restrictions as specified therein by the Commissioner. At Serial No. 27 of the Table appended below the rule it has been provided that the power of imposing penalty in terms of [SECTION] of the said Act, shall not be delegated by the Commissioner on any officer below the rank of Commercial Tax Officer. The power and/or authority to issue such a notice is derived from his satisfaction that the dealer should be proceeded in terms of [SECTION] so as to be entitled to impose penalty. Such a power has been conferred upon the Deputy Commissioner. The petitioner is a registered dealer. An order was passed by the Commissioner, Commercial Taxes in terms of [SECTION] of the said Act read with [SECTION] of the said Rules delegating amongst others the powers under [SECTION] to impose penalty upon a dealer for concealment of sales or any particulars thereof, or of submission of incorrect statement of turnover of purchase or sales or purchases in the return with an intent to reduce the amount of tax payable by him to the Deputy Commissioner, Commercial Taxes and other authorities, by a notification dated 22.9.95.
3. A raid was conducted in the office of the petitioner No. 1 on 27.7.97 in course whereof certain documents were seized from his custody. Relying on or on the basis thereof, notice were issued against the petitioners purported to be under [SECTION] of the said Act and pursuant thereto various investigations were started with a view to ascertain as to whether there had been any evasion of tax. The respondent No. 5 herein issued a notice on 18.5.98 for imposing penalty for the period ending on 31.3.97. After giving an opportunity of hearing to the petitioners, the impugned order imposing penalty to the tune of Rs. 32,54,842.98 was passed by the said authority on 23.10.98, whereafter a notice in Form 51 demanding the amount of penalty was issued. An order of assessment imposing interest on the lax due to the petitioner No. 1 was passed on 21.12.98. The petitioners compiled with the said order. According to the petitioners, although the goods were imported without permit the said purchases were all duly recorded in its books of accounts. However, books of accounts and documents were looked into after seizure by the central section whereafter the petitioners were made aware of the correct position by the investigating officer whereupon the petitioners immediately paid all taxes along with interest on the definite and firm assurance by the concerned officer that if such amount was immediately paid no penalty would be levied. In April 1999, documents seized from the petitioners on 27.7.97 were returned. The petitioners filed a revisional application before the respondent No. 3, who by reason of an order dated 24.12.99 reduced the quantum of penalty. As against the said order, the learned Tribunal was moved in terms of [SECTION] of the [ACT]. The said application was marked as [CASE NUMBER] wherein in interim order was passed. In the meantime, a notification was issued on 1.4.2000 amending [SECTION] where the assessing authority only had been notified to be competent to impose by penalty in terms of [SECTION] of the said Act. Thereafter, the impugned order has been passed.
4. Mr. [ENTITY], learned counsel appearing on behalf of the petitioners, inter alia, raised a question that the order of penalty having been passed on 23.10.98 and the order of assessment having been passed on 21.12.98, the entire proceeding is bad in law. According to the learned counsel, a bare perusal of the provision of [SECTION] of the said Act would clearly show that the quantum of penalty would depend upon the amount of tax assessed, and in that view of the matter, no penalty can be imposed except upon completion of the assessment proceedings and/or appeal of revision taken there-against. Learned counsel in support of the aforementioned contention relied upon [PRECEDENT], [PRECEDENT], and [PRECEDENT]. Learned counsel further submitted that in any event, as the petitioners had filed a revised return and paid all the taxes, the imposition of penalty suffers from a legal infirmity in so far as the authorities failed to take into consideration the absence of actus reus on the part of the petitioners. In any event, the concerned respondent ought to have held that the factum of suppression, if any, could not have been taken into consideration without application of mind as regard the conduct of the petitioners to the effect that a revised return had already been submitted. In support of the aforementioned condition, strong reliance has been placed on [PRECEDENT]. Learned counsel would further urge that a bare perusal of [SECTION] as amended, would clearly go to show that the scheme contained therein raises a conflict with [SECTION] of the said Act, and in that view of the matter, too, the impugned order must be held to be illegal,
5. Mrs. [ENTITY], learned counsel appearing on behalf of the respondents, on the other hand, inter alia, submitted that initiation of a penalty proceeding is not bad in law and in support of the said contention, strong reliance has been placed on [PRECEDENT], reported in 39 STC 266.
6. Before considering the rival submissions raised at the Bar, the provisions of [SECTION] and the Explanation appended thereto as also [SECTION] of 1995 Rules may be taken into consideration. [SECTION] provides for imposition of penalty for concealment of sales and for furnishing of incorrect particulars of sales and purchases, inter alia, in a case where-
(a) a dealer has concealed any sales or any particulars thereof, or
(b) a dealer, being a registered dealer or a dealer required by the Commissioner to furnish return under [SECTION], has furnished incorrect statement of his turnover of sales or purchases or incorrect particulars of such sales or purchases in the return furnished by him under sub-section (2) thereof, or otherwise.
7. Such return must be filed with intent to reduce the amount of tax payable by him, whereupon only the Commissioner is empowered after giving such dealer a reasonable opportunity of being heard, to direct by an order in writing that he shall, in addition to any tax levied or penalty imposed under the Act, pay, by way of penalty, a sum, not less than one and a half times but not exceeding thrice the amount of tax which would have been avoided by him if such concealed sales or purchases of particulars thereof or incorrect statement of his turnover of sales or purchases or incorrect particulars of such sales or purchases were not detected and taken into account or if turnover of sales or particulars of sales furnished in returns or shown in his books of account were accepted as correct, as the case may be, in making an assessment or passing any order upon appeal, revision or review under the Act.
8. A bare perusal of the aforementioned provision clearly goes to show that recourse to the provision of [SECTION] of the Act can be taken provided the alleged actions specified in clauses (a) and (b) of sub-section (1) have been taken by the dealer with an intent to reduce the amount of tax payable by a dealer. Such an order can be passed, inter alia, in addition to any tax levied. Such amount of penalty would be a sum which would not be not less than one and a half times of tax which could have been avoided by him. Explanation appended to the provision of [SECTION] of the Act clearly shows that the tax levied shall include the amount of tax determined afresh by any order passed upon appeal, revision or review, or by any order of assessment consequent upon such appeal, revision of review under the Act. The aforementioned provision in no unmistakable term show that imposition of penalty has a direct nexus to the tax levied as also the tax which is sought to be evaded or avoided. It is in the aforementioned situation, the legality or otherwise of the impugned order has to be taken into considration.
9. In terms of [SECTION] of the [ACT], power has been conferred upon the Commercial Tax Officer to impose penalty. A Commercial Tax Officer or for that purpose an Assistant Commissioner may initiate and complete an assessment proceeding. [SECTION] of the Rules reads thus :
"236. Manner of imposition of penalty for concealment of sales and payment of such penalty. (1) Where it appears to a Deputy Commissioner that it is necessary to proceed against a dealer under [SECTION], such authority shall serve upon such dealer a notice in Form 51 directing him to appear before him in person or through an authorised agent and
(a) to produce before him the books of accounts, registers or documents for examination.
(b) to explain the books of accounts or documents produced by such dealer or evidence came into possession of the Deputy Commissioner, and
(c) to show cause on the dale specified in such notice why penalty as specified in the notice shall not be imposed on him.
(2) The dealer may, if he so wishes, prefer any objection in writing or he may adduce any evidence in support of his contention on the date of hearing.
(3) After examining the books of accounts, documents or evidence, produced by the dealer and considering his objection, the Deputy Commissioner shall impose penalty upon the dealer under [SECTION] for such amount as he deems fit and reasonable a notice in Form 52 upon such dealer directing him to make payment of the amount in accordance with the provisions of [SECTION]-and to produce the receipted challan in proof of such payment by the date specified in the said notice."
10. Furthermore, [SECTION] of the said Rules which provide for delegation of powers by the Commissioner, however, shows that the Deputy Commissioner, Commercial Taxes or Assistant Commissioner, Commercial Taxes or Commercial Tax Officer are empowered to impose penalty upon a dealer for concealment of sales or any particulars thereof in terms of [SECTION] aforementioned. As indicated hereinbefore, learned counsel for both the parties have relied upon the decision of [ENTITY], J, (as His Lordship then was) in [PRECEDENT]. In the aforementioned decision, this Court upon construction of the provision of [SECTION] of the 1941 Act held ;
"At the same time, I am not impressed with the contention made on behalf of the petitioner that [SECTION] refers only to an assessment proceeding. Mr. [ENTITY] has rightly contended that the word "any" in the words "any proceeding" in [SECTION] is significant. To accept the contention made on behalf of the petitioner that the said words refer only to an assessment proceeding is to altogether ignore the word "any" the presence of which before the word "proceedings", in my opinion, clearly indicates more than one proceeding. An appeal, a revision and a review under [SECTION] of the Act are undoubtedly proceedings under the Act. If the words "any proceedings" are construed as contended on behalf of the petitioner, then the proceedings by way of an appeal, revision and review will be outside the purview of the said words, although they are proceedings under the Act. For these reasons, the said contention of the petitioner is rejected.
In the instant case, admittedly, at the time the penalty notice was issued, no notice under [SECTION] was served upon the petitioner. The contention of the respondents that even before the service of a notice under [SECTION] a proceeding for assessment is started when the Commissioner considers the returns for the purpose of his satisfaction as to the correctness or otherwise of the same, is difficult to accept. Such a proceeding behind the back of the dealer is not contemplated by the provisions of [SECTION], for it is opposed to rules of natural Justice."
11. The Court in arriving at the aforementioned finding has taken into consideration the decision of the apex Court in [PRECEDENT], , wherein it has clearly been held that satisfaction before conclusion of the proceedings under the Act, and not the issue of a notice or initiation of any stop for imposing penalty is a condition precedent for the exercise of the jurisdiction. In [PRECEDENT], a Division Bench of this Court, inter alia, upon consideration of the provision of [SECTION] of the [ACT] held :
"It appears that the Tribunal held that though technically a default might have been committed by the assessee within the meaning of [SECTION] of the [ACT], the default, if any, was a trival one and that the assessee by making a disclosure, before the assessment was taken up further, had absolved himself of the charge of not filing a true and correct return or furnishing inaccurate particulars of its income in its return. In our view, the Tribunal was entitled to look into the entire facts and circumstances in order to determine whether penalty should be imposed on the assessee or not. It is settled law that before a penalty can be imposed, it has to be established that the assessee proceeded deliberately with an intention to conceal his correct income or to furnish incorrect particulars thereof. In the facts, the assessee by its subsequent conduct may be said to have established that there was no deliberate intention on its part to conceal its income and the incorrect return, which was initially filed, was sought to be rectified by its subsequent disclosure, which was noted and acted upon by the Income tax Officer. It is not mandatory under [SECTION] of the [ACT], that a penalty must be imposed in every case. If the conditions laid down in the said section are established, then the authority concerned "may direct" that the person committing the default within the meaning of the said section pay the penalty imposed."
12. In [PRECEDENT] (supra), it has been held that satisfaction, in the very nature of things, precedes the issue of notice and it would not be correct to equate the satisfaction of the Income-tax Officer with the actual issue of notice. In [PRECEDENT], while dealing with a case under [SECTION] of [ACT], it has been categorically held :
"The fact remains that the defects in the original return was rectified by the assesee by filing a revised statement before completing the assessment. The tax due thereon was also paid in time. In a case where the assessee filed revised return before completing the assessment it cannot be said that the original return filed by the assessee is defective and hence penalty is exigible. In [PRECEDENT] by an order dated January 2, 1995 this Court held that when the assessee filed revised return before the completion of the assessment and the tax due thereon was paid, then no penalty is exigible under [SECTION] of the Act According to the facts arising In the present case, the revised return was filed before the completion of the assessment and the tax due on the revised return was also paid in time. Therefore, we are also of the opinion that no penalty is exigible in the present case.
Accordingly, the order passed by the Tribunal in cancelling penalty is in order."
13. There cannot be any doubt whatsoever that before a penalty is imposed, existence of a mens rea on the part of the assessee has to be found. It is now a well settled principle of law that a penalty cannot be imposed only because it is lawful to do. The conduct of the assessee and various other factors are required to be taken into consideration before the appropriate authority arrives at his satisfaction that the conduct of the assessee is such which necessitates imposition of penalty, as he had committed acts with an intent to defraud the public exchequer. Such a satisfaction, in view of the aforementioned decisions, could be arrived at by the assessing authority only upon completion of the assessment proceedings as a result whereof amount of tax to be levied could become ascertainable. Explanation appended to 76 of the Act in no unmistakable term defines the words 'tax levied'. Having regard to the aforementioned fact, we are of the opinion that the impugned order must be held to be bad in law, in as much as, an order of penalty had been passed before completion of the assessment proceedings, and in any event, it has not been taken into consideration as to whether the petitioners had any mens rea in the matter of evading tax having regard to the fact that they had already filed a revised return and paid all the taxes and interest accrued thereupon.
14. The learned Tribunal, in our opinion, also committed an illegality in so far as it held that the original penalty order passed under [SECTION] merged with the second revisional order. In the facts and circumstances of this case, the doctrine of merger cannot be said to have any application whatsoever. A proceeding for imposition of penalty is a separate proceeding. The said proceeding has got nothing to do, although dependent upon it, with the assessment proceedings. A penalty proceeding is initiated consequent upon a finding arrived at by the assessing officer in course of an assessment proceeding. Only because an appeal or a revision is filed against the order of assessment that itself could not make an assessment proceeding a proceeding for imposition of penalty in as much as the same has merely a nexus with regard to the quantum of penalty that may be imposed having regard to the tax levied upon the assessee. The learned Tribunal, in our considered view, has also committed an illegality in so far as it held that for ascertaining the amount of tax which would have been avoided by the dealer, what remains to be done is just the mathematical calculation on the basis of the rates of tax applicable, of the tax amount which has been reduced by such deliberate concealment or incorrect statement in the return. The learned Tribunal failed to take into consideration the fact that the petitioner herein had also filed a revised return and paid taxes and interest in terms thereof. However, we do not accept the contention of the learned counsel that having regard to the provisions contained in [SECTION], power of delegation contained in [SECTION] of the said Act, being in conflict with each other, the former shall prevail. It is now a well settled principle of law that if there is a conflict between the Act and the Rules the former shall prevail.
15. For the reasons aforementioned, this application is allowed. The impugned order of the learned Tribunal as also the order imposing penalty are set aside with liberty to the competent authority to initiate any other proceeding therefore. If it is so advised, in accordance with law. In the facts and circumstances of the case, there will be no order as to costs.
Xerox certified copy of the Judgment be supplied on priority basis.
[ENTITY].
16. J. I agree.
17. Application allowed