G.S.T.R.No.17 of 2006 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. GSTR No.17 of 2006 Date of Decision:-January 18,2010 M/s Anand Refrigeration Co.(P) Limited, Jalandhar City ...Petitioner Versus The State of Punjab ...Respondent CORAM: HON'BLE MR.JUSTICE ASHUTOSH MOHUNTA HON'BLE MR.JUSTICE MEHINDER SINGH SULLAR Present: Mr.G.R.Sethi, Advocate for the petitioner. Mr.Piyush Kant Jain, Addl.AG Punjab. Mehinder Singh Sullar, J. The matrix of the facts, culminating in the commencement, relevant for disposal, of present reference and emanating from the record, is that on 17.8.1996, a vehicle bearing registration No.PIA-9696, carrying a consignment of twenty deep freezers, belonging to M/s Anand Refrigeration Company Private Limited, Jalandhar City-assessee (for brevity “the assessee”) was intercepted and checked by the Enforcement Staff, Jalandhar. The documents produced by the Driver were stated to be neither complete nor proper nor genuine. Accordingly, a show cause notice was issued, to which, the assessee filed the reply. However, the Deputy Director (Enforcement) imposed penalty of Rs.1,26,000/- under section 14-B (7) of the Punjab General Sales Tax Act, 1948 (hereinafter to be referred as “the Act”) vide order dated 31.12.1996 (Annexure P1). The appeal filed by the assessee was also dismissed by the Appellate Authority vide order dated 22.10.1998 (Annexure P2). 2. Aggrieved by the impugned order Annexure P2, the assessee filed the appeal. The Sales Tax Tribunal reduced the penalty levied (i.e.Rs.1,26,000/-) to the extent of 15% only, vide order dated 20.7.2000 (Annexure P3). The rectification application filed by the assessee was also dismissed by the Sales Tax Tribunal vide order dated 17.6.2002 (Annexure P4). G.S.T.R.No.17 of 2006 2 3. In the wake of STC No.29 of 2002, this Court vide order dated 28.11.2005 directed and the Sales Tax Tribunal referred the following question of law for opinion of this Court:- “Whether on the facts and circumstances of the case, penalty under section 14-B(7) of the Punjab General Sales Tax Act, 1948, was exigible?” 4. We have heard the learned counsel for the parties and have gone through the relevant provisions of the Act with their valuable assistance. 5. Learned counsel for the assessee has contended with some amount of vehemence that the assessee had already filed the return and intimated the concerned authorities about the sale of consignment on 10.8.1996, much prior to the interception of the consignment on 17.8.1996. It produced all the valid relevant documents. Therefore, question of any attempt to avoid or evade the tax did not arise at all. The argument further proceeds that there must be a cogent material on record and a specific finding, that there has been an attempt to avoid and evade tax, before invoking the penalty clause contained in section 14-B (7) of the Act. In support of his contention, he has placed reliance on the judgments of this Court in Mool Chand Chuni Lal v. Shri Manmohan Singh, Assistant Excise and Taxation Officer, Octroi Incharge, Shambhu Barrier, District Ptiala, and another [1977] 40 STC 238 (FB) (P&H), Kerala High Court in D.V.Deo v. State of Kerala [1995] 99 S.T.C. 600 and Karnataka High Court in Prakash Roadlines (P) Ltd. V. Commissioner of Commercial Taxes in Karnataka [1991] 83 S.T.C. 49. 6. On the other hand, learned counsel for the State argued that the bill and other documents submitted by the Driver of the vehicle at the time of interception were not complete, specific and genuine, therefore, the penalty clause was rightly invoked by the authorities under the law. 7. Thus, it would be seen that the facts of this case are neither intricate nor much disputed. Now the short and significant question that arises for determination in this case is whether on the facts and circumstances of the case, penalty under section 14-B (7) of the Act was exigible or not. Section 14 of G.S.T.R.No.17 of 2006 3 the Act postulates that “the commissioner or any person appointed to assist him under sub-section (1) of section 3 not below the rank of an Excise and Taxation Officer may for the purposes of this Act, require any dealer referred to in section 10 to produce before him any book, document or account relating to his business and may inspect, examine or copy the same and make such enquiries from such dealer relating to his business, as may be necessary.” Sub-section (3) of section 14 of the Act further posits that “If any officer referred to in sub- section (1) has reasonable ground for believing that any dealer is trying to evade liability for tax or other dues under this Act, and that anything necessary for the purpose of an investigation into his liability may be found in any book, account, register or document, he may seize such book, account, register or document, as may be necessary.” 8. In order to check the evasion of tax, section 14-B of the Act was amended and substituted by Punjab Act 13 of 1999 as under:- “14-B- Establishment of check posts or information collection centres and inspection of goods in transit - (1) If, with a view to preventing or check avoidance or evasion of tax under this Act, the State Government considers it necessary so to do, it may, by notification, direct for the establishment of a check post or information collection centre or both at such place or places as may be specified in the notification. (2) The owner or person incharge of a goods vehicle shall carry with him a goods vehicle record, a trip sheet or a log book, as the case may be, and a goods receipt and a sale bill or cash memo, or delivery note containing such particulars, as may be prescribed, in respect of such goods meant for the purpose of trade, as are being carried in the goods vehicle or and produce a copy of each of the aforesaid documents collection centre or any other officer not below the rank of an Excise and Taxation Officer checking the vehicle at any place: Provided that a dealer selling the goods from within the State or G.S.T.R.No.17 of 2006 4 outside the State in the course of inter-state trade or commerce, shall also furnish a declaration with such particulars, as may be prescribed. [Provided further that a registered dealer, who sells or despatches goods from within the State of Punjab to a place outside the State of Punjab or imports or brings any goods or otherwise receives goods from outside the State of Punjab, shall furnish particulars of the goods in a specified form to be obtained from the appropriate assessing authority in respect of the amount of transaction as may be prescribed] 3................ 4................ 5................ 6. (i) If the officer incharge of the cheek post or information collection centre or other officer as mentioned in sub-section (2), has reasons to suspect that the goods under transport are meant for trade and are not covered by proper and genuine documents as mentioned in sub-section (2) or sub-section (4), [******] or that the person transporting the goods is attempting to evade payment of tax, he may, for reasons to be recorded in writing and after hearing the person concerned, order the detention of the goods alongwith the vehicle for such period, as may reasonably be necessary. Such goods shall be released on furnishing a security or executing a bond with sureties in the prescribed form and manner by the consignor or consignee, if registered under the Act to the satisfaction of the officer detaining the goods and in case the consignor or the consignee is not registered under the Act, then on furnishing a security in the form of cash or bank guarantee or crossed bank draft, which shall be thirty percent of the value of the goods, rounded upto the nearest hundred. G.S.T.R.No.17 of 2006 5 (ii) If the owner or the person in-charge of the goods has not submitted the documents as mentioned in sub-section (2) and sub-section (4) at the nearest check post or information collection centre, in the State of Punjab, as the case may be, [on his entry into or exist from the State, such goods shall be detained alongwith the vehicle for a period, not exceeding seventy two hours] and shall be released only after the matter is finally decided under clause (iii) of sub-section (7). (7) (i) The officer detaining the goods under sub-section 6, shall record the statement, if any, given by the consignor or consignee of the goods or his representative or the driver or other person incharge of the goods vehicle and shall require him to prove the genuineness of the transaction before him in his office within a period of seventy two hours of the detention. The said officer shall, immediately thereafter, submit the proceedings alongwith the concerned records to such officer, as may be authorised in that behalf by the State Government for conducting necessary enquiry in the matter. (ii) The officer authorised by the State Government shall, before conducting the enquiry, serve a notice on the consignor or the consignee of the goods detained under clause (i) of sub-section (6), and give him an opportunity of being heard and if, after the enquiry, such officer finds that there has been an attempt to avoid or evade the [tax due or likely to be due under this Act, he shall, by order, impose on the consignor or consignee of the goods, a penalty, which shall not be less than twenty per cent and not more than thirty per cent of the value of the goods and in case he finds otherwise, he shall order the release of the goods and the vehicle, if not already released, after recording reasons in writing and shall decide the matter finally within a period of fourteen days from the commencement of the enquiry G.S.T.R.No.17 of 2006 6 proceedings. (iii) The officer referred to in clause (ii), before conducting the enquiry, shall serve a notice on the consignee of the goods, detained under clause (ii) of sub-section (6), and give him an opportunity of being heard and if, after the enquiry, such officer is satisfied that the documents as required under sub-section (2) and sub-section (4), were not furnished at the information collection centre or the check post, as the case may be, with a view to attempt to avoid or evade the tax due or likely to be due under the Act, he shall by order for reasons to be recorded in writing, impose on the consignor or the consignee of the goods, penalty equal to fifty per cent of the value of the goods involved. In case, he finds otherwise, he shall order release of the goods for sufficient reasons to be recorded in writing. He may, however, notwithstanding anything contained in clause (ii) of sub-section (6), order release of the goods and vehicle on furnishing a security by the consignor or the consignee in the form of cash or bank guarantee or crossed bank draft for an amount equal to the amount of penalty imposeable and shall decide the matter within a period of fourteen days from the commencement of the enquiry proceedings.” 9. The combined reading of these provisions would reveal that the appropriate authority under the Act is under legal obligation to conduct an enquiry after serving a notice on the consignor or consignee and give him an opportunity of being heard. If after the enquiry, such officer finds that there has been an attempt to avoid or evade the tax due or likely to be due under this Act, he shall, by order, impose on the consignor or consignee of the goods, a penalty, which shall not be less than twenty per cent and not more than thirty per cent of the value of the goods and in case he finds otherwise, he shall order the release of the goods and the vehicle, if not already released, after recording reasons in G.S.T.R.No.17 of 2006 7 writing and shall decide the matter finally within a period of fourteen days from the commencement of the enquiry proceedings (sub-section 7 (ii)). According to section 7 (iii) if the appropriate authority is satisfied that the documents as required under sub-sections (2) and (4), were not furnished at the information collection centre or the check post, as the case may be, with a view to attempt to avoid or evade the tax due or likely to be due under the Act, he shall by order for reason to be recorded in writing, impose on the consignor or consignee of the goods, penalty equal to fifty per cent of the value of the goods involved. In case, he finds otherwise, he shall order release of the goods for sufficient reasons to be recorded in writing. He may, however, notwithstanding anything contained in clause (ii) of sub-section (6), order release of the goods and vehicle on furnishing a security by the consignor or the consignee in the form of cash or bank guarantee or crossed bank draft for an amount equal to the amount of penalty imposeable and shall decide the matter within a period of fourteen days from the commencement of the enquiry proceedings. Meaning thereby, the penalty under section 14-B (7) can only be imposed if there is sufficient material and specific finding that an attempt to avoid or evade the tax due or likely to be due has been made by the assessee and not otherwise, which is condition precedent. 10. An identical question arose before a Full Bench of this Court in Mool Chand Chuni Lal's case (supra), Having interpreted the relevant provisions and relying upon the judgment of this court in case Dunlop India Limited v. State of Punjab [1972] 30 S.T.C. 597, it was held that the amended section 14-B (7) of the Act for levy of penalty is not based on any assumption that the goods were transported after sale within the State. Its basis is the attempt to evade tax and it prescribes a condition precedent for the levy of penalty. The condition precedent is that the authorised officer should record a finding that there has been an attempt to evade the tax due under the Act. The goods which are to be detained are also specified in section 14-B (6) as goods meant for trade and not covered by proper and genuine documents. Sequelly, in Prakash Roadlines (P) G.S.T.R.No.17 of 2006 8 Ltd's case (supra), it was observed that “mere failure to produce documents on demand by the assessee not by itself sufficient to sustain levy of penalty.” 11. It is not a matter of dispute that the assessee submitted sales tax return on 9.8.1996 i.e., a week earlier to the detection of the goods, which includes the sales of the consignment in question and had deposited the central sales tax at the rate of 4% coupled with the fact that the import permit in Form 40 dated 7.8.1996 was accompanying the consignment, as prescribed under West Bengal Sales Tax duly signed by the purchasing company and by the Sales Tax Authority of West Bengal indicating number of deep freezers and other particulars of the consignment and also the number of the goods receipt. The Presiding Officer, Sales Tax Tribunal having considered these facts found weight in the argument raised on behalf of the assessee, particularly the fact that the payments were through the banks and the transaction was pre-authenticated by the Sales Tax Department of West Bengal and Tribunal reduced the penalty levied (Rs.1,26,000/-) to 15 % only. The sales tax is to be levied at the rate of 4% or 12% is entirely a different matter to be determined by the authorities at the appropriate time. 12. Be that as it may, the fact remains is that the assessee submitted the sales tax return, much prior to the detection of the present consignment and paid the tax through bank accordingly, describing all the relevant details. Not only that, the transaction was pre-authenticated, but it was accompanying the import permit in Form 40 dated 7.8.1996 as prescribed under West Bengal Sales Tax duly signed by the purchasing company and by the Sales Tax Authority of West Bengal and the payments were made through the banks. Therefore, once the assessee had filed the returns of the full transaction, indicating therein, all the necessary details, then, in that eventuality, it cannot possibly be saith that there was any attempt on the part of the assessee to avoid/evade the tax. 13. As is evident from the record that in the wake of demand, the driver G.S.T.R.No.17 of 2006 9 of the vehicle submitted all the documents to the Sales Tax Authority. But the authorities below ignored the same only on the ground that the bill was not issued from the regular bill book and thus the consignment of 20 deep freezers was not covered by the proper and genuine documents and imposed the penalty of Rs.1,26,000/- under section 14-B (7) of the Act. It is no where stated that the documents submitted on behalf of assessee were forged or not genuine. In State of Kerala v. M.M.Mathew and another [1978] 42 S.T.C. 348, Hon'ble Supreme Court observed that “strong suspicion, strange coincidences and grave doubts cannot take the place of legal proof.” Assuming for the sake of argument (though not admitted), if the consignor or consignee failed to produce the genuine documents, then penalty cannot be imposed under section 14-B (7) of the Act, without recording a specific finding that there has been an attempt to avoid or evade the tax, which is totally lacking in the instant case. In the absence of the same, which is a condition precedent, a penalty clause cannot possibly be invoked, under the present set of circumstances. 14. There is another aspect of the matter, which can be viewed from a different angle. As indicated above, section 14-B (7) of the Act envisaged different situations for levying penalty. That means, there is a provision for levying a penalty in this respect, but penalty should not ordinarily be imposed only on the ground that such provision exists in statue. It should only be imposed if the party either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on consideration of all the relevant circumstances. Hon'ble Apex Court in Hindustan Steel Ltd. v. The State of Orissa [1970] 25 S.T.C.211 has ruled that “even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose G.S.T.R.No.17 of 2006 10 penalty, when there is a technical or 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.” 15. Thus, seen from any angle, we are of the considered opinion that in the absence of any cogent material and specific finding that there has been an attempt to avoid or evade the tax due or likely to be due, no penalty can be imposed on the assessee as contemplated under section 14-B (7) of the Act. The contrary argument on behalf of the Department “stricto-sensu” deserves to be and are hereby repelled as the aforesaid judgments are the complete answer to the problem in hand. 16. In the light of the aforesaid reasons, it is held that on the facts and circumstances of the case, penalty under section 14-B (7) of the Act was not exigible and substantial question of law is decided in favour of the assessee, in the obtaining circumstances of the case. 17. For the reasons recorded above, the present reference is accepted accordingly. (Mehinder Singh Sullar) Judge (Ashutosh Mohunta) Judge 18.1.2010 AS Whether to be referred to reporter?Yes/No