The High Court of Allahabad quashed the penalty imposed on Bajaj Hindusthan Sugar Ltd. under Section 10(d) of the Central Sales Tax (CST) Act due to lack of mens rea.
To set up a manufacturing facility, the petitioner had procured various materials, keeping cement for the construction of the premises. The company used Form C to procure cement at a concessional rate, which was later consumed in the construction of its manufacturing facility in Uttar Pradesh.
The company initially claimed the concessional rate under Section 8(3)(b) of the CST Act, which allows reduced tax rates for goods used in manufacturing or processing for sale.
The Assessing Officer opined that cement, being consumed for foundation work in plant construction, did not qualify for this benefit. The matter was subsequently taken up by the tax tribunal, which remanded the case, directing that a certificate from a Chartered Engineer on the cement’s usage be considered.
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Even after the engineer’s certification, the Deputy Commissioner imposed a penalty of Rs. 82,41,985, asserting that a significant portion of the cement had been used for non-foundational purposes and that separate records were not maintained.
The penalty was upheld by the tribunal.
It was submitted by the revisionist’s counsel that the department was unable to prove that the benefits grantable under Section 8 of the CST Act were used by the revisionist in a malafide manner.
The counsel further contended that under Section 10(d), the revisionist provided sufficient material to demonstrate a reasonable excuse, making the penalty unwarranted.
The High Court, by relying on the judgment of the Supreme Court in the cases of The Commissioner of Sales Tax, U.P. v. Sanjiv Fabrics and Commissioner of Central Excise v. Pepsi Foods Ltd. held that penalties cannot be imposed just because of procedural lapses without proof of intent to evade taxes.
The bench observed that the Supreme Court had held that for imposing a penalty under Section 10( d ) of the Act, mens rea is important.
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The HC further observed that “even otherwise on the plain 11 reading of Section 10(d) the phrase “reasonable cause” has been duly discharged by the revisionist by producing the certificate of an Engineer, thus necessary ingredient for levy of penalty have neither been alleged established or proved in the present case.”
Justice Pankaj Bhatia quashed the penalty that was imposed.
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