Hwashin Automotives India Pvt. Ltd. vs The State of Tamil Nadu

Chitra Venkataraman, J.—The assessee is on revision as against the order of the Sales Tax Appellate Tribunal dated 29.04.2009 passed in

T.A. No. 117 of 2008 relating to the assessment year 2002-2003 raising the following questions of law:

Whether the Hon''ble Tribunal erroneously decided the question of law before it when it proceeded on the basis that the mere absence of a

reference to a commodity in the Form-B registration certificate will by itself show a false representation within the meaning of Section 10(b) of the

CST Act, 1956?

Whether the expression ""machine"" found in the Form B registration certificate of the petitioner satisfied the expression ""any class of goods

found in Section 10(b) of the CST Act?

Whether the omission of the Tribunal to take into account the affidavit of SEONG TAE KIM one of the Directors of the petitioner, has resulted

in the Tribunal deciding the question of law before it erroneously?

The assessee herein is engaged in the manufacture of automobile parts. The assessee had his registration Certificate on the provisions of the Central

Sales Tax Act, 1956, mentioning the following goods:

for use in manufacture or processing of goods for sale

machines, mechanical press, welding machine, fig crane, CO2 welder and Spot Steel its CO2 gas, paint, electrodes, tools

The assessee purchased Diesel Generator Set and Air Conditioners by using ""C"" forms, which even as per the Certificate of Registration issued to

the dealer, the assessee was not entitled to purchase. Thus, the assessee had falsely represented and thereby was guilty of the offence u/s 10(b)

and (d) of the Central Sales TAx Act, 1956 attracting penalty. The Assessing Officer proposed to levy penalty of Rs. 6,93,945/- being 150% of

the tax due u/s 10A of the Central Sales Tax Act, 1956. The assessee contested the proposal by taking the view that the diesel generator sets

were only machines and as machines had been included for use in manufacture or processing of goods for sale in the Certificate of Registration,

there was no mistake on their part in the issuance of ""C"" forms. The assessee, thus, contended that being a machinery, diesel generator sets were

covered under the said head and being in the first year of preparation in 2002-03, they had no qualified person to advise them on this. In the

circumstances, they prayed for dropping of the levy of penalty. After considering the objections, the Assessing Officer, however, rejected the claim

of the applicant holding that the assessee had falsely represented that the goods purchased were covered by the Certificate of Registration entitled

to concession of levy by use of Form ""C"".

Aggrieved by this, the assessee went on appeal. The Appellate Assistant Commissioner, who once again confirmed the view of the Assessing

Officer, pointed out that if the claim of the assessee that generators and air conditioner fall under the category of machines was correct, then, they

would not have included welding machines and mechanical press in the Certificate of Registration. Thus once the assessee had included welding

machines and mechanical press in the Certificate they should also have included the diesel generator sets as well as the air conditioners in the

Certificate. Consequently, going by the false representation made, that the items in question were covered under Certificate of Registration, the

levy of penalty was confirmed.

The assessee once again filed appeal before the Sales Tax Appellate Tribunal, reiterating the contention. The Sales Tax Appellate Tribunal,

pointed out that availing of concessional tax by furnishing of ''C'' forms was to be decided on the facts in each case and in relation to what was

available in the Certificate of Registration. Thus, if the articles were covered under the broad classification of the items appearing in the Certificate

of Registration, the bona fides of the claim could not be rejected as a matter of course and that a claim lenient view can be taken. In holding so, the

Sales Tax Appellate Tribunal, pointed out that the Certificate of Registration specifically authorised to make purchase of certain items given by the

assessee viz., machines, mechanical press, welding machine, fig crane, CO2 welder and Spot Steel its CO2 gas, paint, electrodes, tools, etc.

Referring to the decision of this Court reported in Koodal Industries Limited Vs. State of Tamil Nadu , the Sales Tax Appellate Tribunal, held

that the diesel generator set could not be held to be a machinery. Thus going by the facts available, the Sales Tax Appellate Tribunal, confirmed the

view of the Authorities below.

Aggrieved by this, the present revision has been preferred by the assessee.

Learned counsel for the assessee submitted that since the generator set purchased by the assessee is also a machinery, under the bona fide

impression that the certificate of registration included such diesel generator set, the assessee purchased the same as against ""C"" form declaration.

Thus there was no mens rea or false representation to be imputed on the conduct of the assessee. Consequently, the order of the Sales Tax

Appellate Tribunal, has to be set aside.

In this connection, he placed reliance on the Full Bench Decision of this Court reported in The State of Tamilnadu Vs. Tvl. Nu-Tread Tyres, as

well as the unreported decision of this Court in T.C. 2151 of 2008 dated 28.09.2012 [West Coast Industries (Exports) Private Limited v. State of

Tamil Nadu] wherein applying the Full Bench decision of this Court, it restricted the penalty to 50% alone.

We have perused the Full Bench decision of the this Court, wherein this Court had interpreted the word ''falsely'' appearing u/s 10(b) of the

Central Sales Tax Act, 1956 as follows:

Section 10(b) of the Act provides for an offence if any person being registered dealer falsely represents when purchasing any class of goods that

goods of such class are covered by his Certificate of Registration. The expression ""falsely represents"" clearly shows that the element of mens rea is

the necessary component of the offence. In the absence of mens rea, resort to penal provision would not be proper unless it is established that the

conduct of the dealer was contumacious or that there was deliberate violation of the statutory provision or wilful disregard thereof. If the registered

dealer honestly believes that any particular goods are embraced by the Certificate of Registration and on that belief makes a representation, he

cannot be held guilty of the offence u/s 10(b) of the Act and no penalty can be imposed u/s 10A of the Act. The question whether the assessee

acted under the honest belief is a question of fact. Therefore, in our view, ""mens rea"" is an essential ingredient for the levy of penalty u/s 10(b) of

the Central Sales Tax Act, 1956.

Thus applying the said decision, in the unreported decision in T.C. No. 2151 of 2008 [cited supra], this Court pointed out that in dealing with the

question of levy of penalty, particularly as regards Section 10(b) of the Central Sales Tax Act, 1956 is concerned, one has to necessarily keep in

mind the nature of the business of the assessee.

Thus holding, this Court pointed out that the registration certificate of the assessee therein included yarn cloth, knitting sewing textile machines,

dyeing winch, boiler, calendering machines, dyes, chemicals, tag gun, spray gun, elastic, zip, buttons, drier, generator, oil engine, alternator, electric

motor, needle, LSD and HSO oil and jiggers. Read in the context of the enumerated entries in the registration certificate and on the purchased

items viz., circular trolley, M.S. trolley and water storage tank, this Court agreed with the assessee that they were under the bona fide impression

that the enumerated entries in the Registration Certificate would include the above items too.

Referring to the Commissioner''s letter in D. Dis. Acts. Cell. IV/87229/84 dated 06.07.1984, wherein, the Commissioner had issued

instructions that wherever a dealer had purchased goods on the basis of ""C"" forms, without including them in the Certificate under the Central Sales

Tax Act, 1956, either inadvertently or out of ignorance, this Court held that no penalty be levied. This Court further held that in respect of furnace

oil, distribution pipes, copper cable, transformer and electrical goods, demineralising plant, circular trolley, M.S. trolley and water storage tank,

there could be no levy of penalty. However, as regards the aluminium sheets, this Court held that the assessee would not be justified in claiming

bona fide plea that they were included in the enumerated parts. To that end, this Court reduced the penalty to 50% on the purchase of Aluminium

Sheets.

As far as the present case is concerned, we do not find that the nature of the business would justify the purchase of diesel generator sets as

forming part of the machinery to be used in the manufacture. Admittedly, the purchase of the generator set was only a standby to supply electricity

whenever there was power failure. The assessee pointed out, in its reply that they were in the first year of business and they had commenced

operations in India for the first time in the year 2002 and they had no previous knowledge of tax laws in India and there were none in their pay rolls

to advise them on tax matters and they placed reliance on purchase department in-charge, who was an engineering graduate, hence, their bona

fides could not be doubted. Taking note of the same, this Court feels that as against the penalty levied at 150%, the same could be reduced to

50% of the tax due. Accordingly, while confirming the levy of penalty imposed by the Assessing Officer, the same is reduced to 50% of the tax

due. To that extent, the Tax Case (Revision) is allowed and the order of the Sales Tax Appellate Tribunal is set aside. No costs. Consequently, the

connected miscellaneous petition is closed.