M/s. V.D. Shah, Nipani vs The Entry Tax Officer, III Circle, Nipani

In this petition for a certiorari, the petitioner calls in question the validity of an order passed by the Karnataka Appellate Tribunal reducing the penalty levied upon the petitioner to the extent of the excess amount collected by it. The petitioner maintains that since there was no deliberate violation of the Provisions of the Tax on Entry of Goods Act, the question of imposing any penalty even to the extent of forfeiture of the excess amount did not arise. The excess amount of tax recovered by the petitioner and deposited by it is claimed back in order that the same may be refunded to the persons from whom it was recovered. The controversy arises against the following backdrop.

The petitioner carries on business in tobacco. For the year ending 4th of November, 1983, it filed a return admitting an entry tax liability of Rs. 9,836/- as against an amount of Rs. 22,230/- remitted by it. Similarly, for the year 1984, the annual return filed by the petitioner disclosed nil liability and claimed a refund of Rs. 17,242/- already remitted by it. While completing the assessment proceedings, the Assessing Authority levied upon the petitioner a penalty for an amount of Rs. 6,706/- and Rs. 12,302/- for the two years mentioned above. That was because the petitioner had recovered an amount in excess of what was legally recoverable during the said years. Both these penalty orders were questioned by the petitioner in separate appeals, which were dismissed. Second Appeals were thereafter preferred before the respondent-Tribunal, who has by a common order impugned in this writ petition modified and reduced the penalty to a sum of Rs. 4,504/- for the year 1982-83 and Rs. 8,740/- for the year 1983-84 by way of forfeiture thereby restricting the penalty to the forfeiture of the actual excess amount recovered by the petitioner.

Mr. Gandhi, appearing for the petitioner, contended that the levy of penalty was unjustified having regard to the finding returned by the Tribunal that the excess recovery had been made on account of a retrospective amendment in the Act, whereunder tax on tobacco was exempted for the period for which the petitioner had already made the recovery in question. He urged that since the amount recovered by the petitioner was validly recoverable during the relevant period, the element of guilty intention in the mind of the petitioner to make recoveries not otherwise permissible under law, was absent. In the absence of mens rea the question of imposing any penalty upon the petitioner even to the extent of forfeiture of the excess amount of tax recovered did not according to Mr. Gandhi arise. He relied upon the following passage from the order made by the Tribunal, in support of this submission that the excess collection was innocent which could not be penalised.

"It is admitted by both sides that the actual excess collection during the year 1982-83 amounted to Rs. 4,504/- and in respect of 1983-84 was Rs. 8,604/-. The collection was on account of an eventuality which was not anticipated by the appellant and it cannot be said that the excess collection was with any mala fide intention on the part of the appellants. We are of the opinion that though forfeiture is permissible, levy of penalty is not authorised unless it is proved that an appellant has fraudulently collected tax without authority of law. In the instant case, we are convinced that at the time when the collection was made the same was authorised under the law and therefore it is not proper on the part of the Assessing Authority to have levied penalty on account of excess collection of tax".

Mr. Shivayogiswamy, Counsel appearing for the respondent, on the other hand, urged on the authority of a Division Bench decision in M/s. Gujarat Co-operative Milk Marketing. Federation Limited, Bangalore v State of Karnataka, 1996(41) Kar. L.J. 576 and a Single Bench Judgement of this Court in M/s. Bharat Textiles and Proofing Industries v State of Karnataka and Others, 1996(41) Kar. L.J. 615, that mens rea was not an essential element to constitute a contravention of the provision of the Act before the same could result in the imposition of a penalty. He submitted that the excess of tax recovered by the petitioner could not be allowed to stay in its hands, as the petitioner could claim no right or interest in the same. This amount he argued could at best be claimed back by the customers from whom the same had been illegally collected, but any such refund to the customers need not necessarily be through the petitioner especially when it is difficult to ensure that the same reaches the rightful claimants.

Section 3-A of the Karnataka Entry Tax Act, 1979 provides that no person, who is not a registered dealer shall collect any amount by way of tax or purporting to be tax under the Act, nor shall a registered dealer collect any amount by way of tax or purporting to be the tax at a rate or rates exceeding the rate or rates specified in the notification issued under Section 3. Section 3-B on the other hand provides for forfeiture of amounts collected in excess of tax liability and penalty for collection of tax in contravention of Section 3-A and inter alia provides that the Assessing Authority may, forfeit by way of penalty, the amount unauthorisedly collected or collected in excess of the prescribed rates and may, in addition, impose upon the dealer a penalty not exceeding one and half times of such amount. In the instant case, it is not disputed that as on the date the petitioner made the collection, the amount so collected was actually recoverable. It was only on account of a subsequent amendment, which was given retrospective effect that the recovery of the tax already made was rendered illegal. Strictly speaking therefore the dealer could not be said to have had any intention of contravening the law as on the date the recovery was made by it. That does not however necessarily mean that the authorities could not treat the excess recovery as a contravention for the purposes of Section 3-B. As held by the Division Bench of this Court in Gujarat Milk Federation''s case, supra, the presumption that mens rea is an essential ingredient in every offence, is liable to be displaced either by the words of the statutes creating the offence or by the subject-matter with which it deals. A correct view on the subject can be taken only on the basis of the language used in the statute and the subject dealt with by the same. In regard to fiscal statutes, the Courts have more readily accepted the non-application of the doctrine and treated absence of mens rea to be a relevant factor only in the matter of fixing the quantum of penalty. To the same effect is the Single Bench decision referred to earlier. The excess recovery rendered illegal because of the retrospective amendment brought in to exempt tax on tobacco could therefore be made a basis for proceedings under Section 3-B of the Act. Such proceedings could result in a penalty by way of forfeiture of the excess amount or a further penalty not exceeding one and half times of the said amount. The Tribunal was, in my opinion, perfectly justified in holding that since the petitioner did not have any guilty intention, the penalty leviable under Section 3-B ought to be confined only to the forfeiture of the excess amount recovered by it. Inasmuch as, the forfeiture is confined only to the excess amount without burdening the petitioner with any further liability, the petitioner was given the benefit of the absence of a guilty mind, for otherwise the forfeiture of the excess may not have been sufficient.

Mr. Gandhi argued that the petitioner intended to retrieve the amount deposited by it only to refund the same to the customers by whom it was paid. There is however nothing before me to suggest that any such customer has made any claim for refund of the amount against the petitioner. The petitioner does not have any existing legal liability to discharge on account of the pendency to any such claim to even probabalise its version that it proposes to disburse the amount to the customers from whom it was recovered. That apart, if the customers, who have paid the excess amount truly wish to enforce their right of recovery, they can have an independent recourse to the remedies available to them under law, in which event the question whether the amount claimed was actually paid by the person lodging the claim may also have to be appropriately adjudicated upon before directing a refund. Suffice it to say that the petitioner cannot on the basis of an assumed obligation to refund at this distant point of time claim back the money over which it has admittedly no right or claim of its own. It cannot in the garb of a redress for the tax-payer claim back the money from the exchequer. Its plea for an opportunity to refund the amount to the persons, who paid the same therefore needs notice only to be rejected.

In the result, there is no merit in this writ petition, which fails and is hereby dismissed with costs assessed at Rs. 1,000/-.