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Judgment
Pratap Krishna Lohra, J.—The petitioner-assessee has preferred this revision petition under Section 84 of the Rajasthan Value Added Tax Act, 2003 (for short, ''Act of 2003'') challenging the impugned order dated 22nd of May 2014 passed by learned Rajasthan Tax Board, Ajmer. By the order impugned, the learned Tax Board has allowed the second appeal of the revenue under Section 83 of the Act of 2003 and reversed the order of the first appellate authority Deputy Commissioner (Appeals), Commercial Taxes Department, Udaipur.
Succinctly stated, the facts of the case are that petitioner-assessee is a consignment agency of M/s. Essel Agro Private Limited, which is engaged in broadcasting services and for facilitating the same it supplies dish antenna, digital decoder etc. The petitioner-assessee entered into an agreement dated 20th April 2005 with M/s. Essel Agro and in terms of the agreement petitioner firm is provided goods by M/s. Essel Agro. As per the terms of the agreement, goods are provided to the petitioner only for utilization on right to use basis for which the petitioner is in receipt of commission. As per the version of the petitioner, goods are received under challans from M/s. Essel Agro with clear stipulation that goods are supplied against refundable security deposit for installation at customer premises on rental and not for sale. The petitioner, in turn, supplies these goods to various third parties by collecting refundable advance security deposit as also collecting applicable value added tax on lease rentals. The respondent revenue conducted investigation and recorded statements of certain dealers. On the strength of the materials collected during investigation and statements of dealers recorded, the respondent alleged that the petitioner had actually sold the goods to third parties. By taking into account the said transactions as sale, the respondent made attribution against petitioner of indulging in tax evasion and accordingly proposed that the security deposits collected by the petitioner should be made liable to VAT. In furtherance of the alleged incriminating material collected against the petitioner-assessee during investigation, a show cause notice dated 6th of September 2007 was issued to the petitioner. Petitioner submitted its reply to the show cause notice but same did not find favour from the respondent and the respondent-revenue concluded that the security deposits are liable to VAT and accordingly VAT was imposed upon the petitioner on such security deposits by treating them as sale consideration. That apart, penalty twice the amount of tax demanded was imposed on the petitioner-assessee.
Feeling dismayed with the said order of the assessing authority, the petitioner laid an appeal before the Deputy Commissioner (Appeals), Commercial Taxes, Udaipur. The effort made by the petitioner-assessee proved productive and the appellate authority found that the petitioner received the goods against refundable security deposit and as such VAT is not leviable from it. The appellate authority has also noticed that the petitioner-assessee has not been afforded opportunity to cross-examine the dealers whose statements were used against it in gross violation of principles of natural justice and therefore assessment order is vitiated in law. While adverting to the order of the assessing authority for imposition of penalty, the learned first appellate authority recorded a definite finding that there is no evidence on record to show that assessee intended to evade the tax. While recording this affirmative finding, the first appellate authority has also thoroughly examined the books of accounts of assessee and eventually set aside the order of penalty.
Feeling disgruntled with the order of the first appellate authority, the respondent-revenue invoked the jurisdiction of second appeal, i.e. Tax Board, by preferring appeal under Section 83 of the Act of 2003. The second appellate authority, learned Tax Board, accepted the appeal of the respondent-revenue and set at naught the order passed by the first appellate authority, thereby maintaining order passed by the assessing authority.
At the threshold, revision petition came up before this Court on 5th August, 2014 and notices were issued to the respondent-Revenue. After service of notice, learned counsel for the rival parties on 10th December, 2014 agreed to argue the matter finally at admission stage. Subsequently, an application (IA No. 5829/2014) was laid by the petitioner for taking additional documents on record. The prayer made in the application not opposed by the learned counsel for the respondent-Revenue, and therefore, same was allowed on 13th January, 2015 and additional documents were taken on record. When the matter is finally taken up for final hearing, after bipartite hearing, following questions of law emerged out for determination:
(i) Whether in construing the impugned transaction as sale and not lease, the learned Tax Board has exercised its jurisdiction appropriately for reversing the findings and conclusions of the first appellate authority and restoring the assessment order?
(ii) Whether the learned Tax Board is forthright in reversing the findings and conclusions of the first appellate authority on contentious issue of violation of principles of natural justice in passing the assessment order?
(iii) Whether in the facts and circumstances of the instant case, avoidance or evasion of tax is made out against the petitioner-assessee for fastening penalty under Section 65 of the Rajasthan Sales Tax Act, 1994?
Learned counsel for the petitioner-assessee submits that learned Tax Board has seriously erred in construing security deposits for the goods supplied to respective dealers on lease rental basis as sale consideration. Mr. Jain would contend that indisputably the petitioner-assessee received goods against refundable security deposits from M/s. Essel Agro and others and thereafter these goods were supplied to various third parties by collecting refundable advance security deposits as also collecting applicable Value Added Tax on lease rentals, therefore, the amount collected by the petitioner-assessee cannot be termed as sale consideration, as concluded by the learned Tax Board. Further elaborating his submissions in this regard, learned counsel submits that the learned Tax Board has transgressed its jurisdiction in reversing the findings and conclusions of the first appellate authority dehors the law.
Mr. Jain submits that the impugned transaction is rightly construed as "lease" within the meaning of sub-section (23) of Section 2 of the Act of 1994 and as such the learned Tax Board has misdirected itself in construing the same as "sale" within the meaning of four corners of sub-section (38) of Section 2 of the Act of 1994. Learned counsel, Mr. Jain, has vehemently argued that while construing the impugned transaction as sale, the assessing authority has violated the principles of natural justice inasmuch as the petitioner-assessee was not permitted to have access to the statements of dealers and furthermore it was not permitted to cross-examine the dealers, who have deposed against it. However, according to Mr. Jain, learned Tax Board has completely eschewed this vital aspect, which is taken note of by the first appellate authority, and therefore, reversal of finding of the first appellate authority on this vital issue is not sustainable.
Learned counsel would contend that imposition of penalty, which is double the amount of tax imposed, is contrary to law inasmuch as there is no finding worth the name that petitioner-assessee was involved in avoidance or evasion of tax. Highlighting the involvement of mens-rea in the matter of imposition of penalty, Mr. Jain submits that there is no material on record to show that there was mens-rea on the part of petitioner-assessee to evade the tax, nor there is finding to this effect, and therefore, the imposition of penalty under Section 65 of the Act is unsustainable.
In support of his contentions, learned counsel for the petitioner has placed reliance on following legal precedents:-
(i) United Breweries Ltd. Vs. State of Andhra Pradesh, AIR 1997 SC 1316 : (1997) 3 JT 265 : (1997) 2 SCALE 456 : (1997) 3 SCC 530 : (1997) 2 SCR 690 : (1997) 105 STC 177 : (1997) AIRSCW 1414 : (1997) 3 Supreme 454
(ii) State of Kerala Vs. K.T. Shaduli Yusuff etc., AIR 1977 SC 1627 : (1977) 2 SCC 777 : (1977) SCC 347 : (1977) 39 STC 478 : (1977) 9 UJ 318
(iii) Rasid Ahmed and Others Vs. State of Rajasthan and Another, AIR 1999 Raj 314 : (1999) 1 WLN 612
(iv) Commissioner of Income-tax, Bikaner V/s. Pawan Sharma (D.B. Income-Tax Appeal No. 3/2012 - decided on 13.07.2012] [(2012) SCC OnLine Raj 2015]
(v) Indian Gum Industries Ltd. Vs. Assistant Commissioner, (2014) 70 VST 108 .
(vi) Commissioner of Sales Tax, U.P. Vs. Sanjiv Fabrics, (2010) 258 ELT 465 : (2010) 10 JT 192 : (2010) 9 SCC 630 : (2010) 35 VST 1
(vii) Uniworth Textiles Ltd. Vs. Commissioner of Central Excise, Raipur, (2013) 196 ECR 1 : (2013) 288 ELT 161 : (2013) 19 GSTR 246 : (2013) 2 JT 113 : (2013) 2 RCR(Civil) 472 : (2013) 1 SCALE 541 : (2013) 9 SCC 753 : (2013) 39 STT 58 : (2013) AIRSCW 4766
(viii) Akbar Badrudin Jiwani of Bombay Vs. Collector of Customs, Bombay, AIR 1990 SC 1579 : (1990) 27 ECC 69 : (1990) 47 ELT 161 : (1990) 1 JT 256 : (1990) 1 SCALE 176 : (1990) 2 SCC 203 : (1990) 1 SCR 369 : (1990) 1 UJ 514
Per contra, Mr. D.K. Godara, learned counsel appearing for the respondent-Revenue, submits that the learned Tax Board in the factual background of the case has rightly concluded that supply of dish antenna and digital decoder by the petitioner-assessee to respective third party dealers is a sale transaction and not merely a lease. Elaborating his submissions, Mr. Godara would contend that the petitioner-assessee has collected adequate security from the dealers without there being any written agreement for leasing of the goods and as such the impugned transactions are outright sale within the meaning of sub-section (38) of Section 2 of the Act of 1994.
Learned counsel for the Revenue, while stoutly defending the impugned order of the learned Tax Board, submits that the learned Tax Board, on evaluation of the matter in its entirety, has rightly concluded impugned transactions as sale, therefore, reversal of the order of the first appellate authority and restoring the assessment order is a just decision, which calls for no interference.
Mr. Godara would contend that in the matter of fiscal and taxing statutes, the principles of natural justice cannot be overstretched at the cost of interest of the Revenue and applicability of principles of natural justice in such matters is not akin to that of other civil proceedings. Refuting the argument of the learned counsel for the petitioner about violation of principles of natural justice with full vehemence, learned counsel for respondent-Revenue submits that the petitioner never requested the assessing authority to cross-examine the dealers and as such the plea of violation of principles of justice is not available to it in the given circumstances.
Castigating the assessee for involving in avoidance and evasion of tax, Mr. Godara, learned counsel for the Revenue, has urged that there is no infirmity much less legal infirmity in imposition of penalty under Section 65 of the Act of 1994.
On the legal precedents cited by learned counsel for the petitioner to support its cause, learned counsel for the Revenue submits that these legal precedents are factually distinguishable and the ratio decidendi cannot be applied in the present case in abstract sense.
Lastly, emphasizing the significance of the provisions for penalty in the taxing statutes, learned counsel would contend that such provisions are having laudable objects inasmuch as these provisions can facilitate effective implementation of the taxing statutes to enrich the coffers of Revenue.
I have heard learned counsel for the parties, perused the impugned order and the documents available on record.
The first and foremost question of law is of great significance. The petitioner-assessee and the respondent-Revenue have locked horns to prove supply of dish antenna and digital decoders to respective dealers as lease, or a sale transaction. Respondent-Revenue has proceeded against petitioner on the premise that the said transaction falls within the ambit of sale whereas petitioner-assessee has asserted that it is only a lease and dish antenna and digital decoders are being supplied to the respective dealers after taking security deposit which is refundable. The Assessing Authority, at the threshold proceeded against the petitioner-assessee for the Assessment Year 2005-06 pursuant to investigation conducted. It appears that during investigation the taxing authorities have allegedly unearthed evasion of tax by the assessee inasmuch as it has not paid tax on sale of dish antenna and digital decoders The assessing authority, taking note of the investigation, issued a show cause notice castigating the assessee for evasion of tax. Show cause notice was acknowledged by the assessee by submitting reply but the same was not found to be satisfactory. In these situations, the authority, competent to check evasion of tax, proceeded for assessment. The assessment proceedings concluded finally on 10.11.2007 and the Assistant Commissioner, Commercial Taxes (Anti Evasion), Udaipur, imposed tax @14% against the assessee, and while resorting to Section 65 of the Act of 1994, imposed penalty double the amount of tax and also fastened liability of interest under Section 58 of the Act of 1994.
The very edifice of the assessment order, as is evident from the recitals, is the alleged incriminating material collected during investigation, which includes examination of some of the local dealers to whom the dish antenna and digital decoders were supplied by the petitioner. Therefore, eventually the assessing authority has declined to accept the contention of the petitioner-assessee that supply of dish antenna and digital decoders is a lease and not sale within the four corners of the Act of 1994. In appeal, when the matter is re-examined by the first appellate authority - Deputy Commissioner (Appeals), Commercial Taxes, Udaipur, the appellate authority has taken a topsy turvy stand by reversing the said finding of the assessing authority. The first appellate authority has also noticed a patent snag in the approach of the assessing authority for fastening tax liability by way of branding the said transaction as a sale. In the impugned order, the learned Tax Board, while noticing a very vital fact that dish antenna and digital decoders are supplied by Essel Agro to the petitioner-assessee on refundable security of five years, with a clear stipulation under an agreement that these goods are not for sale, has finally concluded that in want of lease agreement between the petitioner-assessee and the respective dealers, it is difficult to presume that the transaction is a lease, and as such it is a transaction of sale. In fact, none of the authorities have made any endeavor to find out truth about the transaction and more particularly the second appellate authority while passing the impugned order has not recorded cogent and convincing reasons. The very edifice of initiating proceedings by the Anti-Evasion Wing of the Commercial Taxes Department is investigation and the alleged incriminating materials collected during investigation against the petitioner-assessee. There remains no quarrel that petitioner-assessee has received dish antenna, digital decoder and other accessories from Essel Agro on payment of advance security deposit and there is an agreement between Essel Agro and the petitioner-assessee. The goods in question were supplied to the assessee with a clear stipulation "not for sale". In these circumstances, whether the petitioner-assessee has violated the terms of agreement, which it has entered into with the Essel Agro, and has made an attempt, to sell dish antenna, digital decoder and other goods to the respective dealers is a contentious issue. Although the first appellate authority has made an attempt to ascertain the true nature of the transaction, but, I am afraid, the approach of the first appellate authority in this regard is also not convincing. I am aghast that the second appellate authority has acted all the more casually in reversing the findings and conclusions of the first appellate authority on this vital issue so as to restore the original assessment order.
In United Breweries Limited (supra), Hon''ble Apex Court, while dealing with the issue, has dilated on this vital issue and held that for ascertaining the true nature of the transaction, intention of the parties, their conduct and the terms of the contract are of great significance. The Court held:
We are unable to uphold this contention having regard to the nature of the transaction. The basic questions are: What was the intention of the parties? When the bottles and crates were supplied by UB, did UB intend to make an out and out sale of the bottles and the crates along with beer and did the customers purchase not only beer but also the bottles and the crates from UB? The intention has to be found out from the conduct of the parties to the agreement and the manner in which the business was being carried out.
Section 19 of the Sale of Goods Act lays down that where there is a contract for sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, conduct of the parties and the circumstances of the case. Sections 20 to 24 contain rules for ascertaining the intention of the parties as to the time at which the property in the goods is passed to the buyer. But these rules will apply only if a different intention does not appear from the contract itself.
After examining the matter threadbare, the Court finally concluded:
Having regard to the facts of this case, we are of the view that an out and out sale of the bottles did not take place when beer was supplied in bottles by UB to its customers against the deposits which had to be refunded when the bottles were returned. Having regard to the scheme and the nature of the transactions, we are of the view that the High Court was in error in holding that when beer was sold in bottles, not only beer but also the bottles were sold and the price of beer along with the deposits became exigible to sales tax.
Mr. Ganguli argued that the very fact that UB had a right to forfeit the deposits on the failure of the customer to return the bottles indicates that the bottles were sold. The deposits were nothing but price of the goods which was returnable when the bottles were resold.
We are unable to uphold this contention. Whether the bottles and the crates were sold along with the beer or not will depend upon the intention of the parties. We have set out the terms and conditions under which the beer was sold and it does not appear from these terms and conditions that UB intended to sell crates and bottles to the customers. On the contrary it was very anxious to get back these crates and bottles in order to use them again for further supplies. The fact that UB advised their customers to charge similar deposits from their consumers and get back the bottles from them goes to show that an out and out sale of the bottles had not taken place. By taking the deposits UB merely ensured the return of the bottles and the crates. A deposit of forty paise per bottle was taken to ensure return of the bottles. In our view, the deposit amount which was liable to be forfeited on failure of the return of bottle was in the nature of liquidated damages recoverable by the supplier under Section 74 of the Contract Act. An overall view has to be taken of the dealings and transactions between the manufacturer of the beer, its customers and the consumers. The intention of UB does not appear to have been to sell the beer bottles. Nor was there any intention of the retailers to sell the bottles to the consumers. On the contrary, by the terms and conditions of the agreement UB was trying to ensure that the bottles in which the beer was supplied to the consumers through their customers were brought back to it so that they could be used again for fresh supply of beer at a cheap rate.
In the present case also the customers clearly know the price they will have to pay for the beer. They are required to pay an additional amount by way of deposit for taking away the bottle which is refunded if the bottle is returned. If the bottle is not returned the deposit is retained as liquidated damages for the loss of the bottle. There is a clear intention not to sell the bottle. Hence, we are of the view that the deposit cannot be considered as price of the bottles.
The Hon''ble Court has, therefore, laid down the yardsticks and parameters for ascertaining the true nature of the transaction so as to bring it within the ambit of "sale". I am afraid; none of the lower authorities have made any endeavor to ascertain the intention of the parties having regard to the terms of the contract, conduct of the parties, and the circumstances of the case. In such a situation, exercise of discretion by the first appellate authority as well as the second appellate authority to have a divergent view of the transaction and so also of the assessing authority is not based on proper application of the ratio decidendi of the United Breweries Limited''s case (supra).
Thus, in totality, the first question of law deserves an answer favourable to the assessee and in my opinion learned Tax Board has not exercised its jurisdiction appropriately in reversing the findings and conclusions of the first appellate authority and restoring the original assessment order.
As observed hereinabove, I am unable to concur with the findings and conclusions of the first appellate authority also, and in my view the entire matter requires re-examination by the original assessing authority, which has initiated the assessment proceedings pursuant to investigation.
Now adverting to the second question, there remains no quarrel that while making assessment, the Assistant Commissioner (Anti Evasion) has relied upon the statements of some of the dealers and has also taken note of other incriminating materials to castigate the petitioner-assessee for evasion of tax. In these circumstances, not permitting the petitioner-assessee to have access to the statements of dealers and furthermore not permitting it to cross-examine the dealers has violated the principles of natural justice. Principles of natural justice are great humanizing principles, and if any decision is to be taken against an individual, which visits him with evil and civil consequences, a reasonable opportunity of hearing is required to be afforded to him. Moreover, if any material is sought to be used against an individual, then it is the requirement of natural justice that the individual may be allowed to have access to such material for preparing his defence effectively. The contention of the learned counsel for the Revenue that in taxing statutes natural justice cannot be over-stretched is quite alluring but I am not persuaded to hold that there is no room for natural justice in the matter of imposition of tax and penalty against an erring assessee.
In the matter of fiscal and taxing statutes also an assessee has got every right to claim access to adverse and incriminating material available to prepare his defence, and if that access is not allowed, it can vitiate the assessment proceedings. The learned first appellate authority has appreciated the concern of the assessee and has rightly pressed into service principles of natural justice for vitiating the assessment order. However, the learned first appellate authority, while dilating on principles of natural justice and holding that the same has been violated, has simply set at naught the assessment order without unearthing the truth. As a matter of fact, the best course open for the first appellate authority was to remand the matter back to the assessing authority with a direction to permit the assessee to have access to the adverse material and permit it to cross-examine the witnesses who have deposed against him. The learned Tax Board, while passing the impugned order has not at all cared to examine this vital issue with objectivity and has reversed the finding of the first appellate authority in an absolute casual and cursory manner. In the backdrop of facts and circumstances of the instant case, in my opinion, not allowing the petitioner-assessee to have access to the alleged incriminating material i.e. the statements of witnesses, who have deposed against it, and further not permitting it to cross-examine the witnesses is a clear case of violation of principles of natural justice. My view is fully fortified from the following decisions, which the learned counsel for the petitioner-assessee has relied.
Hon''ble Apex Court in State of Kerala (supra), while examining principles of audi-alteram-partem, in relation to taxing authorities, who are entrusted the powers of quasi judicial authority, has held that giving of opportunity would not amount to condonation of default of the assessee. Speaking for the Court, Justice Bhagwati held:
The second part of the proviso lays down that where a return has been submitted, the assessee should be given a reasonable opportunity to prove the correctness or completeness of such return. This requirement obviously applies at the first stage of the enquiry before the Sales Tax Officer comes to the conclusion that the return submitted by the assessee is incorrect or incomplete so as to warrant the making of a best judgment Assessment. The question is what is the content of this provision which imposes an obligation on the Sales Tax Officer to give and confers a corresponding right on the assessee to be afforded, a reasonable opportunity "to prove the correctness or completeness of such return". Now, obviously "to prove" means to establish the correctness or completeness of the return by any mode permissible under law. The usual mode recognised by law for proving a fact is by production of evidence and evidence includes oral evidence of witnesses. The opportunity to prove the correctness or completeness of the return would, therefore, necessarily carry with it the right to examine witnesses and that would include equally the right to cross-examine witnesses examined by the Sales Tax Officer. Here, in the present case, the return filed by the assessee appeared to the Sales Tax Officer to be incorrect or incomplete because certain sales appearing in the books of Hazi Usmankutty and other wholesale dealers were not shown in the book''s of account of the assessee. The Sales Tax Officer relied on the evidence furnished by the entries in the books of account of Hazi Usmankutty and other wholesale dealers for the purpose of coming to the conclusion that the return filed by the assessee was incorrect or incomplete. Placed in these circumstances, the assessee could prove the correctness and completeness of his return only by showing that the entries in the books of account of Hazi Usmankutty and other wholesale dealers were false, bogus or manipulated and that the return submitted by the assessee should not be disbelieved on the basis of such entries, and this obviously, the assessee could not do, unless he was given an opportunity of cross-examining Hazi Usmankutty and other wholesale dealers with reference to their accounts. Since the evidentiary material procured from or produced by Hazi Usmankutty and other wholesale dealers was sought to be relied upon for showing that the return submitted by the assessee was incorrect and incomplete, the assessee was entitled to an opportunity to have Hazi Usmankutty and other wholesale dealers summoned as witnesses for cross-examination. It can hardly be disputed that cross-examination is one of the most efficacious methods of establishing truth and exposing falsehood. Here, it was not disputed on behalf of the Revenue that the assessee in both cases applied to the Sales Tax Officer for summoning Hazi Usmankutty and other wholesale dealers for cross-examination, but his application was turned down by the Sales Tax Officer. This act of the Sales Tax Officer in refusing to summon Hazi Usmankutty and other wholesale dealers for cross-examination by the assessee clearly constituted infraction of the right conferred on the assessee by the second part of the proviso and that vitiated the orders of assessment made against the assessee.
In the concurring judgment, Justice Fazal Ali held:
"The tax proceedings are no doubt quasi-judicial proceedings and the Sales-tax authorities are not bound strictly by the rules of evidence, nevertheless the authorities must base their order on materials which are known to the assessee and after he is given a chance to rebut the same. This principle of natural justice which has been reiterated by this Court in the decisions cited above has been clearly incorporated in Section 17(3) of the Act as mentioned above. The statute does not stop here, but the second part of the proviso confers express benefit on the assessee for giving him an opportunity not only of being heard but also of proving the correctness or completeness of such return. In view of this provision it can hardly be argued with any show of force that if the assessee desires the wholesale dealers whose accounts are used against him to be cross-examined in order to prove that his return is not incorrect or incomplete he should not be conceded this opportunity. Apart from anything else, the second part of the proviso itself confers this specific right on the assessee. It is difficult to conceive as to how the assessees would be able to disprove the correctness of the accounts of Haji P.K. Usmankutty or the other wholesale dealers, unless he is given a chance to cross-examine them with respect to the credibility of the accounts maintained by them. It is quite possible that the wholesale dealers may have mentioned certain transactions in their books of account either to embarrass the assessee or due to animus or business rivalry or such other reasons which can only be established when the persons who are responsible for keeping the account are brought before the authorities and allowed to be cross-examined by the assessees. This does not mean that the assessing authority is bound to examine the wholesale dealers as witnesses in presence of the assessees: it is sufficient if such wholesale dealers are merely tendered by the sales-tax authorities for cross-examination by the assessees for whatever worth it is. In view of the express provision of the second part of the proviso, we are fully satisfied that the respondents had the undoubted right to cross-examine the wholesale dealers on the basis of whose accounts the returns of the assessees were held to be incorrect and incomplete. We are fortified in our view by a decision of this Court in C. Vasantilal and Co. v. CIT where this Court observed as follows:
The Income-tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it.
It will be noticed that if the Sales-tax authorities refused the prayer of the assessees to cross-examine the wholesale dealers, then such a refusal would not amount to an adequate opportunity of explaining the material collected by the assessing authority.
This Court in Indian Gum Industries Ltd. (supra) has reiterated the same principle and held:
"The learned Tax Board, by the impugned order, has restored the order of the assessing authority and while passing the said order the learned Tax Board has not at all cared to examine the procedural infirmities in the enquiry and the factum of violation of principles of natural justice. It is apparent from a bare perusal of the impugned order of the Tax Board that the learned Tax Board while passing the said order, whereby the order of assessing authority is restored, has not followed the law enunciated by the Apex court in the verdicts referred to supra. For ascertaining the true nature of the transaction, i.e., whether it is intra-State or inter-State, a thorough enquiry is pre-requisite and such a decision cannot be based on mere assumptions or by examining sample transaction. The Tax Board, being a quasi-judicial authority, is not expected to decide such a vital issue on the basis of an enquiry which is infirm and not in conformity with the principles of natural justice. On close scrutiny of the impugned order, this court also feels that the pivotal issues which were germane to the matter, viz., purchase/sale of goods from a dealer on the strength of registration certificate and burden of proof to categorize transaction as inter-State despite availability of requisite material furnished by the assessee, are not dealt with by the learned Tax Board appropriately as per ratio decidendi of the verdicts of Apex court in State of Maharashtra v. Suresh Trading Company and Commissioner v. Suresh (supra). By not addressing these crucial issues in the order impugned, the learned Tax Board has alienated the basic tenets of law rendering the order vulnerable. Thus, in totality, the considered opinion of this Court is that the Tax Board has committed a manifest error of law in concluding that the alleged sale transactions were intra-State and not inter-State, and that being so the question of law framed by this Court in all these petitions is decided in favour of the assessee and against the Revenue. In this view of the matter, the impugned order dated 20th of September 2002, rendered by the learned Tax Board declaring the transactions as intra-State transactions, cannot be sustained and consequently the orders passed by the appellate authority and the assessing authority are also required to be set at naught for deciding the matter afresh in the light of observations made by this Court hereinabove.
In this view of the matter, the second question is also answered in favour of assessee and against the Revenue, and the impugned order to the extent it has reversed the finding of the first appellate authority on the question of violation of principles of natural justice cannot be sustained.
Now adverting to the third question, i.e. imposition of penalty on assessee, in my opinion, imposition of penalty presupposes an attempt of the assessee to avoid payment of tax or evasion of tax by resorting to certain dubious means. Legal position is no more res-integra that avoidance, or evasion of tax is a sine-qua-non for imposition of penalty under Section 65 of the Act of 1994. The question of evasion of tax arises only when there is a concrete material against assessee that it is liable to pay the tax, which he has avoided to pay or made an attempt to evade the same. To put it more clearly, for invoking provision of penalty, element of mens-rea is also necessary. In Commissioner of Sales Tax, Uttar Pradesh (supra), Hon''ble Apex Court held:
The Court in Cement marketing case finally held that it was elementary that Section 43 of the State Act which provided for imposition of penalty is penal in character and unless the filing of an inaccurate return is accompanied by a guilty mind, the section cannot be invoked for imposing penalty. It was emphasised that if the view canvassed by the Revenue were to be accepted, the result would be that even if a dealer raises a bona fide contention that a particular item was not liable to be included in the taxable turnover, he will have to show it as forming part of the taxable turnover in his return and pay taxes upon it on pain of being held liable for penalty in case his contention is ultimately found by the Court to be not acceptable. That surely could never have been the intention of the Legislature.
In view of decision on first two issues favouring the assessee, the question of tax liability of the petitioner is still fluid, inasmuch as, the dish antenna and digital decoders which it has supplied to the respective dealers is sale transaction or a lease is yet to be determined, obviously, it is not possible to infer mens-rea of assessee in evading the tax. Therefore, this question at this stage cannot be conclusively decided, however, prima facie, it is answered in affirmative manner favouring the cause of the assessee of course subject to the final outcome of denovo assessment. As such, at this juncture, imposition of penalty is out of question.
In this view of the matter, the impugned order passed by the learned Tax Board cannot be sustained and the same is hereby set aside. Taking into account the facts in entirety, the order passed by the first appellate authority to the extent it has concluded that the impugned transaction is lease and not sale, is also not sustainable. However, other part of the order of the first appellate authority regarding affirmative finding on violation of principles of natural justice is sustained with the modification of remanding matter back to the Assessing Authority for taking a decision afresh after observance of principles of natural justice. Thus, the said conclusion of this Court obviously entails setting aside of the original assessment order also.
The upshot of the above discussion is that this revision petition is allowed and the impugned orders passed by the learned Tax Board and Assessing authority are quashed and set aside. The order passed by the first appellate authority is also partially set aside to the extent indicated hereinabove and the matter is remanded back to the assessing authority for passing assessment order afresh after giving reasonable opportunity of being heard to the petitioner-assessee and permitting it to cross-examine the witnesses who deposed against it during investigation. The Assessing Authority is directed to re-examine the matter and decide the issue relating to supply of dish antenna and digital decoders by petitioner-assessee to the respective dealers as to whether the said transaction is a "lease", or a "sale".
The assessing authority shall decide the matter de-novo dispassionately, uninfluenced by the observations made by the first appellate authority as well as learned Tax Board, strictly in accordance with law, within a period of three months from the date of production of certified copy of this order.