M/S Shyam Biri Works Ltd.Thru ... vs State Of U.P.Thru Joint ...
2013 Latest Caselaw 5317 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH
 
 

Reserved.
 
HIGH COURT OF JUDICATURE AT ALLAHABAD LUCKNOW BENCH, LUCKNOW.
 

 
Case :- MISC. BENCH No. - 1592 of 2007
 
				(Assessment year 1997-98)
 

 
Petitioner :- M/s Shyam Biri Works Ltd. Thru Managing Director S. C. Gupta
 
Respondent :- State Of U.P.Thru Joint Secy.Institution Finance &3 Ors. Tax
 
Counsel for Petitioner :- 	Suyash Agrawal,  Rahul Srivastava, 
 
			      	Rakesh Ranjan Agrawal, S.M.K.Chudhary,
 
			   
 
Counsel for Respondent :- 	C.S.C.
 

 
Hon'ble Rajiv Sharma,J.

Hon'ble Dr. Satish Chandra, J.

By this petition, the petitioner has assailed the orders dated 23.02.2007; and 23.11.2006 for initiating penalty proceedings under Section 4-B(5) of the Trade Tax Act, 1948 (hereinafter mentioned as "Act") for the assessment year 1997-98.

The brief facts of the case are that the petitioner - assessee is a public limited company carrying on the business of manufacturing and sale of Bidi. It has the manufacturing unit at Bihar and West Bengal. The assessee purchased Tendu Leaves in U.P. against Form III-B and paid the concessional tax @2.5% and sent the same to its manufacturing units located outside the State. Later, the Bidi was imported in U.P. for sale. The A.O. opined that the Tendu Leave was not utilized in U.P., which was purchased in U.P. by paying concessional rate of tax. At the relevant time, normal rate of tax was 15% but the concessional rate as per scheme of the Government, 2.5% tax was paid. For the loss of tax, the A.O. has issued a notice, to which on 20.03.2001 reply was sent by the assessee. Prior to it, on 04.02.2000, the assessee suo moto deposited the difference of tax i.e. 15-2.5 = 12.5% , which comes to Rs.1,09,88,551/-.

Finally, the A.O. has rejected the explanation of the assessee vide order dated 10.04.2001 but adjusted the amount, which was deposited by the petitioner - assessee voluntarily, and created a demand of Rs.52,45,357/- mainly pertaining to interest.

Being aggrieved, on 15.12.2001, the assessee- petitioner has filed an appeal before the appellate authority, who has remanded the matter back to the A.O. for fresh adjudication under section 3-B. Not being satisfied, the department has approached the Tribunal, who vide its order dated 28.07.2003 has confirmed the order passed by the First Appellate Authority. So, in pursuance to the order passed by the appellate authority, the A.O. again passed an order on 12.12.2003, under section 3-B of the Act and crated balance liability after making adjustment. The same was upheld by the First Appellate Authority as well as by the Tribunal. The Hon'ble High Court also dismissed the Trade Tax Revision No.177 of 2006 vide order dated 29.08.2011. However, on 04.01.2013, the Hon'ble Apex Court in S.L.P. No.35805 of 2011 (Civil) granted leave and matter is still pending for adjudication.

In the meantime, the A.O. initiated the penalty proceedings under section 4-B(5) of the Act. Being aggrieved the petitioner has filed the present writ petition.

With this background, Sri Rakesh Ranjan, and Sri S. M. K. Chaudhary, learned senior counsel assisted by Sri Rahul Srivastava, learned counsel for the petitioner submits that the proceedings in quantum; and penalty are different. The matter of quantum is pending before the Hon'ble Supreme Court but in the meantime, the department has initiated penalty proceedings by issuing impugned notice/orders.

To support his contention, learned senior counsel submits that on 13.06.2006, the State Government has started scheme regarding remission of the interest on satisfying condition of deposit of 10% of interest between 15.02.2006 to 30.06.2006; 90% of the interest amount would be waived. The petitioner deposited Rs.4,31,000/- being 10% of the interest amount, by challan dated 29.06.2006 with Central Bank of India, Allahabad within 10 days of the order passed by the Tribunal dated 19.06.2006 in second appeal No.174 of 2003. On 19.12.2005, the A.O. issued a notice under Section 4B(5) of the Act to the petitioner as to why penalty may not be imposed for violating the terms of Section III-B, as the Bidi was not Manufactured within State of U.P.

The learned counsel further mentioned that the Additional Commissioner Grade-I, Trade Tax, Allahabad wrote a letter to Commissioner Trade Tax Legal Department, Lucknow that since the petitioner on 29.06.2006, has deposited the difference of amount of tax of Rs.1,09,88,541/-; and also deposited Rs.4,31,000/- as per interest remission scheme and also prior to initiation of the proceedings under Section 3-B of the Act. The petitioner has deposited the difference of Tax of Rs.1,09,88,541/- prior to passing of the order under Section 3-B of the Act, in pursuance of the circular dated 21.08.1991 and 18.08.1994. So, the penalty proceeding under section 4B(5) may not be initiated as the Government is not suffering any loss.

Learned counsel for the petitioner - assessee also submits that there was no use of Form III-B as Tendu Patta was used as a raw material for manufacturing of Bidi in the factory located outside the State but the manufactured Bidi was sold within the State of U.P. There has been no breach of any provision of the Act. For the purpose, he relied on the ratio laid down in the case of M/s Polestar Electronic (Pvt.) Ltd. vs. Additional Commissioner Sales Tax and another reported in 1978 (1) SCC 636; and another case reported in (2004) UPTC 44; Commissioner of Trade Tax vs. S/s Kalpataru Udyog Ghaziabad. He submits that the proceeding initiated under section 3-B were wholly misconceived. When it is so, then there is no occasion to initiate the penalty under section 4-B(5) of the Trade Tax Act. To show the bonafide action on the part of the assessee, learned counsel also submits that even before receiving the notice, the assessee voluntarily has deposited the amount. Lastly, he made a request that the penalty proceedings initiated by the A.O. may kindly be quashed by setting aside the impugned orders.

On the hand hand, Sri H. P. Srivastava, learned Additional Chief Standing Counsel has justified the initiation of the penalty proceedings. He submits that the subject matter of the case of M/s Polestar Electronic (Pvt.) Ltd. (Supra) cited by the petitioner was pertaining to the Delhi Trade Tax Act and the same is not applicable in the assessee's case. He further submits that from a reading of the declaration Form along with Section 4-B, read with section 3-B and Rule 25-B(1) would lead to only one conclusion in the facts of the case that raw material covered by Form III-B has to be used for manufacture in a unit situate in the State of Uttar Pradesh and thereafter to be sold within the State. Lastly, he justified the impugned order/notice and made a request that the petition may be dismissed.

We have heard learned counsel for the parties and gone through the material available on record.

From the record, it appears that during the assessment year under consideration (1997-98), the assessee was engaged in the manufacturing and sale of Bidi. The assessee was granted exemption under section 4-B(2) of the Trade Tax Act. The Tendu Patta is a raw material to be used in the manufacturing of Bidi. With reference to exemption granted under section 4B(2) of the Act read with Rule 25-B(1) of the Trade Tax Rules, 1948, the

assessee issued a declaration in Form III-B in the prescribed proforma and on that basis, he claimed concessional rate of tax for the purchase of Tendu Patta @2.5%, though in normal course, the rate of Tax was @15%. The A. O. initiated the proceedings under section 3-B of the Trade Tax Act vide notice dated 07.03.2001 by stating that the declaration in Form III-B had wrongly been issued as the assessee has utilized the Tendu Patta outside the U.P. The assessee took a plea that Tendu Patta was purchased in U.P. and the Bidi was sold in U.P. as finished goods.

Even before receiving the notice for the proceedings under section 3-B of the Act, the assessee suo moto has deposited the difference of amount of tax under protest i.e. 15-2.5 = @12.5%, which comes to Rs.1,09,88,551/-, and the same was adjusted by the A.O. who also raised a further demand of Rs.52,45,357/- mainly for interest. Later, on 12.12.2002 the said demand was reduced to Rs.42,45,357/-.

Regarding the interest, it is evident that on the basis of the Scheme of the State Government dated 13.06.2006, 90% interest amount is to be waived, if the balance 10% of interest is deposited with the exchequer, no penalty will be levied and if already levied then it would be waived. The assessee took the advantage of this scheme and deposited Rs.4,31,000/- being 10% of the interest amount by challan dated 29.06.2006 within a period of ten days from the order passed by the Tribunal dated 19.06.2006 (Appeal No.174 of 2003). Thus, the assessee has deposited the total interest amount as well as tax amount.

Regarding the quantum, the matter is still pending for adjudication before the Hon'ble Supreme Court who has already granted leave vide order dated 04.01.2013, as prima facie case was made out. But it is crystal clear that the Tax demand, as raised by the A.O., has already been deposited by the assessee along with interest, as stated above, and nothing is due. In the scenario, the A.O. has initiate the impugned penalty proceedings.

It may be mentioned that the Hon'ble Calcutta High Court in the case of Durga Kamal Rice Mills vs. Commissioner of Income Tax; (2004) 265 ITR 25 has observed that :

"In quantum proceedings, a particular provision might be attracted for addition to the income of the assessee. But when it comes to the question of imposition of penalty, then independent of the finding arrived at in the quantum proceedings, the authority has to find conclusively that the assessee owns the concealed amount."

In this case, it was also observed that the Court could not looked into the finding arrived at by the authorities in the quantum proceedings and the same were not binding in the penalty proceedings. Hence, the proceedings in quantum appeal and penalty are quite different.

Further, it may be mentioned that the penalty proceedings are not criminal in nature. They are certainly penal i.e. intended to punish. The question whether a given provision in a statute is a penal one or not, is sometimes not easy of comprehension. This is because the word 'penal' is somewhat ambiguous in its scope and content. A penalty may be the subject matter of a breach of statutory duty or may be the subject matter of a complaint. In ordinary parlance, the word 'penal' may embrace penalties for avoidance of civil liabilities which do not constitute offences against the State. This marked distinction is responsible for any statute intended to protect public revenue proceeding to speak of pecuniary penalties for any violation of its provision and also to specifically provide prosecution in an ordinary criminal court as if it is an offence or crime. Thus, 'penalty' is a slippery word and has to be understood in the context in which it is used in a given statute. All penalties do not flow from an offence as is commonly understood, but all offences lead to a penalty.

In the scenario, Section 4(B)5 of the Trade Tax Act, on reproduction, reads as under:

Section 4B(5): Where a dealer in whose favour a recognition certificate has been granted under sub-section (2) has purchased the goods after payment of tax at concessional rate under this section or, as the case may be, without payment of tax and has used such goods for a purpose other than that for which the recognition certificate was granted or has otherwise disposed of the said goods, such dealer shall be liable to pay as penalty such amount as the assessing authority may fix, which shall not be less than the difference between the amount of tax on the sale or purchase of such goods payable under this section and the amount of tax payable under any other provisions of this Act but not exceeding three times the amount of such difference.

In the instant case, the assessee has purchased Tendu Leave after payment of the Tax on concessional rate. The said raw-materials was exclusive used for the finished goods, which were sold within the State of U.P. Perhaps due to cheap labour, raw-material was sent outside the State on temporary basis but the same was returned in the form of finished goods to the State of U.P., where it was finally disposed by way of sale.

Moreover, in the instant case, the assessee has not concealed any particular or any transaction. Everything was disclosed to the A.O. For the inter State Trade or Commerce, the penalty is liveable under section 4-B(6) of the Act, but no penalty was levied under the said provision as there was no inter State Trade or Commerce. No finished goods were exported from the State. No sale was made outside the State. Raw-materials was received back in the form of finished goods. The assessee has already deposited the difference of Tax. Thus, the tax was already paid @15% along with interest. Hence, there was no loss to the revenue. There was no attempt to conceal any transaction.

In these circumstances, we find no justification for levy of the penalty specially when the quantum appeal has not attained the finality and matter is subjudice before the Hon'ble Supreme Court who has already granted leave being satisfied prima facie. In the case of CIT vs. Smt. Kaushalya; (1995) 216 ITR 660, Hon'ble Bombay, High Court did not appreciate the show cause notice for penalty issued before proceeding in quantum appeal.

In the case of the BHAGWAN DASS VIJAY KUMAR MANDI DABWALI vs. COMMISSIONER OF INCOME TAX (1983) 139 ITR 164 (P&H), it was observed that the word 'proceedings' imposed referred to proceedings other than the penalty proceedings.

In the following cases, the Court observed that the penalty may not be imposed merely because there is a technical or venial breach and not deliberately defiance of law or conscious disregard of obligation by the assessee. The department must establish some sort of mens rea :

1. Ganesh Travanera Agency vs. CIT; (1989) 177 ITR 455 (SC) ; and

2. Zoraster Vs. CIT; (1993) 201 ITR 558 (Raj)

In the absence of mens rea, penalty generally is not liveable as per the ratio laid down in the case of Commissioner Sales Tax vs. M/s Sanjeev Fabrics; (2010) JT 10 SC 192.

In the instant case, there is no mens rea on the part of the assessee- petitioner as there was no concealment of any particular or transaction. The entire tax along with the interest was deposited before initiation of proceedings. There is no loss to revenue. When it is so, then we are of the view that initiation of penalty proceedings in the instant case is not desirable specially when the final verdict in the quantum appeal is yet to come from the Hon'ble Supreme Court.

Moreover, as per the scheme dated 13.02.2006, the State Government has given the incentive to the Traders that on deposit of 10% interest, remaining interest i.e. 90% as well as penalty if any will be waived of. The said notification/circular No.274/11-9(21)/2003-2006 dated 13.02.2006 reads as Under:

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In the instant case, the assessee is covered under the scheme and, as such, there is no reason to initiate any penalty proceedings.

In the light of above discussion and by considering the totality of the facts and circumstances of the case, we set aside all the orders including the order dated 23.02.2007 and 23.11.2006 pertaining to initiation of the penalty proceedings under section 4-B(5) of the Trade Tax Act, for the assessment year under consideration.

Thus, the writ petition is allowed. No cost.

Order Date :- 2nd September, 2013

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