By TIOL News Service

JODHPUR, MAR 19, 2015: THE issue before the Bench is - Whether such penalty u/s 78(5) for failure to produce the required documents and/or declaration forms completed in all respects, when the goods enters or leaves the nearest check-post of the State, is a civil liability. YES is the answer.

Facts of the case

The assessee company is engaged in the business of refining, pipeline, petrochemicals and natural gas. A penalty levied u/s 78(5) on the assessee for its failure to comply with the statutory requirement of Section 78, was deleted by this Court by holding that mere failure of statutory obligation was a civil wrong, whereas, imposition of penalty was a criminal liability requiring involvement of mens rea. Accordingly, the present revision has been referred by the Single Bench of this Court to the Larger Bench for deciding the issue in question regarding relevance of mens rea for purpose of determining liability for penalty u/s 78(5) of the RST Act, 1994, due to conflicting opinions of various jurisdictional High Courts.

Having heard the parties, the High Court held that,

++ it is seen that the judgment of the Apex Court in Guljag Industries Vs. Commercial Taxs Officer, has clearly explained the law, with regard to the relevance of mens rea, and its proof, for the purposes of determining the liability for penalty in terms of Section 78(5) of the RST Act, 1994, and thus, squarely covers the issue in question. In Guljag Industries Vs. Commercial Taxes Officer, it was held that default or failure to comply with Section 78(2), is the failure/default of statutory civil obligation and proceedings u/s 78(5) are neither criminal nor quasi-criminal in nature. The penalty is for statutory offence and, therefore, there is no question of proving of intention or of mens rea, as the same is excluded from the category of essential element for imposing penalty. The penalty u/s 78(5) is attracted as soon as there is contravention of statutory obligations. The Apex court has also explained that there is dichotomy between contravention of Section 78(2), which invites strict civil liability on the assessee and the evasion of tax. When a statement of import/export is not filed before the AO, it results in evasion of tax, however, when the goods in movement are carried without the declaration Form ST 18-A/18-C, then strict liability comes in, in the form of Section 78(5). This breach of Section 78(2) imposes strict liability u/s 78(5);

++ section 78(2) r/w Rule 55 of the RST Rules, 1995, after its amendment, provides for an opportunity, to be given to produce the required document and/or declaration forms complete in all respects when the goods enters or leaves the nearest check-post of the State. Sub-rule(2) of Rule 55 requires that verification or enquiry shall be completed within seven days from the date of issue of the direction, and for action, if any, warranted in the circumstances of the case, in pursuance to the direction given u/s 78(4)(a), which provides that where any goods in movement, other than exempted goods, are without documents, or are not supported by documents as referred to in sub-section(2), or documents produced appear false or forged, the Incharge of the check-post or the officer empowered under sub-section (3), may direct the driver or the person incharge of the vehicle or carrier or of the goods not to part with the goods in any manner including by retransporting or rebooking, till a verification is done or an enquiry is made, which shall not take more than seven days. The suspicion or doubt on the documents to be false or forged, per se, does not attract levy of penalty u/s 78(5). In such case, an opportunity is to be given under Rule 55(1) to produce the required documents and/or declaration forms completed in all respects, when the goods enters or leaves the nearest check-post of the State. It is only when a person despite giving such an opportunity, is not able to produce the document and/or declaration forms completed in all respects, when the goods enters or leaves the nearest check-post of the State, or the documents are found to be false or forged, after enquiry, that a penalty may be imposed, which is a civil liability for compliance of the provisions of the Act for the purposes of checking the evasion of tax. It is thus not correct to submit that penalty for submission of false or forged document or declaration, necessarily involves adjudication, for which mens rea is relevant, and is a necessary ingredient. With these discussions, the issue in question and other connected Sales Tax Revisions, are send back and be listed before the Bench having jurisdiction to decide the matters, in accordance with the opinion given by this Bench.

(See 2015-TIOL-664-HC-RAJ-CT-LB)