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Commissioner of Sales Tax Vs. Gwalior Oil Mills - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMadhya Pradesh High Court
Decided On
Case Number Miscellaneous Civil Case No. 88 of 1984
Judge
Reported in[1986]62STC299(MP)
AppellantCommissioner of Sales Tax
RespondentGwalior Oil Mills
Appellant Advocate A.M. Mathur, Adv.-General and ; Joshi, Adv.
Respondent Advocate G.M. Chaphekar, Adv.
Cases ReferredSree Meenakshi Mills Ltd. v. Commissioner of Income
Excerpt:
- indian penal code, 1890.sections 307 & 324: [lokeshwar singh panta & b.sudershan reddy,jj] assault proof - appellant allegedly dealt sickle blow to deceased - testimony of eye-witnesses showed that sudden altercation ensued between appellant and deceased - no evidence to indicate any previous enmity between parties - single blow of sickle had been inflicted by appellant on back of deceased - incised wound allegedly inflicted by appellant - however opinion of doctor proved that deceased had not died due to direct result of said injury held, appellant is therefore liable to be convicted under section 324 of i.p.c., sentence of 3 years imprisonment reduced to period undergone by appellant considering mental agony suffered by him - the relevant part of the order of the tribunal in which.....u.n. bhachawat, j.1. this is a reference under section 44(1) of the madhya pradesh general sales tax act, 1958 (for short, hereinafter referred to as the act), at the instance of the department by the sales tax tribunal (the board of revenue, madhya pradesh, gwalior), whereby it has referred the following questions for our decision, arising out of its decision dated 25th october, 1977, as questions of law :(1) whether, in the facts and circumstances of the case, the board was justified in holding that no penalty under section 8(2) of the madhya pradesh general sales tax act, 1958, is attracted if the quantity of finished products sold in s. o. s. did not exceed the quantity of raw materials purchased without concessional rate, even though there was every possibility of the raw materials.....
Judgment:

U.N. Bhachawat, J.

1. This is a reference under Section 44(1) of the Madhya Pradesh General Sales Tax Act, 1958 (for short, hereinafter referred to as the Act), at the instance of the department by the Sales Tax Tribunal (the Board of Revenue, Madhya Pradesh, Gwalior), whereby it has referred the following questions for our decision, arising out of its decision dated 25th October, 1977, as questions of law :

(1) Whether, in the facts and circumstances of the case, the Board was justified in holding that no penalty under Section 8(2) of the Madhya Pradesh General Sales Tax Act, 1958, is attracted if the quantity of finished products sold in S. O. S. did not exceed the quantity of raw materials purchased without concessional rate, even though there was every possibility of the raw materials purchased at concessional rate and otherwise forming part of the finished products in the ratio of their purchases, the accounts of the two sorts of raw materials and the finished products not being separately maintained ?

(2) Whether the Board was justified in not holding that in the absence of the separate set of accounts for the two classes of raw materials, the contents of the two classes of raw materials in the finished products sold in S. O. S. were the same ratio as that of the raw materials as such penalty under Section 8(2) was leviable to the extent of the raw materials purchased on concessional rate forming part of the finished products sold in S. O. S. ?

2. The material facts giving rise to this reference, as obtainable from the agreed statement of the case, are these : The assessee-non-applicant herein (hereinafter referred to as the assessee) owns an oil mill at Indore where oil and oil-cake are manufactured for sale. He was assessed to sales tax for the period 1st January, 1970, to 31st December, 1970, by the Additional Assistant Commissioner of Sales Tax, Ujjain Region, Ratlam, by his order dated 31st July, 1974. The tax was assessed at Rs. 32,999.44 and purchase tax was assessed at Rs. 50,120.22 and penalties were imposed at Rs. 5,052 inclusive of penalty of Rs. 5,000 under Section 8(2) of the Act, holding that the non-applicant had transferred manufactured goods out of the State to the tune of Rs. 43,81,701.

2.01. The purchases made by the assessee from various sources were found to be as under :

1. Full tax paid purchases ... Rs. 42,53,1202. Purchases on XII-A declaration forms ... Rs. 58,47,3273. Purchases on form XII and fromunregistered dealers ... Rs. 17,70,674

2.02. It was contended before the assessing authority that his full tax paid purchases and purchases made on form XII fully covered his sales outside the State and there was, therefore, no question of his having incurred liability for penalty under Section 8(2) of the Act. The assessing authority, however, held that there was possibility of mixture of the goods manufactured from full tax paid purchases and from purchases on form XII-A as the assessee did not maintain separate accounts and accounts kept were mixed. The assessing authority, therefore, estimated a sum of Rs. 4,00,000 towards such purchases on form XII-A out of which the manufactured goods were sold outside the State. On this finding, based on estimation, a penalty of Rs. 5,000 was imposed under Section 8(2) of the Act.

2.03. Being aggrieved by the aforesaid order of the assessing authority, the assessee preferred an appeal before the Appellate Deputy Commissioner of Sales Tax, Indore. This appellate authority, while agreeing with the assessing authority on the basic question of the liability of the assessee for penalty, was of the view that the penalty imposed was even less than the minimum for the reason that the sales made out of the State were approximately 25 per cent of the total turnover and, therefore, 25 per cent of the purchases on form XII-A (viz., Rs. 68,47,732) should have been taken as the basis for the calculation of the penalty. This appellate authority, therefore, after issuing a notice to the assessee in form XXVIII, determined the violation of the condition under Section 8(1) of the Act at Rs. 14,61,000 and enhanced the amount of penalty by Rs. 13,000 so as to make it Rs. 18,000 on this count vide its order dated 20th April, 1976.

2.04. The assessee then preferred a second appeal before the Tribunal, being aggrieved by the aforesaid order of the first appellate authority, namely, the Appellate Deputy Commissioner of Sales Tax, Indore. The Tribunal, vide its order dated 25th October, 1977, allowed the appeal of the assessee and set aside the penalty. The relevant part of the order of the Tribunal in which the contention of the assessee as well as the finding of the Tribunal are capsulised is set out hereinbelow :

3. Appellant's contention is that in addition to his purchases of oil-seed on declaration he had also purchased oil-seed worth Rs. 41,92,332 after paying the full rate of tax. Thus it is not that he utilised only oil-seeds purchased on declaration in his oil mill. But he utilised both kinds of oil-seed, more or less, in equal quantity-it was also pointed out here that certain oil-seed was imported and was also purchased from registered dealers. Thus against oil-seed worth Rs. 58.47 lacs purchased on form XII-A, oil-seed not liable for penalty under Section 8(2) was worth Rs. 62.52 lacs. As against this 75 per cent of the sales are within the State and in inter-State sale and only 25 per cent had been transferred out of the State. Thus oil sold outside the State was pressed from the oil-seed for which no declaration had been given by the dealer. This contention was opposed by the learned counsel for the department with the argument that the dealer maintained a mixed account and it was not practicable for him to so arrange things that oil sold outside the State should come from the stock of oil-seed for which declaration had not been given.

4. There is force in appellant's contention. A reasonable business man is expected to arrange his business in such a manner that he conforms to the provisions of law. Appellant has taken care to ensure that oil sold outside the State does not exceed the quantity of oil-seed purchased by him without giving the declaration, which would make it eligible to tax at the concessional rate. In fact the quantity sold outside the State is only 25 per cent, whereas the proportion of the two categories of oil-seeds is nearly equal. It is neither practicable nor necessary for a dealer to keep two categories of oil-seeds separately. It is enough that he ensures that the quantity of oil-seed purchased by him without declaration is more than that required for pressing the oil which has been sold outside the State.

3. The argument of the learned Advocate-Genera], appearing on behalf of the department, had been that the purchase of the raw material by the assessee under Section 8(1) of the Act carried with it an obligation on the assessee of selling the finished goods in the State of Madhya Pradesh or in the course of inter-State trade or commerce or in the course of export outside the territory of India. He further argued that for evidencing the discharge of this obligation and particularly in view of Rule 52 of the Madhya Pradesh General Sales Tax Rules, 1959 (for short, hereinafter referred to as the 'Rules'), read with Section 26 of the Act, the assessee should have maintained separate accounts regarding raw material purchased without concessional rate of tax and those purchased at concessional rate of tax on a declaration in form XII-A under Rule 20(3) of the Rules and of the finished product from these two sorts of purchases of the raw material. He also argued that in reality the penalty under Section 8(2) of the Act is the balance amount of sales tax which ought to have been paid by the assessee at the time of purchase of goods had the concession on the condition under Section 8(1) not been availed and in view of Section 9 of the Act, the burden was on the assessee to prove that the goods sold outside the State were not manufactured from the raw materials that were purchased at the concessional rate of tax and when the assessee failed to discharge this onus, the only course open in law to the assessing authority was to find out on pro rata basis the quantum of sales outside the State of finished product manufactured out of the raw material purchased at concessional rate of tax and without the concessional rate of tax.

4. The learned counsel for the assessee has, in his argument in counter, submitted that looking to the nature of the business of the assessee, i.e., the manufacture of oil, it is neither practicable, nor necessary for the assessee to keep two categories of raw material, i.e., the oil seeds separately and to maintain separate and distinct accounts with regard to the oil produced out of these two categories of oil-seeds. He submitted that Section 26 of the Act and Rule 52 of the Rules do not prescribe the mode of maintenance of such account. He submitted that even assuming that the maintenance of such account was prescribed, even then, ipso facto, on the failure of the maintenance of such account, penalty cannot be imposed on the assessee. He submitted that a distinction has to be made in the matter of assessment and the imposition of penalty. The imposition of penalty is in the nature of penal provision. Therefore, the. penalty proceedings are quasi-criminal proceedings and can neither be treated as proceedings for imposition of tax, nor the penalty can be said to be an additional tax. He further submitted that the quantum of oil-seeds purchased far exceeded the quantum of oil-seeds required for the manufacture of the oil sold outside the State in the instant case. Therefore, it should be inferred, unless otherwise established positively by the department, that the oil sold outside the State in the instant case was manufactured from the oil-seeds purchased without concessional rate. He also submitted that when there are two possibilities, namely, (i) that the oil sold outside the State might be the produce of the oil-seeds purchased on concessional rate, that is, on form XII-A and (ii) purchased without concessional rate, then in such a situation, the penalty proceedings being quasi-criminal, the benefit of the possibility which is in favour of the assessee should be given to the assessee because the presumption is that every person acts in a lawful manner and consistent with this presumption, the Tribunal is right in holding that for the oil sold outside the State, the assessee utilised that quantity of oil-seeds which were purchased at non-concessional rate of tax.

5. We shall proceed to deal with the decision of the questions referred, ad seriatim. Thus, we take up question No. (1). The question is a complex one. We would, therefore, for the sake of convenience, analyse it as under:

(a) Whether, in the facts and circumstances of the case, the Board was justified in holding that no penalty under Section 8(2) of the M.P. General Sales Tax Act, 1958, is attracted if the quantity of the finished products sold in sales outside the State did not exceed the quantity of raw material purchased without concessional rate even though there was every possibility of the raw material purchased at concessional rate and otherwise forming part of the finished product in the ratio of their purchases ?

(b) Whether in the absence of the maintenance of separate account of the finished goods, that is, oil, pressed out of the aforesaid two purchases of the oilseeds, the utilisation in the oil sold outside the State should be adjudged on pro rata basis of the aforesaid two categories of purchases ?

5.01. In the light of the arguments advanced by the counsel for the parties, the vital point which falls for determination is whether the imposition of penalty under Section 8(2) of the Act is penal in nature or is merely an imposition of a balance of tax or an additional tax even when the liability to pay such tax has been designated as penalty under Section 8(2) of the Act as it is on this determination that the question of burden of proof will depend. To iterate, the argument of the learned Advocate-General had been that though in Section 8(2) of the Act, the imposition of tax provided therein on the contravention of Section 8(1) of the Act is named as penalty, on the totality of the reading of the two sub-sections, it becomes evident that in substance and effect, the imposition under Section 8(2) of the Act is a tax and not a penalty, and, therefore, all those provisions regarding the burden of proof that are contained in the Act for assessment of the tax should be pressed in service while determining the question of penalty under Section 8(2) of the Act. The learned Advocate-General, in support of his argument, relied on the decisions of this Court in faswantlal Prahlad Bhai and Co. v. Commissioner of Sales Tax [1973] 31 STC 635 and Simplex Structural Works v. Commissioner of Income-tax : [1983]140ITR782(MP) and the decision of the Supreme Court in Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner : [1978]3SCR98 the decision of the Bombay High Court in Commissioner of Sales Tax v. Berar Oil Industries [1975] 36 STC 473 and the decision of the Supreme Court in State of Madras v. Narayana Nadar & Co. [1968] 21 STC 25 (SC). The observations relied on by the learned Advocate-General from the aforesaid decisions were :

:

The relevant thing to note is that this section provides for imposition of the proper sales tax which might not have been paid on account of certain circumstances. A dealer may obtain purchase of goods on concessional terms probably on the impression that he may not be required to export the goods or that he may be required to utilise them for manufacture in the State. However, as the business stands, those expectations of a dealer may not materialise and he may be required to export the goods for which he may be required to pay the full sales tax at the rate of 6 per cent instead of the concessional rate of 1 per cent. Section 8(2) of the Act makes a provision for meeting such a situation. Firstly, it provides for imposition of the proper sales tax as may be warranted according to the facts and circumstances of a case. Secondly, it also provides for imposition of a penalty which may be from nil to 1 1/4 times the proper sales tax. Thus it is not possible for us to accept the suggestion of the learned Government Advocate that the imposition of a penalty under Section 8(2) of the Act is mandatory. We would, on the other hand, hold that the imposition of penalty is absolutely discretionary which has to be done on some judicial principles. On the other hand, we would also reject the contention of the learned counsel for the petitioner-firm that no penalty, whatsoever, can be imposed where the action of the petitioner-firm is found bona fide. We are clearly of the opinion that even in bona fide cases a dealer can be penalised by imposing a penalty, though however nominal it may be, looking to the facts and circumstances of a particular case. : [1983]140ITR782(MP) :

Properly understood, when the penalty imposed under Section 8(2) of the State Act or under Section 10A of the Central Act is only the difference between the tax payable at the full rate and the tax payable at the concessional rate, the real nature of such a penalty is merely the balance amount of sales tax which ought to have been paid by the assessee at the time of purchase of goods. Although termed as penalty the amount so paid is really sales tax and should be allowed as business expenditure under Section 37. : [1978]3SCR98 :

The burden of showing that the assessees utilised the goods purchased for any other purpose, that is, for a purpose different from that for which the goods were purchased as evidenced by the declarations, would be on the revenue and the revenue may discharge this burden by calling upon the assessees to produce evidence to show, in one case that the goods were resold by them; and in the other, that the goods were used by them as raw materials in the manufacture of goods and the goods so manufactured were sold. This would be a fact exclusively within the knowledge of the assessees and if the assessees do not produce sufficient evidence to establish this fact, it might be legitimate for the revenue to raise an inference that the assessees did not utilise the goods for the purpose for which they were purchased, but, utilised them for 'any other purpose'. :

The real point which we are called upon to decide in this reference is the proper formula to be applied in determining the turnover liable to purchase tax under Section 14(1) in a case where it is not possible for an assessee either by reason of the circumstances of the case or because separate accounts have not been kept by the assessee to prove that the goods purchased by him against certificates in form 15 have been utilised in the manner specified in the declaration made by him in the said certificates. ...Sub-section (3) of Section 14 of the said Act, which provides as follows :

If any question arises whether the purchase price of goods purchased under a certificate given under Section 11 or 12 is not liable to be included in the turnover of purchases of a dealer or commission agent under this section, the burden of so proving shall be upon such dealer or, as the case may be, the commission agent. This sub-section casts the burden of proof upon the assessee. Under it when a question arises whether the turnover of any particular purchase made by an assessee against any certificate given by him under Section 11 or 12 of the said Act is liable to be included in his taxable turnover of purchases, it is for the assessee to prove that it is not liable to be so included. If he succeeds in discharging the burden, then the matter is at an end and that particular turnover is not to be included in his turnover of purchases liable to purchase tax. If he fails to discharge that burden, that particular turnover becomes liable to be included in his taxable turnover of purchases. The question of application of either of the above two formulae will only arise when an assessee fails to discharge the burden of proof cast upon him under Section 14(3) of the said Act or is unable, may be through no fault of his, to discharge that burden, and the facts of the case are such that though some of the sales were in conformity with the declaration made by the assessee in the certificates given to him, it is not possible to pinpoint those sales. In such a case, to draw a presumption that the assessee must be deemed to have utilised all the purchases which he made against certificates in compliance with the declarations made by him in the certificates given by him is to put him in the same position as if he had completely and fully discharged the burden placed upon him. It would be putting him in a better position than he would have been had he set out to discharge the burden and had succeeded in discharging it only partially. There is no logic about raising the presumption which was raised by the Sales Tax Officer or the Tribunal in favour of the respondents. An assessee cannot, because of his failure to discharge the statutory burden, be put in the same position as if he has succeeded in discharging it. To raise the presumption which was raised by the Sales Tax Officer and Tribunal is to render nugatory the provisions of Section 14(3) of the said Act. The formula which can apply in estimating the turnover of purchases in such a case must, therefore, be a different formula. In our view, in such a case the pro rata formula adopted by the Assistant Commissioner and approved by the Deputy Commissioner is a proper and rational formula to apply in estimating such turnover of purchases. The adoption of this formula is also not unfair to the assessee, for if one were to place an extremely strict construction upon Sub-section (3) of Section 14, since the assessee failed to prove that the very goods purchased against certificates in form 15 were utilised in the production of goods which were sold in accordance with the declaration contained in the said certificates, the price of all the purchases made against such certificates would be liable to be included in his turnover of purchases. The pro rata formula avoids this harsh result.

[1968] 21 STC 25 (SC) :

In S. Rathinaswamy Cketliar v. State of Madras [1962] 13 STC 419 (Mad.) the assessee, a dealer in bullion and jewellery, sold bullion purchased both from dealers and persons other than dealers. The total sales turnover of bullion came to Rs. 5,63,000 out of which the assessee claimed that a turnover of Rs. 3,80,918 representing sales of bullion purchased from dealers, was exempt from tax as second sales inasmuch as a presumption should be raised in his favour that the entire quantity covered by second sales was included in the sales turnover of Rs. 5,63,000. The assessee did not maintain a separate account of the gold sold from out of the stocks obtained from dealers or licensees. The claim of the assessee was rejected by the Tribunal but it was held by the High Court that although the assessee had not maintained a separate account, such an account would be only a make-believe one. What the law required was that there should be no escape of tax. As the quantity of bullion sold by the assessee exceeded the quantity purchased from other dealers, the natural presumption arose that a person engaged in a transaction would presumably follow that course which took him out of the taxable category rather than otherwise. Therefore, the turnover of Rs. 3,80,918 should, under the law, be deemed to relate to the quantity of gold which the assessee had purchased from other dealers and it was exempt from tax as turnover representing second sales of bullion.

On behalf of the appellant, it was contended by the Advocate-General that the judgment of the Madras High Court in S. Rathinaswamy Chettiar v. State of Madras [1962] 13 STC 419 requires reconsideration in view of the express statutory provisions in Section 10 of the Act that the 'burden of proving that any dealer or any of his transactions is not liable to tax under this Act shall lie on such dealer'. It was also submitted that the provisions of Section 40 of the Act and Rule 26(1), (2) and (9) are mandatory in character and the decision of the Madras High Court which was given under the Madras General Sales Tax Act, 1939 (Madras Act 9 of 1939), requires to be reconsidered, and there was no scope for taking into account any question of hardship. In our opinion, the argument on behalf of the appellant is well-founded and must be accepted as correct. The earlier decision of the Madras High Court in S. Rathinaswamy Chettiar v. State of Madras [1962] 13 STC 419 requires to be reconsidered in view of the statutory provisions of the new Act, i.e., the Madras General Sales Tax Act, 1959 (Madras Act 1 of 1959). We consider therefore that the judgment of the Madras High Court should be set aside and the case should be remanded...

6. The learned counsel for the assessee had, in support of his argument, the resume whereof has already been given hereinabove, relied on the decision of the Supreme Court in Commissioner of Income-tax, West Bengal v. Anwar Alt : [1970]76ITR696(SC) and the decision of this Court in Raysinet Kemical Company v. State of M.P. (printed at page 314 infra) [1983] 16 VKN 165. He had submitted that the decision in Raysinet's case (printed at page 314 infra) [1983] 16 VKN 165 (MP) squarely covers the present case, as the decision laid down in that case is squarely within the four corners of the facts and the questions involved in the instant case.

6.01. The portions referred to and relied upon by the learned counsel are set out hereinbelow:

: [1970]76ITR696(SC) :

It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings [Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) ]. ...It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. [1983] 16 VKN 165 (MP) (printed at page 314 infra) :Sub-section (2) of Section 8 under which the petitioner has been made liable provides that where any raw material purchased by a registered dealer under Sub-section (1) is utilised by him for any purpose other than a purpose specified in the said sub-section, such dealer shall be liable to pay penalty. The purpose specified in Sub-section (I) is manufacture of goods for sale in the State of M.P. or in the course of inter-State trade or commerce or in the course of export out of the territory of India. The burden to prove that the penalty has been incurred in any particular case by contravention of the purpose for which the raw materials were purchased under Sub-section (1) is on the department. It may be that the department is liable to discharge that burden in some cases by calling upon the dealer to show as to how the goods purchased under Sub-section (1) were utilised by him. In the instant case, however, on the facts found by the Sales Tax Officer, it cannot be said that the burden is discharged for the entire quantity of manufactured goods sold outside the State could be manufactured out of the raw materials purchased from outside the State and thus there is nothing to establish that the raw materials purchased within the State were used in manufacturing goods sold outside the State. Similar reasoning has consistently been adopted by the Board of Revenue, and in our opinion, rightly, in deciding cases of penalty under Section 8(2) [see J. C. Mills Ltd. v. Commissioner of Saks Tax [1977] 10 VKN 225 and Vinay Dal Mills v. Commissioner of Sales Tax (Appeal No. 202-PBR/78 decided on 28th November, 1978) and other cases referred to therein]. The learned Government Advocate relied upon a decision of the Supreme Court in the case of Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner, Sales Tax : [1978]3SCR98 to show that the burden of proof which is on the department can be discharged by calling upon the dealer to produce his books of account of evidence to show as to how the raw materials were utilised. In the instant case however on the facts found by the Sales Tax Officer from the account books, it cannot be said that the dealer committed any contravention of the purpose mentioned in Section 8(1) in respect of goods purchased in form XII-A and utilised the goods for manufacturing other goods which were sold outside the State.

6.02. It was also argued by the learned counsel for the assessee that the cases referred to and relied upon by the learned Advocate-General are quite distinguishable from the facts of the instant case, more particulary as they do not relate in the matter of penalty proceedings and relate to the proceedings regarding assessment.

7. In our opinion, the decision of their Lordships of the Supreme Court in Anwar Alt's case : [1970]76ITR696(SC) sets at rest as to the nature of proceedings relating to the imposition of penalty. In this decision, its fore-extracted excerpt (extracted hereinabove in paragraph 6.01 of this judgment) makes it clear that their Lordships of the Supreme Court are of the view that the proceedings relating to imposition of penalty are quasi-criminal in nature and the burden lay upon the department for establishing that the assessee is liable to payment of penalty. To iterate for. the purpose of emphasis, it will be relevant here to requote the following observations of the Supreme Court in this case :

It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings [Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) ].

This case lays down in unequivocal terms that the penalty proceedings are penal in nature and are not merely the proceedings for imposition of additional tax; the liability to pay such tax having been designated as a penalty.

7.01. It is true that in the Simplex Structural Works' case : [1983]140ITR782(MP) this Court has made an observation with regard to the penalty that was imposed under Section 8(2) of the Act as under :

Although termed as penalty the amount so paid is really sales tax and should be allowed as business expenditure under Section 37.

This observation, if read, torn and in isolation of context, does create an impression that imposition under Section 8(2) of the Act is not the imposition of penalty and the provision is not in the nature of a penal provision. But, the observation was made in a different context and circumstances and it cannot be read so as to mean that in the case a view contrary to the Supreme Court's view in Anwar Alt's case : [1970]76ITR696(SC) has been taken. In Simplex Structural Works' case : [1983]140ITR782(MP) the question for consideration before the court was about the allowability of the amount of penalty that was imposed on the assessee under Section 8(2) of the Act as a business expenditure under Section 37(1) of the Income-tax Act, 1961. The penalty imposed in that case under Section 8(2) of the Act was the difference between the tax payable at the full rate and the tax payable at the concessional rate. In the face of this fact that the court, for the purposes of Section 37 of the Income-tax Act, treated it to be a business expenditure and in that course made the just fore-quoted observations. In the Simplex Structural Works' case : [1983]140ITR782(MP) itself, this Court has observed to the effect that the position would have been otherwise had the penalty imposed under Section 8(2) of the Act not been the minimum, that is, merely the difference in the tax at the full rate and the tax at the concessional rate and had been in excess thereof. On the point of exactness and clarity with regard to this, we would like to quote the following observations from the Simplex Structural Works' case : [1983]140ITR782(MP) :

If the amount of penalty is such an expenditure which the assessee would have been required to incur, even if he had not broken the law, such an expenditure cannot in true sense be termed as penalty for infraction of the law. ...The learned standing counsel for the department also relied upon a decision of a Division Bench of this Court in Commissioner of Income-tax v. Malwa Vanas-pati & Chemical Co. Ltd. : [1982]135ITR221(MP) which lays down that penalty paid under Section 8(2) of the State Act cannot be allowed as a business expenditure under Section 37(1) of the Income-tax Act. In that case, however, the penalty imposed under Section 8(2) was not merely the difference in the tax at the full rate and the tax at the concessional rate. The learned Judges specifically observed that the assessee did not produce any material to show that the penalty imposed under Section 8(2) was the minimum and comprised only of the difference in tax between the amount of tax at the full rate and the amount of tax at the concessional rate. The decision of this Court in Malwa Vanaspati & Chemical Co.'s case : [1982]135ITR221(MP) therefore, cannot be applied to the facts of the instant case.

It would be pertinent here at this stage to point out that in the instant case, the penalty that was imposed was not the minimum, that is, the difference between the tax payable at the full rate and the tax payable at the concessional rate, but the maximum penalty, that is, one and one quarter times the amount of tax at such full rate.

7.02. In Jaswantlal's case , the question for consideration before this Court was altogether different than the one at hand. From the observations extracted hereinabove in paragraph 5.01 of this judgment, the court was considering the question of quantum of penalty imposable under Section 8(2) of the Act and also the question as to whether a penalty can be imposed in cases where the account of the assessee is found bonafide.

8. As a sequel to the aforesaid discussion, we would iterate that in the facts and circumstances of the case, Anwar Ali's case : [1970]76ITR696(SC) holds the field and we hold that the provision relating to the decision of penalty under Section 8(2) of the Act is a penal provision-the proceedings relating to that have to be equated to quasi-criminal proceedings-and the burden of proof to establish the liability for penalty is on the department and such being the legal position, when there are two possible views from the material on record, then accepting the golden rule that runs through the web of the administration of criminal justice that the view that favours the accused has to be accepted, the view in favour of the assessee has to be taken.

9. We now turn to the Raysinet's case (printed at page 314 infra) [1983] 16 VKN 165 decided by this Court. The relevant excerpt has already been set out hereinabove in paragraph 6.01 of this judgment. If we examine the instant case in the context of those observations, we find that those observations squarely apply to the instant case. In the instant case the Tribunal has found it as a fact, to quote : 'Appellant has taken care to ensure that oil sold outside the State does not exceed the quantity of oil-seed purchased by him without giving the declaration'. Further, question No. (1), as framed, also indicates that in the instant case, the quantity of finished products sold outside the State did not exceed the quantity of raw materials purchased without concessional rate. In such a situation, on account of the assessee's failure to maintain the distinct separate account, showing distinctly as to whether raw materials consumed in the goods sold outside the State were those which were purchased on concessional rate or without concessional rate merely on the possibility of the raw material purchased at concessional rate and otherwise being utilised in the finished products sold outside the State, the assessee cannot be held liable for penalty, holding that the raw materials purchased at concessional rate and otherwise must have been utilised in the production of this finished goods in the ratio of their purchases, when there is material on record to show that the entire quantity of manufactured goods sold outside the State could be manufactured out of the raw materials purchased without concessional rate. To iterate, it is a cardinal principle of law that a man is presumed to be innocent unless the guilt is established beyond reasonable doubt and that is what has been held in Anwar All's case : [1970]76ITR696(SC) . In this view of the matter, the view taken in Raysinet's case (printed at page 314 infra) [1983] 16 VKN 165 : 'The presumption is that every person acts in a lawful manner. Consistent with this presumption, it cannot be held that raw materials purchased under Section 8(1) were utilised for manufacturing goods sold outside the State to the extent these goods could have been manufactured from raw materials purchased from outside the State' cannot be said to lay down a bad law.

10. It was argued by the learned Advocate-General that this view is contrary to the view of the Supreme Court in Polestar Electronic's case : [1978]3SCR98 . This Court has in Raysinet's case (printed at page 314 infra) [1983] 16 VKN 165 applied its mind to that case and has distinguished the same. We would also presently just hereinafter, deal with that case and in our view, that case is distinguishable from the facts of the instant case also and does not advance the contention of the department. The relevant observations in Polestar Electronic's case : [1978]3SCR98 relied upon by the learned Advocate-General to canvass his aforesaid contention have been set out herein-above in this judgment in paragraph 5.01. In that the significant observation is: 'if the assessees do not produce sufficient evidence to establish this fact, it might be legitimate for the revenue to raise an inference that the assessee did not utilise the goods for the purpose for which they were purchased, but utilised them for any other purpose'. The emphasised portion clearly indicates that the raising of the inference against the assessee is not a rule of thumb, but a matter of conclusion in the facts and circumstances of the given case. Therefore, in the instant case, when on the facts and circumstances of the case, the Tribunal whose finding on fact is final, has inferred in favour of the assessee and that being an inference of fact, cannot be said to be erroneous in law. At this stage, it would be pertinent to point out that their Lordships of the Supreme Court have held in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax 0044/1956 : [1956]1SCR691 that an inference of fact from the facts established is a question of fact and not a question of law. In this view of the matter, we are of the opinion that the Polestar Eleclronic's case : [1978]3SCR98 does not advance the contention of the department in the instant case also.

11. It was also argued by the learned Advocate-General that in Raysinet's case (printed at page 314 infra) [1983] 16 VKN 165 no notice of Narayana Nadar's case [1968] 21 STC 25 (SC) was taken and in the light of this Narayana Nadar's case [1968] 21 STC 25 (SC) also, the view taken in Raysinet's case (printed at' page 314 infra) [1983] 16 VKN 165 is erroneous. It is true that in Raysinet's case (printed at page 314 infra) [1983] 16 VKN 165 Narayana Nadar's case [1968] 21 STC 25 (SC) has not been considered but for the reasons to follow, even on considering Narayana Nadar's case [1968] 21 STC 25 (SC) we are not inclined to take a view contrary to the one taken in Raysinet's case (printed at page 314 infra) [1983] 16 VKN 165 obviously for the reason that Narayana Nadar's case [1968] 21 STC 25 (SC) deals with altogether a different matter, quite distinguishable from Raysinet's case (printed at page 314 infra) [1983] 16 VKN 165 and the instant case. In Narayana Nadar's case [1968] 21 STC 25 (SC) the question dealt was in the matter of assessment. It did not relate to penalty proceedings. The question involved there was about the taxable turnover and the assessee was making a claim for deduction of a certain amount of sales on the ground that they were exempt from tax. The claim was akin to a claim under Section 2(r)(ii) of the Act, that is, a deduction in respect of tax-paid goods. This is quite apparent from the excerpt of Narayana Nadar's case [1968] 21 STC 25 (SC) that we have set out in paragraph 6.01 of this judgment. It is a trite law that to establish the entitlement for exemption from tax, the burden is on the assessee, who claims that exemption and that claim cannot be equated to the question of imposition of penalty for any contravention of the provisions of law. At this stage, it would also be pertinent to have a look at the initial expression in Section 8(2) of the Act as it throws a flood of light on the question of burden of proof on the department; to quote: 'Where any raw material purchased by a registered dealer under Sub-section (1) is utilised by him for any purpose other than a purpose specified in the said sub-section,...' This expression indicates that it is a sort of a charge against an assessee and when it is a charge against the assessee, it has to be proved by the person making the charge.

12. As a sequel to the aforesaid discussion, question No. (1) which we have analysed hereinabove at page 8 of this judgment, has to be answered in the affirmative, that is against the department and in favour of the assessee.

13. We now turn to question No. (2). The answer to this question is dependable on the answer to question No. (1). It was strenuously argued on behalf of the department by the learned Advocate-General that the maintenance of separate account in the manner discussed hereinabove, while discussing question No. (1), was obligatory on the assessee and the assessee having not maintained the separate account and having maintained the mixed account, the question deserves to be answered against the assessee and in favour of the department. We would like to discuss the question about the maintenance of account. Reference was made to Sections 9 and 26 of the Act and Rule 52 of the Rules. Section 9 of the Act as its very rubric states, relates to burden of proof and further it talks of the liability to pay tax; it does not talk of penalty. Therefore, that section has no relevance with regard to the point in controversy in the instant case. Section 26 of the Act reads as under :

26. Accounts.-(1) Every registered dealer shall keep true account of the value of goods bought and sold by him and if the Commissioner considers that the account does not sufficiently enable him to verify the returns referred to in Sub-section (1) of Section 17, he may require such dealer by notice in writing to keep such accounts including records of sales and purchases as he may, subject to rules made under this Act, direct.

(2) The provisions of Sub-section (1) shall apply to every dealer on whom a notice under Sub-section (1) of Section 17 has been served with effect from the date of service upon him of such notice.

This section casts an obligation on a registered dealer to keep true accounts. It does not lay down the manner of keeping the accounts, much less in the matter like the instant case. It, of course authorises the Commissioner, if he so chooses, to require a dealer by notice in writing to keep such account including records of sales and purchases as he may, subject to rules made under the Act, direct. Thus, this section has also no relevance in the instant case. We now turn to Rule 52 of the Rules. It reads as under :

52. Maintenance of ratewise account of goods.-Every dealer liable to pay tax under the Act shall maintain accounts separately in respect of different kinds of goods subject to different rates of tax under the Act:Provided that the dealer licensed under Section 13, shall not be required to maintain any accounts in respect of any goods mentioned in Schedules I and III.

This rule makes it imperative for every dealer the maintenance of ratewise account of goods subject to the exception under Section 13 of the Act. Without expressing any final opinion and specifically stating that what we say just hereinafter should not be treated as a precedent. On an ex facie reading of this rule, it cannot be understood to mean that an assessee is required to maintain separate accounts regarding the consumption of the raw material purchased at concessional rate and otherwise in the finished products, so as to distinctly indicate as to whether the finished products sold outside the State was produced from the raw materials purchased at concessional rate or from raw materials purchased without concessional rate. Even assuming that an assessee is required to maintain an account in a particular manner and if he has failed to do it, the only consequence would be that his accounts be not accepted and be liable to a best judgment assessment, but that failure to maintain the accounts would not ipso facto warrant a conclusion as contended by the learned Advocate-General on behalf of the department. The matter of penalty would depend on the facts and circumstances of each case in the light of the discussion made by us herein-above while discussing question No. (1).

14. In the above view of the matter, question No. (2) has also to be answered in the affirmative, that is, in favour of the assessee and against the department.

15. In the result, the reference is disposed of as indicated hereinabove. We make no order as to costs.


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