J.B. Mehta, J.
1. The Tribunal has posed the following three questions to this court :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the failure to record a finding by the Sales Tax Officer about the absence of reasonable excuse before the penalty is imposed under section 10A read with section 10(d) of the Central Sales Tax Act, 1956, is not material
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the applicant-firm had failed to make the use of kantan purchased by it against certificates in form C without reasonable excuse and, that, therefore, a penalty under section 10A read with section 10(d) of the Central Sales Tax Act, 1956, was leviable
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the maximum penalty that can be imposed under section 10A of the Central Sales Tax Act, 1956, would be one and half times the amount of tax leviable under the Act if the applicant-firm had not issued C forms against the purchases ?'
2. The short facts which have given rise to this reference are as under :
The petitioner-company was registered as a dealer both under the Bombay Sales Tax Act, 1959, hereinafter referred to as the 'Act' as well as under the Central Sales Tax Act, 1956, hereinafter referred to as the 'Central Act'. The company was doing business of ginning, pressing and bailing the cotton of the customers. In bailing work, the company had to use Kantan, hessian and bailing hoops, that is patti. The company used to purchase kantan against the relevant form C from the other States. The company had shown in the certificate of registration these goods in the column meant for resale. In the assessment years 1967, 1968 and 1969, the Sales Tax Officer found that this kantan purchased against form C by the company had been used for the job-work and the company had not resold kantan and thereby it had contravened the relevant declaration in form C and had committed an offence which attracted penalty under section 10(d) read with section 10A of the Central Act. The company's contention that the user of the kantan in the bailing work of customers amounted to resale of those materials and that it had paid sales tax on that basis at the time of the return was not accepted. The Sales Tax Officer found that as no sales tax was leviable on kantan used in the job-work, which did not amount to any sale contract, the sales tax paid by the company in all the three years must be refunded. Along with this order of refund, the Sales Tax Officer, however, passed a penalty order under section 10A of the Central Act, without giving any positive finding as to this ingredient about reasonable excuse under section 10(d) when the company failed to make such user. In appeal the penalty order was upheld on the ground that there can be no reasonable excuse in the circumstances of the case as the legal question was decided by this court in the decision of Monogram Mills (S.T.R. No. 6 of 1974 decided on 25th November, 1964 (Gujarat High Court).), and after a period of three years such a contention could never be raised by the company. The Tribunal while confirming this order even proceeded on a further assumption that it might be possible that kantan and patti which were required by the company in job-work might not be freely available in the local market in the relevant years and that if it purchased from the other States without form C, it would have been liable to pay tax at the rate of 10 per cent on the purchase of kantan and, therefore, to avail of concessional rate of 3 per cent the company might have intentionally used form C. Therefore, both on the ground that it was wholly immaterial as to what was the understanding in the mind of the company while making such use of kantan and patti in the job-work, and on the ground that this was a deliberate user, the decision of the Supreme Court in Hindustan Steel Limited ( 25 S.T.C. 211 (214) (S.C.)) was distinguished by the Tribunal. The Tribunal, however, modified the penalty order by reducing the quantum to a rate which works out to only 4 per cent. Therefore, the company got the present reference made by the Tribunal.
3. At the outset we would consider the relevant scheme under the Central Act. Section 7(1) provides for registration of dealers liable to pay tax under the Central Act. Under section 7(3) if the authority is satisfied that the application is in conformity with the provisions of the Act and the Rules, the dealer has to be registered and granted a certificate of registration in the prescribed from B specifying the class or classes of goods for the purposes of sub-section (1) of section 8. Under section 8(1)(b) a special concessional rate of 3 per cent is provided on sales in the course of inter-State trade or commerce, to a registered dealer in the case of goods of the description referred to in sub-section (3). Under section 8(2)(b), in the case of goods other than declared goods, the rate shall be calculated at 10 per cent, if the aforesaid concession in section 8(1) was not attracted, or the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher. Sub-clause (3) defines those goods referred to in section 8(1)(b) for which concessional rate of 3 per cent is provided. It is as under :
'(b) are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf for use by him in the manufacture or processing of goods for sale ..........'
4. Section 8(4) enacts that the provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner :
'(a) a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority.'
5. The relevant rule 12(1) has prescribed the relevant declaration form C for the purposes of section 8(4)(a) in which the name of the purchasing dealer to whom that form is issued by the State along with his registration certificate number and date from which the registration is valid are mentioned. The declaration form further contains a certificate to the seller by the purchasing dealer that the goods are purchased for resale, use in the manufacture/processing of goods for sale, etc., and are covered by his registration certificate issued under the Central Act. Therefore, under this relevant scheme, the purchasing dealer could purchase from the other States kantan in question as per the specification mentioned in his certificate of registration as the goods being intended for resale by him and the concessional rate of 3 per cent had been attracted because he had given relevant declaration form C as provided under section 8(4) to the selling dealer. But for his supplying such declaration form C the purchasing dealer would have to pay normal rate under section 8(2)(b) of 10 per cent or the rate applicable to such purchases in the Gujarat State whichever was higher. As at that relevant stage of purchase what the legislature contemplated for such concessional rate was the condition of the purchase being made by the purchasing dealer with the intention of resale of these goods, the legislature has enacted necessary penalty clause keeping this factor in mind. Section 9(2) provides a fiction for levy of penalties as if such a penalty was payable under the general sales tax law in the State. Section 10(d), which is the relevant clause for penalty, provides as under :
'10. If any person, -
(d) after purchasing any goods for any of the purposes specified in clause (b) of sub-section (3) of section 8 fails, without reasonable excuse, to make use of the goods for any such purpose .................. he shall be punishable with simple imprisonment which may extend to six months, or with fine, or with both; and when the offence is a continuing offence, with a daily fine which may extend to fifty rupees for every day the offence continues.'
6. Section 10A(1) enacts that if any person purchasing goods is guilty of an offence under clause (b) or clause (c) or clause (d) of section 10, the authority who granted to him a certificate of registration under this Act may, after giving him a reasonable opportunity of being heard, by order in writing, impose upon him by way of penalty a sum not exceeding one-and-a-half times the tax which would have been levied under this Act in respect of the sale to him of the goods if the offence had not been committed, provided that no prosecution for an offence under section 10 shall be instituted in respect of the same facts on which a penalty has been imposed under this section. Therefore, these relevant penal provisions in sections 10 and 10A of the Central Act envisage for such offence under section 10(d) a criminal prosecution or a departmental penalty in lieu of such prosecution. It is in this context that the relevant controversy has to be resolved as to whether the expression 'without reasonable excuse' is an ingredient of the offence attracting penalty under section 10(d) or an excuse or exception which was to be pleaded and proved by the assessee which may exonerate him from this penal liability. When the entire scheme is kept in mind, it is obvious that as the purchases had been made of these specified goods in section 8(3)(b), as if intended for sale, it is this necessary intention of resale which attracted the concessional rate of 3 per cent under section 8(1)(b). The legislature, therefore, provided this necessary ingredient of the offence that the purchasing dealer (i) after purchase of these goods for the purpose specified in section 8(3)(b)(ii) must have failed to make use of the goods for any such purpose, (iii) without reasonable excuse. Therefore, section 10(d) contemplates three ingredients of this penal offence. Besides, the aforesaid context of this penal provision, there is another consideration which would settle any doubt about the construction of this provision. The relevant provision in section 10(d) enacts a penal offence for which the person concerned can be convicted and sentenced to suffer simple imprisonment which may extend to six months or with fine or with both or for a continuing offence with a daily fine which may extend to Rs. 50 for every day the offence continues. It is true that under section 10A(1) a departmental penalty can be imposed at the rate not exceeding 1 1/2 times the tax which would have been levied under the Act in respect of the sale to the purchasing dealer of the goods in question if the offence had not been committed, and if such departmental penalty has been imposed, there is a bar to the prosecution under section 10. The mere fact that the imposition of departmental penalty is in lieu of prosecution is wholly irrelevant for the purpose of construction of the statutory language of the penal offence enacted in section 10(d). As per the settled principles of construction every penalty provision will have to be strictly construed, even where two constructions are possible. The legislature has provided for a penal default and the default is not consisting of mere failure to make use of the goods for the purpose for which they were purchased as specified under section 8(3)(b). A further ingredient for this specified offence is that such failure must be without reasonable excuse. Therefore, all these three ingredients including the one specified in the relevant expression 'without reasonable excuse' are obviously the ingredients of this offence. Even the entire context of section 10 makes it clear that all the clauses are penal clauses where the default has a further ingredients explicit or implicit in the statutory language. In section 10(b) and (c) the ingredient of false representation has been provided as a material ingredient of the penal offence. Similarly, in section 10(e) it is provided that the person must be in possession of the prescribed form under section 8(4) which had not been obtained by him or by his principal or by his agent in accordance with the provisions of the Act and the Rules. Even in section 10(f) the collection of tax amount in contravention of the provisions contained in section 9A is made penal offence. The only remaining clause is section 10(a), which enacts a penal offence on failure of a dealer to get himself registered under section 7. It is also construed by their Lordships in Hindustan Steel Ltd. ( 25 S.T.C. 211 (S.C.).) in the same sense of a penal default. At page 214, while construing a provision in pari materia, their Lordships pointed out that the liability to pay penalty did not arise upon a proof of default in getting registered as a dealer. Their Lordships pointed out that an order imposing penalty for failure to carry out a statutory obligation was the result of a quasi-criminal proceeding, and penalty would not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty also would not be imposed merely because it was lawful to do so. Their Lordships pointed out that whether penalty should be imposed for failure to perform a statutory obligation was a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty was prescribed, the authority competent to impose the penalty would be justified in refusing to impose penalty, when there was a technical or venial breach of the provisions of the Act or where the breach flew from a bona fide belief that the offender was not liable to act in a manner prescribed by the statute. Those in-charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Their Lordships therefore observed that, granting that they erred, no case for imposing penalty was made out in those circumstances. Therefore, even when the legislature did not qualify this statutory language like the one in section 10(a) of failure to get registration as required under the Act, their Lordships read in such a penal offence an implicit qualification by holding that the penalty would be attracted only when there was a deliberate default in defiance of law or contumacious or dishonest conduct or the dealer acted in conscious disregard of the obligation. That is why no penalty was attracted where the breach occurred from a bona fide belief that the person concerned was not liable to act in the manner prescribed by the statute. The same ingredient which their Lordships read by a process of construction in the statutory penal language is, however, specifically enacted so far as section 10(d) is concerned, for one of the ingredients of the default is that the failure must be without reasonable excuse.
7. The learned Government Pleader, however, pressed in aid the decision of their Lordships in State of U.P. v. Dyer Breweries Ltd. ( 31 S.T.C. 588 at 598 (S.C.).), where their Lordships had observed that in fact the levy of penalty was one form of levying tax. Those observations were made in the context that the penalty can be levied by the same authority which imposed the sales tax under the Central Act. That is why in Commissioner of Income-tax v. Anwar Ali ( 76 I.T.R. 696 at 700 (S.C.)), their Lordships considered this question as to whether imposition of penalty was in the nature of penal provision because the determination of the question of burden of proof would depend largely on the penalty proceeding being penal in nature or being merely meant for imposition of an additional tax, and as the liability to pay such tax was designated as penalty under section 28. Their Lordships pointed out that the earlier decision in C. A. Abraham v. Income-tax Officer ( 41 I.T.R. 425 (S.C.).) could not be pressed into service for the view that the penalty was an additional tax because those observations were made in a different context and for a different purpose without considering the question whether the penalty proceedings were penal or quasi-penal in nature. Their Lordships further pointed out that one of the principal objects in enacting section 28 was to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences were intended to be an effective deterrent which would put to a stop practices which the legislature considered to be against the public interest. Their Lordships, therefore, held that it was settled even in the sales tax law that an order imposing penalty was the result of a quasi-criminal proceeding as per the decision in Hindustan Steel Ltd. ( 25 S.T.C. 211 (S.C.)). In England also it had never been doubted that such proceedings were penal in character. Therefore, as per this settled legal position, section 10(d) must be held to be a penal provision and all the three ingredients defining the penal offence must be held to be the ingredients of the penal offence. Therefore, the penal offence could not be construed as a mere failure to make use of the goods for any such purpose which is specified in section 8(3)(b) if the goods were purchased for that purpose, and this further ingredient must always be satisfied to attract this penalty in section 10(d) that such failure was without reasonable excuse.
8. The learned Government Pleader in this context vehemently relied upon the decision of the House of Lords in Nimo v. Alexander Cowan & Sons Ltd. ( A.C. 107). In that decision their Lordships had to construe section 29(1) of the Factories Act, which was a safety provisions and which enacted in the statutory language the necessary qualifying expression, viz., 'so far as is reasonably practicable'. It is true that the majority view was that the relevant doubt must be resolved by a purposive interpretation looking to the fact that this was a safety provision in such public welfare measures like the factory legislation. In fact, in one of the majority judgments, Lord Pearson pointed out at page 134, that the incidence of the burden of proof, determining what each party has to prove in order to succeed in the action, must be the same both so far as civil remedy of damages was concerned and also so far as criminal law was concerned. Even Lord Guest in the majority judgment, at pages 121-122, specifically referred to this aspect that this question of construction must be resolved by regard to the purpose of the relevant sections. The objects of the section was to provide for a safe working place by imposing criminal and civil liability on the occupier in the event of breach and, therefore, such a construction must be adopted which would best achieve the result, viz., to make and keep the working place safe. Same was the view adopted by Lord Upjohn. In the dissenting view propounded by Lord Reid at page 115, it was, however, pointed out that the question of construction should be approached by considering first what a prosecutor would have to allege and prove in order to obtain a conviction. For, civil liability only arises if there had been a breach of the statutory duty, and he could not see how a pursuer could succeed in a civil action without averring and proving all the facts essential to establish the commission of an offence. It was true that the standard of proof was lower in a civil case so that the pursuer only had to show that it was probable that an offence was committed. But that could not mean that the onus of proof was different with regard to any of the essential elements of the offence. Lord Wilberforce who also dissented also pointed out that the Parliament, when enacting safety legislation, had various choices open to it. It might impose an absolute duty to take precautions, or to produce a condition of safety, or it might impose a qualified duty. Therefore, he read the statutory language as a material qualification of the duty imposed on the employer and, therefore, like Lord Reid he also read the statutory language as one of the ingredients of the offence. This decision clearly brings out the relevant principles of construction. The majority view in that case was of a purposive interpretation of such a factory legislation and that consideration could never apply when a penalty is created in a taxation law, as per the settled position restated in the aforesaid Anwar Ali's ( 76 I.T.R. 696 (S.C.).) decision by their Lordships. Therefore, it is the dissenting view which would be applicable to the present facts because the legislature enacted the penal liability and it is only when a penal default within the meaning of the statutory language is made out that the necessary penalty would be attracted, both when a criminal prosecution is launched or the departmental penalty is sought to be imposed. The burden of proof may have to be differently considered keeping in mind the nature of this negative ingredient which the department has to prove for bringing home the default to the assessee. But that would not be helpful in determining whether this relevant qualification 'without reasonable excuse' is or is not an ingredient of the penal default in section 10(d).
9. Mr. Pathak had in this context rightly relied upon the decision in Paramasivan v. State of Kerala (1971 Tax. L.R. 1241.) (sic), and on the two earlier decisions of the Mysore High Court in Manjunatha Tyre Retreading Works v. State of Mysore ( 23 S.T.C. 428.), and in State of Mysore v. S. S. Umadi ( 24 S.T.C. 11), where the Division Bench had categorically held that section 10(d) required three constituents of the offence and, therefore, a person could not be said to be guilty of a statutory offence under section 10(d) of the Central Act in the absence of a positive finding that the failure to use the goods for the purpose referred to in that clause was without reasonable excuse. The expression 'without reasonable excuse' was thus held to be an ingredient of the offence and not a matter of defence which the assessee had to allege and prove. Even in the last decision in Shivananda Electric Company v. State of Mysore ( 33 S.T.C. 348), the Division Bench had not differed from the earlier view. The Division Bench merely pointed out that when a show cause notice was issued and thereafter the dealer has not offered any excuse to exonerate him after admitting that he did not make use of the goods for the purpose specified in the C form, on the facts, it must be held that the dealer had not excused himself. It is true that the learned Chief Justice has observed that in the earlier decision the court had not laid down any such law that the department had to prove the mens rea in order to attract penalty. With great respect, the learned Chief Justice had not carried to the logical conclusion the earlier view that this was an ingredient of the statutory offence under section 10(d). Therefore, all the ingredients must be averred and proved by the department or the prosecution agency. If no proof was led, even prima facie, by the prosecution or the department as regards this material negative ingredient, this statutory default would not be made out at all. This relevant aspect seems to have escaped the notice of the learned Chief Justice. Therefore, there is nothing in this decision which departs from the earlier view which is settled so far as the Mysore High Court was concerned that this was an ingredient of the offence and not a matter of defence for which the onus would be on the person concerned. The learned Government Pleader in this context vehemently relied upon the decision of M. U. Isaac, J., in Paramasivan v. State of Kerala (1971 Tax. L.R. 1241.), where the learned Judge had distinguished the Mysore view by holding that this was not an ingredient of the offence but was a matter of defence. Isaac, J., in this context observed that only acts and omissions could constitute an offence. Ordinarily they must be accompanied by a certain state of mind or mens rea. Absence of a thing could not be an ingredient of an offence but the existence of a thing might be valid excuse or defence for the commission or omission of the acts, which constituted the offence. Therefore, he held that this material expression 'without reasonable excuse' occurring in section 10(d) of the Act laid down an exception to the offence. It provided that failure to use the goods for the purposes for which they were purchased would not be an offence, if there was reasonable excuse for failing to do so. With great respect the learned single Judge has not noticed in this context the settled law. Certain ingredient of an offence may be a negative ingredient for which the burden of proof on the prosecution might be slight as only to make out a prima facie case or to lead only presumptive proof. Still, it would be an ingredient of the offence. If the statutory language contemplates that ingredient as one of the ingredients of the offence, it is not open to the court of law to rewrite the same language differently in such penal statute, as that would be misreading the statutory language departing from all settled canons of construction of penal statutes. Therefore, so far as the first question is concerned, the Tribunal was obviously in error in thinking that this was not an ingredient of the offence and that it would not be material, if no finding whatever was given as regards this material ingredient by the original sales tax authorities. If this is the ingredient of the offence, it is the department which must plead and prove this ingredient. That is why the department would have to mention this factor in the relevant show cause notice so that the concerned dealer would get an opportunity to meet with the case of the department. It is only when the relevant ingredient is pleaded and proved by the department, of course, by way of presumptive proof, so far as this negative ingredient is concerned, that the onus shifts on the person concerned to rebut that presumption. The law in this connection is well-settled as regards onus of proof. In Collector of Customs v. Bhoormull (A.I.R. 1974 S.C. 859 at 864), their Lordships considered the material question of burden of proof in the context of section 167(8) of the Customs Act, when section 178-A did not apply and the burden was on the department to prove that the goods were smuggled goods. Their Lordships pointed out that this was a fundamental rule relating to proof in all criminal or quasi-criminal proceeding, where there was no statutory provision to the contrary. But in appreciating its scope and the nature of the onus cast by it, due regard must be paid to other kindred principles, no less fundamental, of universal application. One of them was that the prosecution or the department was not required to prove its case with mathematical precision to a demonstrable degree; for, in all human affairs absolute certainty was a myth. The law never required the prosecution to prove the impossible. All that it required was the establishment of such a degree of probability that a prudent man might, on its basis, believe in the existence of the fact in issue. Their Lordships further pointed out that the other cardinal principle having relevance on the incidence of burden of proof was the sufficiency and weight of the evidence to be considered according to the proof which it was in the power of one side to prove, and in the power of the other to have contradicted. Therefore, where it was exceedingly difficult, if not absolutely impossible for the prosecution, to prove facts which were especially within the knowledge of the opponent or the accused, it was not obliged to prove them as part of its primary burden. Therefore, it was pointed out that in the context of such smuggling offences, when the burden was on the department or the prosecution, the burden was considerably lightened by the presumption of fact arising in their favour. However, that did not mean that the special or particular knowledge of the person proceeded against would relieve the prosecution or the department altogether of the burden of producing some evidence in respect of that fact in issue. It would only alleviate that burden to discharge which very slight evidence might suffice. Therefore, finally at page 867 their Lordships held that the broad effect of the application of the basic principle underlying section 106, Evidence Act, to such cases under section 167(8) of the Act, was that the department would be deemed to have discharged its burden if it adduced only so much evidence, circumstantial or direct, as was sufficient to raise a presumption in its favour with regard to the existence of the facts sought to be proved, and thereafter the burden of proof would shift to the person concerned, to rebut that presumption or that presumptive proof on the balance of probabilities. Therefore, the first question raised by the Tribunal would have to be answered on the footing that the expression 'without reasonable excuse' was a necessary ingredient of the offence which had to be alleged and proved by the department and on which the authority imposing the penalty had to give a finding, as in the absence of such finding in the light of the aforesaid settled principles no penalty under section 10(d) could be attracted.
10. As regards the next question, the Tribunal has proceeded on mere conjectures because there was nothing on the record in the shape of the show cause notice showing what the department relied upon for the purpose of this negative ingredient. In fact, the Sales Tax Officer has not given any finding whatever, because he never considered this to be an ingredient of the offence. The appellate authority as well as the Tribunal also considered it as a matter of an exception which had to be alleged and proved by the defence. The learned Government Pleader vehemently argued that this was the case of circumstantial evidence in the shape of the decision of the High Court in Monogram Mills (S.T.R. No. 6 of 1964 decided on 25th November, 1964 (Gujarat High Court)), which was rendered at least three years before the relevant assessment period. If the department had alleged that the assessee knew this unreported decision, the assessee would have got an opportunity to meet this case. Besides, it is obvious that it was even the department's view till this decision that the use of materials in such job-work would amount to 'sale' attracting sales tax. It is true that this court evolved the true legal principle that the sale within the meaning of the Act would be sale of the article as a chattel and in case of such job-work contracts such concept of sale would not be attracted because the property would be passing incidentally. If the concerned dealer failed to make a distinction between sale in the legal concept and such incidental sale of the material, from such mistaken view of law the relevant ingredient could never be presumed and without any investigation of the facts of the particular case. The authorities cannot proceed on the assumption that this circumstantial evidence of a subsequent decision of the High Court pointing to the only inference of the guilt. Therefore, the vehement reliance of the learned Government Pleader on the circumstantial evidence in the shape of the High Court decision was completely misplaced on the facts of the present case. The Tribunal had relied upon another conjecture that in the local market kantan and patti might not be available and so breach must be a deliberate breach to evade larger payment of tax. There was no material on the record to justify any such conjecture. In the absence of any such case in which the department would have to allege in the show cause notice as to how the statutory offence which attracts penalty is sought to be made out against the appellant concerned, and unless the dealer is given the opportunity to meet this case of the department and unless the authority imposing the penalty gives a finding that all the relevant ingredients of the statutory offence have been established, there would be no question of the statutory offence having been made out on such conjecture in the present case. Therefore, on both the questions the answer must be in the negative.
11. As regards the third question, the same would not arise in view of our answer on the first two question. We would, however, point out that as the Tribunal had reduced the penalty to a rate of only 4 per cent, this third question as to whether the maximum limit specified in section 10A was of 4 1/2 per cent or 15 per cent on the basis of concessional rate of 3 per cent under section 8(1)(b) or higher rate of 10 per cent under section 8(2) would not arise on the facts of the resent case and no such question could have been referred. In that view of the matter, our answer to the first two questions is in the negative. Question No. (3) does not survive and does not arise for our decision. The State shall pay the costs of the petitioner-company of this reference.
12. Reference answered accordingly.