(Order of the Court was made by F.M.IBRAHIM KALIFULLA, J.) This Revision by the State arises on the following substantial question of law, viz., "Whether in the facts and circumstances of the case, the Tribunal is legally correct in having deleted the penalty levied under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 based upon the decision in 125 STC 505 while for the assessment year 1980-81 penalty is leviable under Section 12(5)(iii) of the Act for filing of incorrect and incomplete returns and therefore the said decision cannot be applied to this case ?
2. The short facts which are required to be stated are that the respondent is a cement manufacturing company. The assessment relates to the year 1980-81. This revision is confined to that part of the order of the Tribunal in having setting aside the penalty imposed on the respondent under Section 12 (5) (iii) of the Tamil Nadu General Sales Tax Act, 1959. The sale value of the cement bags manufactured by the respondent was determined by the cement control order. It is not in dispute that the said sale value is determined in the cement control order by including the freight and packing charges. Nevertheless, the respondent in the course of its sale also charged a further sum by way of freight and packing charges over and above the price fixed in the cement control order.
3. While submitting its returns, the respondent disclosed such freight and packing charges in the total turnover and thereby the same were not included in the taxable turnover. In support of its claim for its non-inclusion in the taxable turnover, the respondent placed reliance upon the decision of this Court reported in (1982) 51 STC 171 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu). The said decision came to be reversed by the Hon'ble Supreme Court in the decision reported in (1993) 88 STC 151 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu).
4. It is in the above stated circumstances, the impugned order of assessment came to be made, wherein, apart from the imposition of tax on the freight and packing charges, penalty also came to be imposed on the respondent by invoking Section 12(5)(iii) of the Act. The order of assessment was also confirmed by the First Appellate Authority viz., the Deputy Commissioner (CT), Chennai which was the subject matter of challenge before the Sales Tax Appellate Tribunal, Chennai at the instance of the respondent.
5. By the order impugned in this revision, the Tribunal while confirming the levy of tax, set aside the penalty imposed by holding that the respondent acted on a bonafide belief in the light of law laid down by this Court in the decision reported in (1982) 51 STC 171 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu), which came to be reversed by the Hon'ble Supreme Court only in the decision reported in (1993) 88 STC 151 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu).
6. We heard Mr.Haja Nazaruddin, learned Special Government Pleader (Taxes) appearing for the appellant and Mr.N.Inbarajan, learned counsel appearing for the respondent.
7. We are also convinced with the reasoning of the Tribunal while interfering with the levy of penalty. The imposition of penalty is prescribed under Section 12 (4) and (5) of the Act. While under Section 12(4), the circumstances in which penalty can be imposed is stipulated, under Section 12(5) the power to impose the penalty and the quantum of penalty that can be imposed is specified. Section 12(4) and (5) needs extraction which reads as under:
"Section 12 (4): Notwithstanding anything contained in sub-section (1), (2) and (3), the assessing authority may, if it is satisfied that the accounts maintained by a dealer are correct, assess such dealer on the basis of such accounts, if such dealer has:-
(i) failed to submit the prescribed return; or
(ii) failed to submit the prescribed return within such period as may be prescribed; or
(iii) if the return submitted is found to be incorrect or incomplete.
(5) The assessing authority may, in the order of assessment or by a separate order, direct that the dealer shall in addition to the tax assessed under sub-section (4), pay by way of penalty, a sum
(i) which, in the case referred to in clause (i) of sub-section (4), shall not be less than fifty per cent but which shall not be more than one hundred and fifty per cent of the amount of tax payable;
(ii) which, in the case referred to in clause (ii) of sub-section (4) shall be equal to two per cent of the tax payable for every month or part thereof during which the default in the submission of the return continued subject to a maximum of fifty per cent of the tax; and
(iii) which, in the case referred to in clause (iii) of sub-section (4), shall not be less than fifty per cent but which shall not be more than one hundred and fifty per cent of the difference in tax payable on the turnover disclosed in the return and that determined by the assessing authority;
Provided that no penalty under sub-sections (3) and (5) shall be imposed after a period of five years from the expiry of the year to which the assessment relates and unless the dealer affected has a reasonable opportunity of showing cause against such imposition."
8. Under Section 12 (4) the circumstances which has warranted the imposition of penalty are:
(i) non filing of the returns
(ii) belated filing of the returns
(iii) submission of incorrect or incomplete returns.
In the case on hand, it is not in dispute that the respondent assessee submitted returns and the same was in time. It is also not in dispute that in the returns the respondent assessee disclosed in the total turnover whatever freight charges and packing charges were separately collected over and above the sale price fixed in the cement control order. According to the assessee, such separate freight and packing charges calculated by it would not fall within the taxable turnover and therefore the submission of its return was well within the prescription of the Act and therefore does not call for imposition of any penalty for any of the deficiencies mentioned in Section 12(4).
9. In fact, when we consider the said submission in the light of the decision of this Court reported in (1982) 51 STC 171 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu), it will have to be held that the stand of the petitioner was not without any substance. In the said decision, these very components viz., freight charges and packing charges whether can be allowed as taxable component was specifically dealt with and the Division Bench has held as under at page 190:
"The learned counsel for the department cited a Bench decision of this Court in State of Tamil Nadu Vs. Chettinad Cement Corporation Ltd. (1976) 38 STC 519 in support of his contention that freight could not be exempted from sale price for the purpose of sales tax under the T.N.G.S.T. Act and the Rules made thereunder. We are afraid that this decision cannot be accepted as a binding authority on the proposition of law that we are now called upon to decide. We are in agreement with the learned Judges when they say that freight will have to be included in the total turnover under the T.N.G.S.T. Act. However, by virtue of the operation of rule 6(c) freight will have to be excluded. No doubt, rule 6(c)(i) states that freight when specified and charged for by the dealer separately without including it in the price of the goods sold has to be excluded. In these cases, it is admitted that freight is shown by the assessee separately. However, since the definition of "turnover" contained in section 2(r) takes in the aggregate amount for which goods are bought and sold, freight will have to be necessarily taken into consideration for ascertaining the "total turnover". Thereafter, to arrive at the "taxable turnover", freight will have to be again deducted under rule 6(c). We are therefore of the view that this decision does not in any way help the learned counsel for the department." (Emphasis added) That was also the case where the issue related to the price of cement bags as determined in the cement control order where freight and packing charges were independently charged and collected from the customers.
10. In fact the respondent assessee was fortified by the declaration of law made in the said decision. The respondent assessee in its return though declared freight charges and packing charges in the total turnover, excluded the same for arriving at the taxable turnover. The said decision as stated earlier came to be subsequently reversed by the Hon'ble Supreme Court in (1993) 88 STC 151 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu) wherein the Hon'ble Supreme Court while reversing the said decision declared the legal position as under in page 164:
"....In our view, this position has been correctly set out, applying the decision in the case of Rai Bharat Das & Bros. (1988) 71 STC 277 (SC) in State of Tamil Nadu Vs. Vanniaerumal & Co. (1990) 76 STC 203 (Mad.) (FB), Dalmia Cement (Bharat) Ltd. Vs. State of Tamil Nadu (1991) 81 STC 327 (Mad.) and Dalmia Cement (Bharat) Ltd. Vs. State of Tamil Nadu (1991) 83 STC 442 (Mad.) We are, therefore, of the opinion that the packing charges and excise duty thereon cannot also be deducted in computing the taxable turnover for the purposes of the Tamil Nadu Acts.
We, therefore, hold-
(i) that the freight charges should be included in arriving at the taxable turnover for the purpose of CST and TNST; and
(ii) that packing charges and excise duty thereon should also be included in arriving at the taxable turnover for purpose of both CST and TNST."
The said decision of the Hon'ble Supreme Court came to be rendered on 20th October, 1992.
11. In this context, it will also be worthwhile to refer to the decision reported in (2002) 125 STC 505 (Appollo Saline Pharmaceuticals (P) Ltd. Vs. Commercial Tax Officer (FAC) and Others, wherein this Court while construing Section 12(4) of the Act has taken the view that in the light of the specific expression viz., "may" used in the said section, the levy of penalty being discretionary, such discretion is required to be exercised having regard to all the circumstances of the case including the bona fides of the assessee. The Division Bench has held as under in paragraph 3 and 9 :
"3..... In so far as the assessments made under section 12(1) between December 3, 1979 to May 27, 1993, the levy of penalty being discretionary having regard to the use of the word "may" in section 12(4), that discretion is required to be exercised having regard to all the circumstances of the case including the bona fides of the assessee.
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9. The assessing authorities have not applied their mind as to whether in respect of those assessments to which section 12(4) and 12(5) which have since been deleted, would apply, the assessee had failed to disclose any bona fides for not having paid the tax earlier. It is the case of the assessee that the law regarding the taxability of the turnover relating to the bottles was uncertain till this Court resolved the matter finally in W.P.No.120 of 2000 on September 14, 2001 (Appollo Saline Pharmaceuticals (P.) Limited Vs. Deputy Commercial Tax Officer). The earlier judgments of this Court had taken the view that the bottles being a distinct commodity and not having been consumed in the manufacture of I.V. fluids, there was a separate sale of the bottles and therefore, section 7-A providing for levy of purchase tax was not attracted."
12. Useful reference can also be had from the decision reported in (2000) 117 STC 457 (E.I.D. Parry (I) Ltd., Vs. Assistant Commissioner of Commercial Taxes and Another), wherein the Hon'ble Supreme Court while substituting the imposition of penalty under Section 12(5) of the Act held as under in paragraph 23:
"23. But so far as levy of penalty is concerned, we do not think that the sales tax authorities were justified in levying it. Till the judgment of the Madras High Court, on July 15, 1991, in Perambalur Sugar Mills Ltd. Vs. State of Tamil Nadu (1992) 86 STC 17, the correct position of law within the State of Tamil Nadu was not free from doubt. Even thereafter, the Sales Tax Tribunal had in subsequent orders held that transport subsidy was not includible in the taxable turnover. Such a view was held by the Tribunal till March 19, 1993. It appears that on bona fide belief that planting and transport subsidies were not includible in the taxable turnover, the appellants had not included those amounts in their turnover and for that reason non-inclusion of these two items in the turnover do not seem to be intentional. Though we have now held that the appellants were not right in not including the amounts of planting subsidy and transport subsidy in the taxable turnover, considering the facts and circumstances of the case, it would not be correct to say that they had acted deliberately in defiance of law or that their conduct was dishonest or they had acted in conscious disregard of their obligation under the Sales Tax Act. The sales tax authorities were, therefore, wrong in passing the orders of penalty and upholding the same. The High Court also, in our opinion, committed an error in upholding the orders of penalty. In the result, these appeals are partly allowed. The order of the High Court and the orders of the sales tax authorities imposing and upholding levy of penalty are set aside. Only to that extent the appellants succeed and their appeals are allowed. The judgment of the High Court in respect to the planting subsidy and transport subsidy is upheld. In the facts and circumstances of the case, there shall be no order as to costs." (Emphasis added)
13. Reading of the above decision of this Court as well as that of the Hon'ble Supreme Court and applying the principles set out therein, to the facts of this case, it will have to be held that the conduct of the respondent assessee in not including the freight charges and packing charges in the taxable turnover cannot be held to be a deliberate or intentional act on its part with a view to defeat its tax liability. On the other hand, the submission of the return of the respondent assessee during the relevant year was fully supported by the Division Bench decision of this Court which held the field till the year 1992 when it came to be reversed in the decision of the Hon'ble Supreme Court in (1993) 88 STC 151 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu). As held in the decision of this Court reported in (2002) 125 STC 505 (Appollo Saline Pharmaceuticals (P) Ltd. Vs. Commercial Tax Officer (FAC) and Others, under Section 12 (4) specific expression used is "may" for the purpose of levying of penalty. It is therefore imperative that the Assessing Authority while invoking the said provision should exercise its discretion and examine whether or not the conduct of the assessee in not including the said items of freight charges and packing charges in the taxable turnover was deliberate or intentional with a view to defeat its tax liability. The invocation of Section 12(4) in such circumstances cannot be mechanically made and the Assessing Authority should apply its mind to the facts and circumstances of each case and only when the Authority finds that the assessee with a view to evade the payment of tax deliberately and intentionally submitted incorrect or incomplete return then and then only the imposition of penalty as prescribed under
Section 12(5) of the Act can be imposed.
14. We are also fortified by our conclusion in the light of the proposition of law as laid down by the Hon'ble Supreme Court in the decision reported in (2000) 117 STC 457 (E.I.D. Parry (I) Ltd., Vs. Assistant Commissioner of Commercial Taxes and Another) wherein the Hon'ble Supreme Court in identical circumstances held that when a party acted based on the law declared by the decisions of the High Court bona fide that certain components would not fall within the taxable turnover and which decision came to be later reversed and thereby liability came to be fastened on a later date, the imposition of penalty would not be automatic.
15. Having regard to our above conclusion, we are convinced that the order of the Tribunal in having set aside that part of the order of the Assistant Commercial Tax Officer in having imposed penalty was justified and the same was perfectly in order. We therefore answer the question of law against the appellant and in favour of the assessee. This revision petition fails and the same is dismissed.
gs/kk To
1. The Deputy Commissioner (CT), Chennai (Central) Division, Chennai 600 006.
2. The Sales Tax Appellate Tribunal (Main Bench), Chennai