The petitioner is a dealer in cashew and, during the relevant period, sold part of the cashew purchased by him under the brand name “Urbans Cashew”. Consequent to the Finance Act, 1998, Sub Sections (2), (2A) and (2B) were incorporated to Section 5 of the Kerala General Sales Tax Act whereby, in respect of manufactured goods other than tea which were sold under a trade mark or brand name, the sale by the brand name holder or the trade mark holder within the State was deemed as a first sale for the purposes of the Act. The case of the petitioner is that he was engaged in sale of cashew that was purchased by him and that, while a considerable portion of the cashew purchased by him was sold as such, some portion of it was sold under the brand name “Urbans Cashew”. The provisions that were introduced by the Finance Act, 1998, in the Kerala General Sales Tax Act, were challenged before this Court and, by an interim order this Court had stayed the operation of the newly introduced provisions under Section 5 of the Kerala General Sales Tax Act till 08.04.2003 when the issue of validity of the said provision was finally decided against the assesee by this Court. In the interim period, however, the petitioner had filed returns for the years 2000-2001, 2001-2002 and 2002-2003 by declaring the total turnover in respect of sale of cashew effected by it, and claiming exemption in respect of the entire turnover by treating them as second sales that did not attract tax under the Kerala General Sales Tax Act. It is the case of the petitioner that he had chosen to claim exemption in respect of even the sale of branded cashew, on account of the uncertainty that prevailed in the law, and the fact that the newly introduced provisions in the statute had been stayed by this Court in various writ petitions. The respondent Sales Tax Authorities, however, initiated proceedings for imposition of penalty on the petitioner for the aforementioned assessment years and by Exts.P1 to P3 orders, penalties were imposed at the rate of twice the tax due on the declared turnover of the petitioner. Aggrieved by the said penalty orders, the petitioner preferred revision applications before the 2nd respondent who, by Ext.P4 order, reduced the quantum of penalty in respect of the assessment year 2000-2001 and remanded the matter to the Intelligence Officer in respect of assessment years 2001-2002 and 2002-2003. The remand was for the specific purpose of ascertaining the treatment of the turnover in the assessment proceedings completed against the petitioner and to recompute the penalty based on the assessment orders passed in respect of the petitioner for those years. Being aggrieved by Ext.P4 order of the 2nd respondent, the petitioner preferred a further revision before the 3rd respondent. Although, the revision petition filed before the 3rd respondent is fairly elaborate in the contentions taken up agaisnt Ext.P4 order passed by the 2nd respondent, and the petitioner had also filed a detailed argument note at the time of hearing before the 3rd respondent, the revision petition preferred by the petitioner came to be rejected by the 3rd respondent by Ext.P9 order dated 27.07.2009. In the writ petition, Ext.P9 order is impugned, inter alia, on the ground that it is a non- speaking order and further, that it does not consider the specific plea of the petitioner with regard to the stay that was in operation against the statutory provisions that provided for a tax liability in respect of goods sold under a brand name.
2. A counter affidavit has been filed on behalf of the 1st respondent wherein the sequence of events leading to Ext.P9 order has been narrated. In particular it is pointed out that, pursuant to the directions of the 2nd respondent in Ext.P4 order, consequential orders were passed by the Intelligence Officer for the assessment years 2001-2002 and 2002-2003 also, and the penalty imposed on the petitioner in respect of all the three years has now been limited to the actual amount of tax that was determined to be payable by him in the assessment orders passed for the same years. It is pointed out that in as much as the validity of the newly introduced provisions under Section 5 of the Kerala General Sales Tax Act have been upheld by this Court, there was no justification in the petitioner contending that there was no mens rea on his part to support an order imposing penalty on him.
3. I have heard Sri.Premjit Nagendran, the learned counsel appearing on behalf of the petitioner as also the learned Government Pleader Smt.K.T.Lilly, appearing on behalf of the respondents.
4. On a consideration of the facts and circumstances of the case, as also the submissions made across the Bar, I am of the view that the writ petition, in its challenge against Ext.P9 order of the 3rd respondent, into which Ext.P1 to P4 orders of the lower authorities have merged, must necessarily succeed. A mere perusal of Ext.P9 order of the 3rd respondent would reveal that in passing the said order, the 3rd respondent has not specifically adverted to the various contentions raised by the petitioner with regard to the imposition of penalty on him. That apart, the 3rd respondent does not consider the aspect regarding the stay that was in operation in respect of the newly introduced provisions under Section 5 of the Kerala General Sales Tax Act, and the fact that in the returns filed by the petitioner he had actually declared the entire sales turnover of cashew that had been sold by him. Ext.P9 order of the 3rd respondent ought therefore to be set aside on that sole ground alone. There is, however, yet another matter that needs to be considered in this case. It is not in dispute that, pursuant to the assessment orders passed for the said years, the entire tax due on the taxable turnover under the Act has been paid by the petitioner. The orders impugned in the writ petition are those imposing a penalty on the petitioner for the assessment years 2000-2001, 2001-2002 and 2002-2003. While the original authority had quantified the penalty at the maximum limit of twice the tax due on the taxable sales effected by the petitioner, the First Appellate Authority had reduced the quantum of penalty to the actual tax liability that was determining in the assessment orders. In that sense there has been a reduction in the quantum of penalty imposed on the petitioner. The question, however, is whether the petitioner was liable to any penalty at all in view of the peculiar circumstances in the instant case. As already noted, the validity of the newly introduced provisions under Section 5 of the Kerala General Sales Tax Act had been challenged before this Court and this Court had stayed the operation of the said provisions pending a disposal of those writ petitions. The stay order was in force till 08.04.2003, when the matter was finally disposed by this Court by declaring the provisions to be legal and valid. In the returns filed for the assessment years in question, which was at a point in time when the stay order of this Court was in operation, the petitioner had declared the entire sales turnover in respect of the sales effected by him, but had claimed exemption in respect of the entire turnover on the ground that they were second sales effected within the State. No doubt, consequent to the declaration of the validity of the newly introduced provisions by this Court, the assessment of the petitioner had to be completed by bringing to tax the turnover attributable to sales of branded cashew effected by the petitioner. This admittedly has been done and the tax liability thereon discharged by the petitioner. On the aspect of penalty however, I am of the view that the petitioner was justified in claiming an exemption in respect of second sales of even the branded cashew since, but for the newly introduced provisions which were the subject matter of challenge in various writ petition before this Court, the said sales would also have qualified for exemption as per the erstwhile provisions of the Kerala general Sales Tax Act. It is also significant that, in the returns filed by the petitioner, he had chosen to declare the entire turnover relating to sales of cashew but had only claimed exemption in respect of the sales of branded cashew as well, and it was not a case where the petitioner had not disclosed the turnover relating to the sale of branded cashew. In such a situation, I do not think it can be said that the petitioner had suppressed any part of his turnover, or filed a return that was incorrect or untrue, for the purposes of attracting the penal provisions under the Kerala General Sales Tax Act. Insofar as the law was in a state of flux during the relevant period when the petitioner was called upon to file returns, it cannot be said that the petitioner was possessed of the required mens rea so as to attract a penal liability for his failure to include, as part of the taxable turnover, the sales turnover in respect of the branded cashew as well. It will be apposite in this connection to refer to the decision of the Supreme Court in E.I.D. Parry (1) Ltd v. Assistant
Commissioner of Commercial Taxes and Another [(2000) 117
STC 457] where in the context of a non inclusion by a dealer of transport charges which were subsequently held to form part of the sales price, the Supreme Court found that the levy of penalty was
not justified. The relevant portion of the said judgment is in paragraph 23 which reads as follows:
“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. v. 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.”
In view of what is stated above, I am of the view that the levy of penalty on the petitioner for the assessment years 2000-2001, 2001-2002 and 2002-2003 cannot be legally sustained and resultantly, I quash Exts.P1 to P3 orders of the Intelligence Officer, Ext.P4 order of the 2nd respondent and Ext.P9 order of the 3rd respondent and allow this writ petition.
A.K.JAYASANKARAN NAMBIAR JUDGE mns xxx