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| M J Antony: There goes that alibi | | OUT OF COURT |
| M J Antony / New Delhi Dec 03, 2008, 00:02 IST |
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Supreme Court rules that the plea of 'bona fide mistake' is no valid ground for evading state levies.
The revenue lost in sales tax evasion is astronomical and occasionally some state government uncovers scams of great proportions as in the case of Maharashtra last month or Gujarat some time ago. The recovery of sales tax is an intricate process with several complicated forms to be filled up at different points, inter-state transactions and plain corruption. The Supreme Court judgement last month in Assistant Commercial Tax Officer vs Bajaj Electricals Ltd dealt with just one aspect of the problem in one state. Since the laws are similar in other states and the methods adopted by the main players are also comparable, the observations made by the court with regard to the problem are relevant generally. And the court made quite a few penchant remarks with reference to the Rajasthan Sales Tax Act.
“The quantum of taxable turnover is dependant on the declaration made by the consignee of the goods. We regret to say that hundreds of such cases are arising each year under the Sales Tax Act. It appears that the state is losing revenue on account of the consignee’s failure to supply particulars in the prescribed form,” the judgment said.
One of the modus operandi of the traders is to let the transporters carry incomplete forms, often with just a signature. If the authorities question the transporters, the consignee would pass the blame to the consignor or the transporters. The latter would contend that it was just a mistake on the part of the sellers and the buyers. The seller would claim that the papers were left behind by oversight. Then there are some others who let the transporters carry forms which do not have the details of the goods, but carry only the signatures. When the parties get into trouble with the authorities, they fill up the details of the transaction.
When the authorities impose penalty, the dispute is taken to the courts, up to the Supreme Court. The tax board of the high court might accept the argument of the consignee, with luck. In the present case, the Rajasthan Tax Board and the high court felt that the transporters had committed a “bona fide mistake” by not taking the declaration form and since there was no guilty mind (mens rea) to evade tax, the penalty was not justified. The commercial tax officer appealed to the Supreme Court, with success. The penalty was upheld.
Last year, the Supreme Court had examined these arguments in Gulraj Industries vs Commercial Tax Officer, especially the question whether a bona fide mistake would absolve the parties. Its answer was a categorical no. In that case, the vehicle was transporting goods from Andhra Pradesh. The entire declaratory form was left blank though it had been signed by the consignee. It did not indicate the description of the goods being transported. One of the main defences was that it was a bona fide mistake and there was no mens rea.
The court explained that the ingredient of mens rea is applicable to all offences but if a civil statute like the present one excludes it, this plea would not be acceptable. “A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is different from the penalty for a crime. The penalty is for a statutory offence and it is attracted as soon as there is contravention of the statutory obligations. The intention of the parties committing such violation is wholly irrelevant,” the judgement emphasised. Carrying of blank form was, thus, merely to hoodwink the officers.
Two months ago, the Supreme Court dealt with the issue of mens rea in the context of excise law. There were some doubts on this question in view of two earlier judgements of the court. More than hundred appeals from different states were piling up since 2003. Therefore the issue was decided by a larger bench in Union of India vs Dharamendra Textile Processors. The issue was not quite new, though it is raised repeatedly by the assessees under various laws. The court pointed out that in a series of decisions it has held that mens rea was not an essential element for imposing penalty for breach of civil obligations. This applies not only to excise law, but also to income tax, foreign exchange violations or Sebi Act.
Thus, the court has emphasised that whether it is plain tax delinquency or ‘blameworthy’ conduct of doubtful nature, mens rea (as is understood in criminal law) is not an essential ingredient for holding a wrongdoer liable to pay penalty under a tax statute. After all these judgements, it would now be difficult for the assessees to employ the ploy, like the Panchatantra monkey caught by the crocodile, that the heart was left at home.
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