M/S. ELECTRO OPTICS (P) LTD. Vs. STATE OF TAMIL NADU

Tamil Nadu General Sales Tax Act, 1959

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 10554 of 2010, Judgment Date: Feb 26, 2016

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.10554 OF 2010

M/s. Electro Optics (P) Ltd. …..Appellant

Versus

State of Tamil Nadu …..Respondent

W I T H

C.A.Nos.10562 of 2010 and 10563 of 2010

J U D G M E N T

SHIVA KIRTI SINGH, J.

Common judgment and order of the High Court of Judicature at Madras dated
29.09.2009 in Tax Case Nos.1834 of 2006, 2307 of 2008 and Writ Petition
No.18770 of 2000 is under challenge in these appeals. The High Court has
rejected the case of the appellant assessee in respect of Assessment Years
1993-94 and 1994-95 and as a consequence also rejected the challenge to the
penalty and thereby upheld order of Sales Tax Appellate Tribunal which
arose out of orders under Tamil Nadu General Sales Tax Act, 1959
(hereinafter referred to as ‘the Act’) passed by the original authority as
well as appellate authority, all against the appellant.
For both the assessment years the dispute is confined to an issue of law
relating to classification of the goods sold by the appellant. According
to the appellant it is engaged in the sale of electronic goods (survey
instruments) imported from other countries and such goods should rightfully
fall within Entry 50, Part B of Schedule I of the Act attracting rate of
3%. On the other hand the authorities have taken the stand that survey
instruments, whether electronic or otherwise, are covered by Entry 14, Part
F of Schedule I, chargeable @ 16%. Since appellant’s claim was not
accepted by the Commercial Tax Officer who assessed the appellant at 16%
leading to demand of tax as well as penalty, the appellant preferred appeal
before the Appellate Commissioner. On being unsuccessful, the appellant
preferred further appeal before the Tribunal and then the matter reached
the High Court leading to the impugned order under appeal. The two
relevant entries, i.e., Entry 50 of Part B and Entry 14 of Part F of
Schedule I are as follows:
“Part B
|Sl. |Description of Goods |Point of levy |Rate of|
|No. | | |tax |
|50 |Electronic systems, instruments, |At the point of |3% |
| |apparatus, appliances and other |first sale in the| |
| |electronic goods (other than those |State | |
| |specified elsewhere in the Schedule)| | |
| |but including electronic cash | | |
| |registering, indexing, card | | |
| |punching, franking, addressing | | |
| |machines, and computers of analog | | |
| |and digital varieties, one record | | |
| |units, word processor and other | | |
| |electronic goods and parts and | | |
| |accessories of all such goods | | |

There is no difficulty in accepting the consistent finding of the
authorities based upon appellant’s own declaration in respect of goods
which were imported and declared before the customs authorities as survey
instruments, that the goods are covered by the generic expression ‘survey
instruments’. The main controversy is whether on account of being
electronic survey instruments the goods would be out of Entry 14 so as to
fall under Entry 50. The High Court and all the authorities have taken a
consistent view that Entry 50 itself clarifies that it covers all
electronic instruments, apparatus, other than those specified elsewhere in
the Schedule and since the goods in question are specified under the
generic term ‘survey instruments’ in Part F Entry 14, they will stand
excluded from Entry 50 of Part B.
We have heard learned counsel appearing for the parties at length. In order
to persuade us to take a different view than that of the High Court and the
Authorities, learned counsel for the appellant reiterated the submissions
advanced before the High Court and further highlighted some entries in Part
– B of Schedule I such as Entries 38 to 42 and pointed out that these
entries, all providing for rate of tax at 3% use the word “electronic” in
all the entries before various machines such as duplicating machines,
teleprinters, typewriters, tabulating/calculating machines and clocks/time
pieces. The submission is that after enumerating such electronic machines
in the various entries noted above, the policy was to charge same 3% rate
of tax for all residuary electronic system, apparatus and other electronic
goods and if any other meaning is given by placing reliance upon words used
in Entry 50, especially those in parenthesis – “other than those specified
elsewhere in the Schedule” then there would be no rationale for using the
word “electronic” to qualify duplicating machines, teleprinters etc.
covered by Entries 38 to 42. The submission lacks merits. Part-B of the
Schedule covers various kinds of goods such as agricultural products,
vegetable oils, kerosene, aluminium domestic utensils, raw wool, hosiery
goods, gold and silver articles, cycles, tractors, different electronic
items, television sets, gramophones, all chargeable at the rate of 3%. In
this background, Entry 50 of Part-B is meant to accommodate only such left
over electronic system, apparatus etc. which are not specified elsewhere in
the Schedule and are therefore chargeable at the rate of 3%. Clearly, if
specified elsewhere and chargeable at a different rate, they cannot be
included under Entry 50. This conclusion is further strengthened by a look
at some of the entries in Part-F, just preceding Entry 14. Entries 10, 11,
12 and 13 cover goods chargeable at the rate of 16%, such as typewriters,
teleprinters, tabulating, calculating machines and duplicating machines
etc. In all these four entries there is a specific exclusion of electronic
variety of these machines. On the other hand in relevant Entry no. 14 such
exclusion of electronic variety of any of the machines and apparatus such
as survey instruments is conspicuously missing. Clearly the intended effect
is deliberate so as to include binoculars, monoculars, survey instruments
etc. of all varieties, be they manual or electronic. Had the intention been
different, in Entry 14 also exclusion of ‘electronic’ survey instruments
could have been inserted and specified as in Entry Nos. 10 to 13 in respect
of other different machines or instruments. Hence, the conclusion is
obvious that even electronic survey instruments are covered by Entry No. 14
in Part-F of the First Schedule of the Act.
Learned Counsel for the appellant has placed reliance upon judgment in the
case of M/s BPL Ltd. v. State of Andhra Pradesh reported in (2001) 2 SCC
139. This judgment has been elaborately discussed by the High Court and
held to be not applicable to the facts of this case. We have also
considered the facts and law involved in the said judgment and we agree
with the conclusion of the High Court. In that case the dispute under the
Andhra Pradesh General Sales Tax Act, 1957 was on the interpretation of
definition of the term “Electronic Goods”. On the basis of the definition
it was held that the goods “automatic washing machine” was covered by the
term electronic goods and not under the other item i.e, Entry 38 (IV) which
related to electrical items including electrical washing machine. The
wordings and expressions used and interpreted in that case were entirely
different and are of no help to the appellant in the present case.
As a result, the Civil Appeals arising out of Tax Case Nos. 1834 of 2006
and 2307 of 2008 must fail. However, the Appeal arising out from Writ
Petition containing challenge to imposition of penalty deserves further
consideration in the light of submissions to the effect that appellant has
been in same business since 1985 and no controversy or dispute of this
nature ever arose except for the two assessment years under consideration.
It has been pointed out that all earlier Schedules were re-written on
account of extensive amendments in the year 1993 and since most of the
electronic items were brought under Part-B, a genuine controversy or
misunderstanding arose as to whether the goods in question would be covered
by Entry No. 50 of Part B or not. Genuinely believing that it is so
covered, the appellant contested the matter and in the process suffered
penalty for both the assessment years in total amounting to Rs. 15.48 lakhs
approximately. Out of this, appellant claims to have paid approximately Rs.
3.74 lakhs but still about Rs. 11.73 lakhs remain as balance payable
towards penalty. It was pointed out that considering the merit of
appellant’s case this Court has stayed realization of penalty. Hence, it
has been submitted that in the interest of justice the balance penalty be
set aside on account of bona fide belief on the part of the appellant that
it was liable to pay only at the rate of 3% and therefore there was
absolute lack of any mens rea in not paying in time the tax assessed by the
authorities. It was also pointed out that against the total tax demand of
Rs. 16.39 lakhs approximately the appellant has by now paid about Rs. 16.18
lakhs.
Learned counsel for the appellant has supported the submissions against
imposition of penalty by placing reliance upon the following judgments:-
(1) M/s Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627 (2)
Commissioner of Sales Tax, Uttar Pradesh v. Sanjiv Fabrics, (2010) 9 SCC
630
In M/s Hindustan Steel Ltd. in paragraph 8 it was held that although
the Statute permitted imposition of penalty but still the authority
concerned had the judicial discretion to consider whether penalty should be
imposed for failure to perform a statutory obligation. In such a situation
the discretion has to be exercised judicially after consideration of all
the relevant circumstances. Even if minimum penalty is prescribed, the
authority may be justified in refusing to impose any penalty in some
peculiar situations, such as, where the breach flows from a bona fide
belief that the offender is not liable to act in the manner prescribed by
the Statute. In Sanjiv Fabrics it was reiterated that there is a rebuttable
presumption that mens rea is essential ingredient in every offence. For
examining whether mens rea is essential for an offence created under a tax
Statute, three factors require particular attention, (i) the object and
scheme of the Statute; (ii) the language of the section; and (iii) the
nature of penalty. Since the relevant expression for constituting the
offence in that case was – “falsely represents”, the Court held that the
offence attracting penalty would be established only where it is proved
that the dealer has acted deliberately in defiance of law and is guilty of
contumacious or dishonest conduct.
In the present case penalty is imposable by the assessing authority under
Section 12 of the Act, both, for failure to submit return or for submission
of incorrect or incomplete return. Appellant, in the eyes of the
Authorities has submitted incorrect return leading to imposition of penalty
in accordance with relevant clauses of Section 12. Considering that the
situation of dispute arose on account of amendments in the Schedule in 1993
and was confined only to immediate two assessment years and also
considering that the appellant had a good arguable case even in this Court
which had stayed the penalty orders, we find that the return submitted by
the appellant was on account of bona fide belief in correctness of
appellant’s stand that the goods in question were chargeable only at the
rate of 3%. In our considered view, in the facts of the case it would not
be proper to hold that the appellant had submitted a return which was
incorrect to its knowledge or belief. Only after the outcome of the legal
dispute by virtue of this judgment, the authorities can be justified in
holding henceforth that the return was incorrect. In such a situation it
would not be just and proper exercise of discretion to hold the appellant
guilty of submitting incorrect return so as to attract penalty for the
same. Hence, in the peculiar facts of the case and in the interest of
justice, we set aside the balance dues of penalty. However, the penalty
already paid by the appellant shall not be refunded and the same may be
retained by the respondent authorities by way of cost of this protracted
litigation.
In the result, the Civil Appeal Nos. 10554 and 10562 of 2010 containing
challenge to assessments orders are dismissed. The remaining appeal Civil
Appeal No. 10563 of 2010 relating to penalty is allowed to the extent that
balance amount of penalty shall not be realised from the appellant. There
shall be no order as to further costs.

…………………………………….J.
[SHIVA KIRTI SINGH]

……………………………………..J.
[R. BANUMATHI]
New Delhi.
February 26, 2016.
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