STATE OF TAMIL NADU Vs. INDIAN SILK TRADERS

JUDGEMENT

(1.) THE respondents/assessees are carrying on business in readymade garments. For the assessment year 1979-80 they filed returns declaring a total and taxable turnover of Rs. 3, 04, 295 and Rs. 78, 935 respectively claiming exemption on a turnover of Rs. 2, 25, 360. THEir accounts were called for and checked. THE assessing authority found two defects on verification of accounts. (1) Purchase of hosiery goods under a brand name for a sum of Rs. 35, 124.29 from outside the State of Tamil Nadu, had not been separately accounted for. THE relative first sales turnover in respect of the said goods was arrived at as Rs. 42, 990 taxable at 5 per cent. (2) A sum of Rs. 68, 091 was found to relate to inter-State purchase of readymade goods and the same had been wrongly included in the total purchase of readymade goods. THE sales turnover on this account was worked out as Rs. 83, 341 taxable at 2 per cent. THE assessing authority proceeds to say that it was proposed to "reject the returns and accounts as incorrect and incomplete" and to determine the turnover under section 12(2) of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act") to the best of his judgment. In particular he referred to the fact that sales of readymade garments had been wrongly shown as second sales. It is also pointed out that they had not separately shown the taxable turnover of Rs. 42, 990. THE difference in tax as determined by the assessing authority worked out to Rs. 1, 290. It was therefore proposed to levy a penalty of Rs. 1, 478. "being 50 per cent of the tax due on the turnover not declared in the return and also for the failure to declare the taxable turnover at 5 per cent" * . However, while dealing with the objections of the assessee the assessing authority says that section12(4) and 12(5) of the Act was substituted by the Tamil Nadu Act 47 of 1979 with effect from December 3, 1979. He concludes by saying that the return submitted by the assessee was found to be incorrect and incomplete as per section 12(4)(iii) of the Act and therefore the penalty under section 12(5)(iii) of the Act was attracted. He, therefore, confirmed the levy of penalty at 50 per cent of the tax due on the turnover not declared correctly in the return and also for the failure to declare the taxable turnover at 5 per cent.

(2.) ON appeal, the appellate authority renders a finding which is as follows : "It is equally patent that they have disclosed the transactions in the accounts, but failed to file a revised return in form A1 for the turnover of Rs. 5, 49, 653. It is only at the stage of check of accounts, the assessing officer has reduced their liability to tax at different rate out of the purchase of goods from out of the State." * He therefore held that the assessment had been made under section 12(4)(iii) and the penalty under section 12(5)(iii) was justified. ON further appeal, the Tribunal says that the assessees had returned a total and taxable turnover of Rs. 3, 04, 295 and Rs. 78, 935 respectively. But the books of accounts showed a total and taxable turnover of Rs. 5, 49, 653 and Rs. 1, 62, 276 and that the assessing officer found the book total turnover as correct. Proceeding further the Tribunal observes that action under section12(5) of the Act could be justified only if a deliberate concealment in the return is found out. The Tribunal observes as follows : "Having regard to the facts and circumstances of the case, we find in the instant case that the appellants had not acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation and as such the penalty is not called for under section12(5) of the Act." * The Revenue is in revision before us.

(3.) THE above interpretation based on the plain reading of section12 of the Act does not solve the problem. This is because a diverse set of situations arise while dealing with various assessment orders. THEre is a line of cases arising out of the Madhya Pradesh General Sales Tax Act, 1958, where the provisions of law is slightly different as will be seen below. In Dadabhoy's New Chirimiri Ponri Hill Colliery Company Private Ltd. v. Commissioner of Sales Tax 1979 (44) STC 100 (MP) the assessee disclosed all the sales made by it during the relevant period. THE assessee, however, claimed exemption from payment of tax in respect of sales to electrical undertakings. THEre was an exemption in respect of sales to electrical undertakings which had not been subsequently incorporated in the Madhya Pradesh Act. A penalty was imposed on the assessee on the ground that it had filed false returns, the falsity being that it claimed exemption in respect of sales to electrical undertakings. It was held that the assessee had taken only a legal plea that the sales to electrical undertakings were not taxable. It was held that the mere fact that the assessee put forward a legal plea in the return, which legal plea could not be sustained, did not amount to making a false return. Though the words used in the Madhya Pradesh Act relate to falsity of returns, whereas the words used in the Tamil Nadu Act relate to "incorrect and incomplete" returns, the point to be noticed is that when an assessee makes a bona fide legal plea, should he meet with penal consequences if the plea is found to be incorrect by the statutory authorities. In Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax 1980 (1) SCR 1098, 1980 AIR(SC) 346, 1980 (1) SCC 71, 1980 (6) ELT 295, 1980 (45) STC 197, 1980 (124) ITR 15, 1980 AIR(SC) 952, 1980 (46) STC 215, 1980 (S) SCC 373, 1980 UJ 186, 1980 TaxLR 107, 1980 (4) TAXMAN 44, 1980 SSCC 373, 1980 UPTC 85, 1979 Tax(World) 92, the Supreme Court held that a return cannot be said to be false within the meaning of section43 of the Madhya Pradesh Act unless there is an element of deliberateness in it. THE question was whether the amount of freight formed part of the sale price and was properly includible in the taxable turnover. THE assessee thought that the freight charges were not includible in the taxable turnover. THE Revenue thought otherwise. A penalty was levied on the assessee because he had failed to disclose in its return the amount of freight as forming part of the turnover. THE question was whether the assessee had filed a "false" return. THE following observations of the Supreme Court are not only apposite but also provide the key to unlock the problems posed by section12(4) and 12(5) of the Tamil Nadu Act, and as to the circumstances in which a return can be said to be incorrect or incomplete : "What section43 of the Madhya Pradesh General Sales Tax Act, 1958, requires is that the assessee should have filed a 'false' return and a return cannot be said to be 'false' unless there is an element of deliberateness in it. It is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of the assessee and there is no reasonable explanation forthcoming from the assessee for such want of care, the court may, in a given case, infer deliberateness and the return may be liable to be branded as a false return. But where the assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a 'false' return inviting imposition of penalty." * On the facts of the case the Supreme Court held that the assessee could not be said to have filed a "false" return when it did not include the amount of freight in the taxable turnover in the returns filed by them. In Hindustan Steel Ltd. v. State of Orissa 1970 (1) SCR 753, 1970 AIR(SC) 253, 1969 (2) SCC 627, 1978 (2) ELT 159, 1972 (83) ITR 26, 1970 (25) STC 211, 35 CutLT 1281, 1942 AC 643 the Supreme Court had pointed out that: "even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or 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 Commissioner of Sales Tax v. Shivandas Tekchand 1987 (67) STC 174 (MP) the dealer had shown some purchases under a wrong head and the error was only one of misclassification and not of suppression of any material fact relating to the purchases. It was held that the return could not be said to be false within the meaning of section 43 of the Madhya Pradesh Act. It was held that the dealer did not include a particular item in the taxable turnover under a bona fide belief that he was not liable so to include it. THE explanation given by the dealer was found to be plausible and therefore, there was no case for imposition of penalty.