BHARATH PRINTERS Vs. SECOND INCOME-TAX OFFICER

JUDGEMENT

(1.) In this appeal by the assessee the short point for decision is whether the penalty of Rs. 64,048 imposed under section 10A of the Central Sales Tax Act, 1956 for misuse of Form C is allowable as a deduction or not. The facts of this case briefly are that the assessee-firm carries on printing work and is also a registered dealer under the Central Sales Tax Act. The assessee purchased paper, printing inks, machine spare parts, machine oil by issuing Form C declaring that the goods were for the purpose of manufacturing of processing of goods for sale in terms of clause (b) of sub-section (3) of section 8 of the Central Sales Tax Act. Instead of using them for the aforesaid purpose, it used the material in the execution of works contract, namely, printing the beedi labels of the sister concern, Bharath Beedi Works, and thereby committed an offence punishable under section 10A. On 11-1-1971, the Additional Commercial STO, levied penalties of Rs. 4,778 for the assessment year 1966-67, Rs. 18,743 for the assessment year 1967-68, Rs. 16,245 for the assessment year 1968-69 and Rs. 76,461 for the assessment year 1969-70 holding that the assessee had no reasonable excuse for the offence committed. On appeal, the Additional Deputy Commissioner of Commercial Taxes (Appeals) upheld the findings and levy of penalty in his order CST - A. P. Nos. 185, 186, 187 and 188 of 1970-71, dated 24-11-1975, but he reduced the quantum to Rs. 64,048 on the ground of reasonableness which represented the difference in the rate of tax payable without Form C (10 per cent) and the rate actually paid (3 per cent) of the assessee by issuing Form C. The penalties were levied and sustained in view of the decision of the Karnataka High Court in the case S. S. Umadi V. State Of Mysore, 1974 34 STC 228.

(2.) The ITO in his assessment for 1977-78, for which the relevant previous year ended on 31-10-1976, disallowed Rs. 64,048 claimed by the assessee on the ground that it was a penalty in nature. On appeal, the Commissioner (Appeals) upheld the addition made by the ITO on the view that the assessee has deliberately attempted to evade sales tax and the penalty was levied for an offence and, therefore, it was not an admissible deduction.

(3.) The learned representative of the assessee submitted that the so-called penalty levied was only the difference between the sales payable without Form C and thereat paid on Form C and, therefore, it was not a penalty in nature. Although, the misuse of Form C was an offence as per law prevailing at the time of commission of offence, nevertheless, in view of the later decision of the Supreme Court in the case of Assessing Authority-cum-Excise and Taxation Officer V. East India Cotton Mfg. Co. Ltd., 1982 1 SCR 55 , the penal character of user of Form C was wiped out, inasmuch as the user of goods for the purpose of own manufacture without sale was held to be sufficient compliance with the requirement of Section 8(3) (b). In the light of the aforesaid decision of the Supreme Court, the learned representative urged that the authorities were not justified in disallowing the claim made by the assessee. He further submitted that the claim of the assessee was also to be allowed on the ground of commercial expediency under section 37(1) of the Income-tax Act, 1961 (the Act).