1.0 Concept of Penalty.—

1.1 In the administration of legal justice, penalty in a broad sense is a repaying punishment in any form, such as, imprisonment, fine, forfeiture, fiscal suffering or loss, disadvantage or unfavourable infliction, imposed or awarded for actions prohibited by law or for omissions uncalled for under law. But penalty is often understood in a specific meaning warranted by the object and context of the law in which it is provided for. Penalty is a retributive reparation of injury caused by criminal activation, civil onslaughts or fiscal lapses. Penalty cannot be used as a revenue yielding provision. The basic object of the penalty provision is to punish the culprit, to prevent the crime and to establish the rule of law.

Ex facie, penalty may be linked to the "Retributive Theory of Punishment", but in fact, it cannot be delinked from the "Deterrent Theory of Punishment" and the "Reformative Theory of Punishment".

1.2 According to Black's Legal Dictionary.—

"The terms 'fine', 'forfeiture', and 'penalty' are often used loosely, and even confusedly; but when a discrimination is made, the word 'penalty' is found to be generic in its character, including both fine and forfeiture. A 'fine' is a pecuniary penalty, and is commonly to be collected by suit in some form. A 'forfeiture' is a penalty by which one loses his rights and interest in his property."

1.3 In Corpus Juris Secundum Vol. 85 P.580, Pr. 1023, penalty has been defined as under..—

"A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws."

1.4 The Hon'ble Supreme Court has, in the case of N.K. Jain & Others Vs. C.K. Jain & Others, reported at AIR 1991 SC 1289, held that—

"Penalty in a broad sense may be defined as any suffering in person or property by way of forfeiture, deprivation or disability, imposed as a punishment by law or judicial authority in respect of an act prohibited by statute.

A penalty may refer to both criminal and civil liability, being defined as penal retribution, punishment for crime or offence, the suffering in person, rights or property which is annexed by law or judicial decision to commission of a crime or public offence.

The word 'penalty' is not confined to punishment or crime; it has a broader meaning in law of contracts, it is used as contradistinguished from liquidated damages. It is also used to indicate the sum to be forfeited on breach of a bond. And in common parlance it expresses any disadvantage resulting from an act."

1.5 The Hon'ble Supreme Court has, in the case of Shiv Dutt Rai Fateh Chand, reported at (1983) 53 STC 289, held that the word 'penalty used in article 20(1) of the Constitution could not be construed as including a penalty levied under the sales tax laws by the departmental authorities for violation of statutory provisions. A penalty imposed by the sales tax authorities was only a civil liability, though penal in character.

1.6 In the case of Director of Enforcement Vs. MCTM Corporation Pvt. Ltd., reported at AIR 1996 SC 1100, the Hon'ble Supreme Court has observed that the expression "Penalty" is a word of vide significance. Sometime, it means recovery of an amount as a penal measure even in civil proceedings. An exaction which is not compensator in character is also termed as "penalty". When penalty is imposed by an adjudicating officer, it is done so in 'adjudicatory proceedings"; and not by way of fine as a result of 'prosecution" of an "accused" or commission of the "offence" in a Criminal Court.

1.7 The Hon'ble Supreme Court has, in the case of Income Tax Commissioner, Andhra Pradesh Vs. Bhikaji Dadabhai & Co., reported at AIR 1961 SC 1265, has observed that penalty is an additional tax imposed upon a person in view of his dishonest or contumacious conduct.

1.8 The Constitution Bench of the Hon'ble Supreme Court has, in the case of Maqbool Hussain Vs. State of Bombay, reported at AIR 1953 SC 325,

observed that the Sea Customers Authorities were not a judicial tribunal and the adjudging of confiscation, increased rate of duty or penalty under the provisions of the Sea Customers Act did not constitute a judgment or order of a court or judicial tribunal necessary for the purpose of supporting a plea of double jeopardy.

1.9 The Hon'ble Supreme Court has, while examining the scope and extent of the penalty to be imposed under the Income Tax Act, in the case of Jain Brothers Vs. The Union of India , reported at AIR 1970 SC 778, observed that the penalty was merely an additional tax being a civil liability under the Tax Statute.

1.10 The Hon'ble Rajasthan High Court has, in the case of Lalji Mulji Transport Company Vs. State of Rajasthan, reported at (2002) 127 STC 365, held that there is nothing wrong in sub-section (10) of section 78 of the Rajasthan Sales Tax Act, 1994 (providing for confiscation of a vehicle or a carrier), as it has been enacted to provide a deterrent provision of penalty to check the serious cases of evasion of tax where there is a collusion between the trader and the transporter.

2.0 Concept of mens rea.—

2.1 Mens rea means criminal intention or guilty mind. Mens rea takes birth in the minds and then is reflected in actions or omissions. Where any person violates any law, perpetrates prohibited pursuits or does not discharge legal obligations, voluntarily, wilfully, fraudulently, dishonestly or with conscious disregard of law, mens rea is said to have taken place.

2.2 In the case of Sherras Vs. De Ruten (1895 1 QB 918), Wright J had observed as under.—

"There is a presumption that mens rea, an evil intention or the knowledge of the wrongfulness of the act, is an essential ingredient in every offence, but that presumption is liable to be displaced either by the words of the statue creating the offence or by the subject matter with which it deals, and both must be considered. In order to find out whether mens rea, i.e. guilty mind is an ingredient or not, reference has to be made to the language of the enactment, the object and subject matter of the Statute and the nature and character of the act sought to be punished."

2.3 The Hon'ble Supreme Court has, in the case of Director of Enforcement Vs. MCTM Corporation Pvt. Ltd. reported at AIR 1966 SC 1100, observed that mens rea is a state of mind. Under the criminal laws mens rea is considered as the guilty intention and unless it is found that the accused had the guilty intention to commit the crime, he cannot be held guilty of committing the crime.

2.4 In the case Gujarat Travancore Agency Vs. Commissioner of Income Tax, reported at AIR 1989 SC 1671, The Hon'ble Supreme Court has observed that in most cases of criminal liability, the intention of Legislature is that penalty should serve as a deterrent. The creation of an offence by the statute proceeds with a presumption that society suffers injury by the act or omission of the defaulter and a deterrent sentence must be imposed to discourage the repetition of the offence.

2.5 In the case of Addl. Commissioner Income Tax Vs. Durga Pandan Nath Tuljayya & Co., reported at 1977 Tax Law Reporter, the Hon'ble Andhra Pradesh High Court has observed that the doctrine of means rea is of common law origin developed by judge-made law. It has no place in the Legislature's law where offences are defined with sufficient accuracy. Mens rea is an essential ingredient of an offence. However, it is rule of construction. If there is a conflict between the common law and the statutory law, it has always been held that it is second rule to construe a statute in conformity with the common law. But it cannot be postulated that statute cannot alter the course of common law. The Parliament in exercise of its constitutional powers makes statutes and in exercise of those powers it can affirm, alter or take away the common law altogether. Therefore, if it is plain from the statute it intends to alter the course of the common law, then the plain meaning should be accepted. The existence of mens rea as an essential ingredient of an offence has to be made out by the construction of the statute.

2.6 The Hon'ble Allahabad High Court has, in the case of Commissioner of Sales Tax Vs. Reema & Sons General Merchant, reported at 1999 UPTC, 425, observed that the principle of mens rea is based on the rule of ACTUS NON FACIT REUM NISI MENS SIT REA, i.e. the intent and act must both concur to constitute the crime. But the principle has lost much of its significance owing to greater precision of modern statutes. The nature of intent or the ingredients of offences are now clearly stated in the statutes and nothing further is required to establish as offences then what the statute specifies.

3.0 Judicial pronouncements with regard to penalty and mens rea.—

On the point of penalty and mens rea, the Hon'ble Supreme Court as well as the Hon'ble Rajasthan High Court have delivered a number of judgments, some of them in very brief are referred to below:

3.1 The Hon'ble Supreme Court has, in the case of Hariprasad Rao Vs. State, reported at AIR 1951 SC 204, held that mens rea forms a necessary ingredient of an offence unless by express language or by implication element of mens rea is excluded.

3.2 The Hon'ble Supreme Court has, in the case of State of Maharashtra Vs. Mayer Hans Gorge, reported at AIR 1965 SC 722, has laid down that the presumption that mens rea is an essential ingredient in every offence is liable to be displaced either by express words or by the subject matter with which it deals.

3.3 In the case of Commissioner of Sales Tax U.P. Vs. Mool Chand Shyam Lal, reported at (1988) 71 STC 226, the Hon'ble Supreme Court has observed that the imposition of penalty under the U.P. Sales Tax Act, 1948, is quasi-criminal and unless strictly proved, the assessee is not liable to penalty.

3.4 In the case of Padmini Products Vs. Collector of Central Excise, Bangalore, reported at (1990) 76 STC 411, the Hon'ble Supreme Court has decided that there were materials to suggest that there was scope for confusion and the appellants believed that the goods came within the purview of the concept of handicrafts and as such were exempt. If there was scope for such a belief or opinion, then failure either to take out licence or to pay duty on that belief, when there was no contrary evidence that the producer or the manufacturer knew that these were excisable or required to be licensed, would not attract the penal provisions of section 11-A of the Central Excises and Salt Act, 1944.

3.5 The Hon'ble Supreme Court has, in the case of State of Madhya Pradesh & Others Vs. Bharat Heavy Electricals, reported at (1997) 106 STC 104, held that section 7(5) of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976, should be read as containing a rebuttable presumption. This would mean that it will be open to the registered dealer to satisfy the authorities concerned that the non-submission of the statement prescribed under sub-sections (1) and (2) of section 7 was not with the intention to facilitate the evasion of entry tax. If the registered dealer is unable to satisfy the authorities in this regard then, in the absence of satisfaction, the presumption is that non-submission of the statement has facilitated the evasion of entry tax.

3.6 The Hon'ble Supreme Court has, in the case of Oriental Carbon Ltd., reported at (1997) 10 MTN 105, held that in view of categorical finding of fact reached by the Tribunal that there had been no intention to cause any loss to the revenue or to evade tax in importing into State certain consignments without Form 31, the mere breach of provisions of section 28-A of the U.P. Sales Tax Act, 1948 was not sufficient for imposition of penalty.

3.7 In the case of the Cement Marketing Co. of India Ltd. Vs. The Assistant Commissioner of Sales Tax, reported at, AIR 1980 SC 346, the Hon'ble Supreme Court, has held that imposition of penalty is penal in character and unless the filing of an inaccurate return is accompanied by a guilty mind, the penal section cannot be invoked for imposiing penalty.

3.8 In the case Hindustan Steel Ltd. Vs. State of Orissa, reported at (1970) 25 STC 211, the Hon'ble Supreme Court has held as under.—

"An order imposing penalty for failure to carry out a statutory obligation in the result of quasi-criminal proceedings and penalty shall not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so.

x x x x x x x x x

Even if a minimum penalty is prescribed, the authority competent to impose the penalty would 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 bonafide belief that the offender is not liable to act in a manner prescribed by the Statute."

3.9 In the case of Thiru Arooran Sugars Ltd. Vs. Asstt. Commissioner of Commercial Taxes, reported at (2000) 117 STC 457, the Hon'ble Supreme Court has laid down as under.—

"However, penalty could not be levied for failure to include the subsidy and the excess transport charges in the return of turnover, since the correct position of law was in doubt and the amounts had not been included in the return of turnover in the bonafide belief that they were not includible in the taxable turnover. It could not be said that the dealers had acted in deliberate defiance of the law or that their conduct was dishonest or that they had acted in conscious disregard of their obligation under the Sales Tax Act."

3.10 The Hon'ble Supreme Court has, in the case of State of Rajasthan Vs. D.P. Metals, reported at (2001) 124 STC 611 (635), while upholding the validity of section 78(5) of the Rajasthan Sales Tax Act, 1994, observed as under .—

"Such submission of false or forged documents or declaration at the check-post or even thereafter can safely be presumed to have been motivated by desire to mislead the authorities. Hiding the truth and tendering falsehood would per se show existence of mens rea, even if required. Similarly where, despite opportunity having been granted under section 78(5) if the requisite documents referred to in sub-clause (2)(a) are not produced, even though they exist, would clearly prove the guilty intent. It is not possible to agree with the counsel for the respondent that breach referred to in section 78(5) can be regarded as technical or venial. Once the ingredients of section 78(5) are established, after giving a hearing and complying with the principles of natural justice, there is no discretion not to levy or levy lesser amount of penalty. If by mistake some of the documents are not readily available at the time of checking, principles of natural justice may require some opportunity being given to produce the same."

3.11 The Larger Bench of the Hon'ble Supreme Court has, in the case of R.S. Joshi, Sales Tax Officer, Gujarat Vs. Ajit Mills Ltd., reported at (1977) 40 STC 497 (507-508), held as under .—

"This word 'forfeiture' must bear the same meaning of a penalty for breach of a prohibitory direction. The fact that there is arithmetical identity, assuming it to be so, between the figures of the illegal collections made by the dealer and the amounts forfeited to the State cannot create a conceptual confusion that what is provided is not punishment but a transference of funds. If this view be correct, and we hold so, the Legislature, by inflicting the forfeiture, does not go outside the crease when it hits out against the dealer and deprives him, by the penalty of the law, of the amount illegally gathered from the customers. The Criminal Procedure Code, Customs and Excise Laws and several other penal statutes in India have used diction which accepts forfeiture as kind of penalty. When discussing the rulings of this court we will explore whether this true nature of 'forfeiture' is contradicted by anything we can find in section 37(1), 46 or 63 of the Bombay Sales Tax Act, 1959. Even here we may reject the notion that a penalty or punishment cannot be cast in the form of an absolute or no-fault liability but must be preceded by mens rea. The classical view that 'no mens rea, no crime', has long ago been eroded and several laws in India and abroad, especially regarding economic crimes and departmental penalties, have created severe punishments even where the offences have been defined to exclude mens rea. Therefore, the contention that section 37(1) fastens a heavy liability regardless of fault has no force in depriving the forfeiture of the character of penalty."

3.12 The Division Bench of the Hon'ble Rajasthan High Court has, in the case of Asstt. Commercial Taxes Officer Vs. Rajasthan Taxation Tribunal & Another, reported at (2001) 123 STC 173, while deciding the question of Form ST 18-A, held that existence of mens rea on the part of the dealer committing breach for avoidance or evasion of payment of tax is sine qua non for levying penalty for such breach which otherwise is of technical nature.

3.13 The Division Bench of the Hon'ble Rajasthan High Court has, in another case of State of Rajasthan Vs. Jitendra & Co., reported at (2001) 29 RTJS 547, held that in a case where goods were accompanied with all relevant documents including the declaration ST 18-A which was not completely filled in, in the absence of mens rea or intention to evade any tax, proceeding under Section 78(5) for imposition of penalty being clearly misconceived, was not warranted.

3.14 The Division Bench of the Hon'ble Rajasthan High Court has, in other case of Kaluram Madangopal Vs. State of Rajasthan and Others, reported at (2001) 29 RTJS 1, held that the provisions of the Form ST 18-A were not mandatory and production of such declaration form later on during the course of enquiry even by the importer was substantial compliance of the provision.

3.15 In the case of Mahaveer Conductors Vs. Asstt. Commercial Taxes Officer, reported at (1997) 104 STC, 65, the Single Bench of the Hon'ble Rajasthan High Court has, while examining the provisions of section 22A (Establishment of Check-post or barrier and inspection of goods while in movement) of the Rajasthan Sales Tax Act, 1954 (Old Act) and analogous to section 78 of the Rajasthan Sales Tax Act, 1994 (New Act), held that mens rea or deliberate defiance of the provision with intention to evade or avoid liability of tax that may arise as a result of the transaction must be necessary ingredient before penalty could be levied.

3.16 In the case of ACTO, Flying Squad Vs. Voltas Ltd., reported at (2000) 120 STC 217, the Single Bench of the Hon'ble Rajasthan High Court has held that there cannot be inference of mens rea to evade/avoid the payment of tax by the assess merely because the forms found to be incomplete. In this view of the matter carrying unfilled Form ST 18A along with the goods is not a breach of provisions of section 78(5) of the Rajasthan Sales Tax Act, 1994.

3.17 The Division Bench of the Hon'ble Rajasthan High Court has, in the case of Lalji Mulji Transport Company Vs. State of Rajastahn & Others, reported at (2002) 3 Tax Update 21(35), held that from the above discussion, it clearly emerges that section 78 of the RST Act, 1994 has been enacted with a view to check evasion of tax by transporters who are found carrying goods with fake bilties, incomplete documents and under suspicious names. The constitutional validity of such provisions has been upheld by the various decisions of the Apex Court. It is now realized that unless an element of fear is introduced in so far as is necessary and unless the consequences of breach turns into penalty of sufficiently effective measures, there shall be no real method of ensuring compliance. It will not be correct to protect a tax evader saying that there is absence of mens rea. The Apex Court in D.P. Metals case has rejected the submission regarding absence of mens rea by observing that the submission of false or forged documents or declaration at the check-post or even thereafter can safely be presumed to have been motivated by desire to mislead the authorities. The Court further observed that hiding the truth and tendering falsehood would per se show existence of mens rea, even if required. On the question of mens rea, our view that it has no application in fiscal statutes is fortified by the decision of the Supreme Court in R.S. Joshi Vs. Ajit Mills reported in AIR 1977 SC 2279. It is settled law that provisions to check evasion of sales tax are within the legislative competence of the State legislative under entry 54 of List II of 7th Schedule to the Constitution of India. Thus, the provisions to make imposition of tax efficacious or to prevent evasion thereof, are within the legislative competence of the State Legislature. Thus, the plain and simple scheme of section 78 is that the vehicle passing through the state of Rajasthan carrying goods, to be delivered in another State and carries the documents as referred in section 78(2) and produces at the check-post or anywhere else where a person authorised to ask him to do so. If it is done honestly and faithfully, there is absolutely no problem. However, if a transporter or a trader is entering into an adventurism with a view to evade tax, he must be ready to face the consequences of penalty at the rate of 30%, seizure of vehicle and in aggravated case, the confiscation of the vehicle."
3.18 The Single Bench of the Hon'ble Rajasthan High Court has, in the cases of Mehta Premraj Vs. Asstt. Commercial Taxes Officer and Agarwal Iron Store Vs. Asstt. Commercial Taxes Officer, reported at (2002) 3 Tax Update 51, held -

(i) that so far as first case is concerned, there had been no declaration Form ST 18A along with the goods, the question of mens rea, even if it is applicable, is not attracted at all and the petitioner is liable to pay penalty as an additional tax for having breached the statutory provisions of the Statute, and

(ii) that so far as second case is concerned, as there had been no proper description of the goods in the declaration, it cannot be accepted as a valid document as required under section 22 A(3) and, thus, the petitioner was also correctly penalized for committing the breach of the statutory requirement.

4.0 Whether the Larger Bench of the Hon'ble Supreme Court in the case of Ajit Mills Ltd. has laid down a conclusive law that mens rea has no place at all in fiscal laws.—

The Larger Bench of the Hon'ble Supreme Court, in the case of R.S. Joshi Vs. Ajit Mills Ltd., reported at (1977) 40 STC 497 has observed on page 508 that we may reject the notion that a penalty or punishment cannot be cast in the form of an absolute or no-fault-liability but must be preceded by mens rea. The classical view that 'no mens rea, no crime' has long ago been eroded and several laws in India and abroad, especially regarding economic crimes and departmental penalties, have created severe punishments even where the offences have been defined to exclude mens rea. A million dealer question arises is whether in the said observations, the Hon'ble Supreme Court has laid down a conclusive or universal law that mens rea is always excluded from the laws merely of their being fiscal in nature. In this respect, the following factors are required to be looked into:—

4.1 Firstly, in the said case, the Hon'ble Supreme Court was examining the constitutionality of sections 37(1) (a) and 46(2) of the Bombay Sales Tax Act, 1959. According to section 46(2) , an unregistered dealer was prohibited to collect sales tax on his sales, and a registered dealer was prohibited to collect tax in excess of the amount of tax payable by him under the Act. Section 37(1)(a) prescribed a penalty for unauthorised or excess collection of tax which included the forfeiture of amount collected by way of tax in contravention of law. The legality of 'forfeiture" was in challenge before their Lordships of the Hon'ble Supreme Court. While deciding this issue, their Lordships observed that the classical view that 'no mens rea no crime" has long ago been eroded. In the said case, the issue of presence of mens rea in fiscal laws was not a point of dispute and decision. Moreover, section 78 of the Rajasthan Sales Tax Act, 1994, which was enacted to provide for establishing check-posts to prevent or check avoidance or evasion of tax or any other pari materia provision in any law dealing with evasion of tax, was not under examination. Therefore, the observations of their Lordships were not the ratio decidendi about the absence of mens rea in fiscal laws but were the obiter dicta, to be respected with reference to object and context of express provisions in a law.

4.2 Secondly, in the said observations, the expression "even where the offences have been defined to exclude mens rea" are important and they are suggestive of the intention behind the observations that the mens rea is not necessary in fiscal laws because Legislatures have started excluding mens rea from economic offences in explicit terms.

4.3 Thirdly, the Hon'ble Supreme Court was seized with the examination of the validity of sections 37(1)(a) and 46(2) of the Bombay Sales Tax Act, 1959. No other issue was subject matter of agitation. While deciding the issue, Hon'ble Supreme Court itself has observed at bottom of page 500 as under:-

"The statutory provisions which have succumbed to unconstitutionality (as expounded by the High Court) are sections 37(1) and 46 of the Act. The High Court of Maharashtra, however, has taken a diametrically opposite view and other High courts have ranged themselves on one side or the other in this controversy, while dealing with more or less similar statutes. We confine our judgement to the Act that is before us and do not go into the validity of the other statutes which have been incidentally referred to in the Court. The point involved is so critical, yet delicate, that even short but significant variations in the scheme of the statute may well spell a result which is opposite."

In view of the said parameters of approach of the Hon'ble Supreme Court, the observations that 'the classical view that no mens rea, no crime, has long ago been eroded' does not appear to lay down a conclusive proposition that fiscal laws are always devoid of mens rea. Also as stated in the second part of the observations, the presence or absence of mens rea in a penal provision depends upon the language used and words employed in a particular Act.

4.4 Fourthly, in the context of the legality of section 37(1) of the Bombay Sales Tax Act, 1959, the Hon'ble Supreme Court has proceeded assuming that the forfeiture clause in section 37(1) is a punitive measure to protect public interest in the enforcement of the fiscal legislation and it falls squarely within the area of implied powers. All real punitive measures, including the dissuasive penalty of confiscating the excess collections, are valid, being within the range of ancillary powers of the Legislature competent to exact a sales tax levy. The contention that section 37(1) fastens a heavy liability regardless of fault has no force in depriving the forfeiture of the character of penalty. The fact that in section 37(1) mens rea is excluded and the penal forfeiture can be enormous are germane to the legislative policy, not for judicial compassion.

4.5 Thus, in the case of R.S. Joshi Vs. Ajit Mills Ltd., the provisions of section 37(1) of the Bombay Sales Tax Act, 1959, which were under attack, had excluded mens rea and in that back-drop, the observations of the Hon'ble Supreme Court have got to be respected, and they do not appear to be a binding law in the Acts in which evasion of tax (as understood always to be deliberate) without express or implied exclusion of mens rea, has been made the target of penal provisions.

5.0 Whether mens rea is to be construed as included or excluded in law.—

5.1 To ascertain as to whether in a particular law or provision, mens rea has been included or excluded, the following factors may be relevant:-

(i) The object and the subject matter of the statute;
(ii) Nature and character of the act or omission sought to the punished;
(iii) Language used and words employed in the Act; and
(iv) Scope, extent and effect of the inter-related provisions in the Act.

5.2 In the case of Commissioner of Sales Tax Vs. Parson Tools & Plants, reported at AIR 1975 SC 1039, the Hon'ble Supreme Court has observed-

"Where the Legislature clearly declares its intent in the sceme and language of a statute, it is the duty of the court to give effect to the same without scanning its wisdom or policy, and without engrafting, adding or implying anything which is not congenial to or consistent with such expressed intent of the law-giver, more so if the statute is a taxing statute."

5.3 The Hon'ble Supreme Court has, in the case of C.A. Abrahim Vs. Income Tax Officer, reported at AIR 1961 SC 609 has observed that in interpreting a fiscal statute, the Court cannot proceed to make good the deficiency, if there be any, the Court must interpret the statute as it stands and in case of doubt, in a manner favourable to the tax payer.

6.0 Mens rea is excluded in the cases of Concessions or exemptions attached to conditions.—

6.1 Where concessions or exemptions are allowed or granted on fulfilment of some specified conditions, mens rea being impliedly excluded in such provisions, the non-fulfilment of the specified conditions shall be sufficient to withdraw the concessions or exemptions.

6.2 The Hon'ble Supreme Court has, in the case of Commissioner of Sales Tax Vs. Prabhudayal Prem Narayan, reported at (1988) 71 STC 1, following its earlier judgment given in the case of Kedarnath Jute Manufacturing Co. Ltd. Vs. Commercial Tax Officer (1965 : 16 STC 607) held that a dealer in U.P. is entitled to exemption under section 3-D of the U.P. Sales Tax Act, 1948, on sales to registered dealers in U.P. only on furnishing the declaration form prescribed under rule 12-B of the U.P. Sales Tax Rules, 1948. If the dealer has not furnished the prescribed declaration form, he cannot file or produce any other evidence to satisfy the assessing authority that the sale was made to a registered dealer.

6.3 In the case of Rajasthan Spinning & Weaving Mills Ltd., Vs. State of Rajasthan And Others, reported at (1980) 46 STC 141, the Hon'ble Rajasthan High Court has decided that to avail of the concessional rate of tax provided in section 5C(1) of the Rajastahn Sales Tax Act, 1954, two conditions must be fulfilled: (i) the raw material must be utilised for manufacture of goods in the State itself and not outside the State; and (ii) the goods manufactured out of the raw material must be sold within the state or in the course of inter-State trade or commerce. If either of the two conditions is broken, the dealer who has availed the concession is bound to pay the penalty, as prescribed under section 5C(2).

6.4 The Full Bench of Hon'ble Madhya Pradesh High Court has in the case of Commissioner of Sales Tax Vs. Lalloobhai B. Patel & Co. Ltd., reported at (1979) 43 STC 146, held that according to section 8(1) of the Madhya Pradesh General Sales Tax Act, 1958, the concessional rate of tax would be permissible only when the restrictions and conditions as have been prescribed are complied with and it being in the nature of an exception has to be strictly complied with.

6.5 In the case of Commissioner of Sales Tax U.P. Vs. Shiv Deri Niwar Industries, reported at (1997) 104 STC 132,the Hon'ble Supreme Court, has held that the conditions for grant of the concession was mandatory.

6.6 The Hon'ble Patna High Court in the case of ITC Ltd. Vs. Supdt. of Commercial Taxes (1986: 62 STC 149), the Hon'ble Calcutta High Court in the case of Naveen Enterprises Vs. Commissioner Commercial Taxes (1988 : 70 STC 307) and the Hon'ble Bombay High Court in the case of Commissioner of Sales Tax Vs. Premier Automobiles (1990 : 32 STL 229), have held that the conditions fastened to the concessions or exemptions have to be complied with fully and in case of breach of such conditions, the concessions or exemptions shall not be available.

7.0 Technical Lapses or bonafide mistakes and imposition of penalty.—

7.1 In the following cases it has been held that no penalty can be imposed for technical lapses, i.e. the offences which are of venial nature:-

(i)	1986 RTC 151 (Raj.High Court)	:	CTO Vs. Kanhayalal Mohanlal
(ii)	1986 RTC 53 (Raj.High Court)	:	Murarilal Ahuja & Sons Vs. Board of Revenue And Others
(iii)	(1987) 64 STC 388 (Raj.High Court)	:	CTO Vs. Ram Bagh Palace Hotel
(iv)	(1997) 104 STC 65(Raj.High Court)	:	Mahaveer Conductors Vs. ACTO
(v)	(1995) 99 STC : FR SC 14 S.N. 41(Supreme Court)	:	Commissioner of Sales Tax U.P.Vs. Modi Industries.

7.2 Where all the transactions with full facts are disclosed in records, but due to bonafide belief, a dealer does not admit his tax liability fully or partially or where there is a bonafide dispute of interpretation, penalty for avoidance or evasion of tax is not justified for being imposed in the light of the ratio of the following judgements:-

(i)	AIR 1980 SC 346	:	Cement Marketing Co. of India Ltd. Vs. ACTO, Indore
(ii)	AIR 1980 SC 1146	:	AV & CO. Vs. Commissioner of Income tax, Andhra Pradesh.
(iii)	(1991) 9 RTJS 166 (Raj.)	:	CTO Special Circle, Udaipur Vs. Kraya Vikraya Sahkari Samiti Ltd.

8.0 Section 78 of the Rajasthan Sales Tax Act, 1994 and mens rea.—

8.1 Establishment of check-posts.—

Section 78 of the Rajasthan Sales Tax Act, 1994 (hereinafter referred to as the Act) provides for establishment of check-posts and inspection of goods while in movement. Under this section, four penalties under different circumstances can be imposed.

8.2 Penalty under sub-section (5) of section 78 of the Act.—

According to sub-section (5) of section 78, the Incharge of the check-post or the officer empowered under sub-section (3), after having given to owner of the goods or a person authorised in writing by such owner or the person incharge of the goods a reasonable opportunity of being heard and after having held such enquiry as he may deem fit, shall impose on him for possession or movement of goods, whether seized or not, in violation of the provisions of clause (a) of sub-section (2) or for submission of false or forged documents or declaration, a penalty equal to thirty percent of the value of such goods.

8.3 Penalty under sub-section (8) of the section 78 of the Act.—

According to sub-section (8) of section 78, where the driver or the person incharge of the vehicle or the carrier is found guilty for violation of the provisions of sub-section (2), subject to the provisions of sub-section (10), the Incharge of the check-post or the officer empowered under sub-section (3) may detain such vehicle or carrier and after affording an opportunity of being heard to such driver or person incharge of the vehicle or the carrier, may impose a penalty on him as provided in sub-section (5).

8.4 Penalty under sub-section (10) of section 78 of the Act.—

According to sub-section (10) of section 78, where a transporter, while transporting goods, is found to be in collusion with a trader to avoid or evade tax, the Incharge of the check-post or the officer empowered under sub-section (3) shall detain the vehicle or carrier of such transporter and after affording him an opportunity of being heard and with the prior approval in writing of the Deputy Commissioner (Administration) having jurisdiction, may confiscate such vehicle or carrier.

8.5 Penalty under sub-section (10A) of section 78 of the Act.—

According to sub-section (10A) of section 78, notwithstanding anything contained in this section, where the driver or the person incharge of the vehicle or the carrier abstains from bringing or stopping the vehicle or carrier at the nearest check-post as provided under clause (b) of sub-section (2), the Incharge of the check-post or the officer empowered under sub-section (3) may detain such vehicle or carrier and, after affording an opportunity of being heard to the owner or a person duly authorised by such owner or the driver or the person incharge of the vehicle or carrier, may impose a penalty equal to fifty percent of the value of goods.

8.6 Rule of interpretation.—

The Hon'ble Supreme Court from time and again has laid down certain principles to be kept in view while interpreting legal provisions. In a recent decision given in the case of Grasim Industries Limited, reported at (2002) 128 STC 349, the Hon'ble Supreme Court has held that no words or expression used in any statute can be said to be redundant or superfluous. In matters of interpret -ation one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. Every statute is an edict of the Legislature . The elementary principle of interpreting any word while considering a statute is to gather the mens or sententia legis of the Legislature.

8.7 Object of enacting section 78 in the Act.—

According to sub-section (1) of section 78, the Commissioner may, with a view to prevent or check avoidance or evasion of tax, by notification in the Official Gazette, direct the setting up of a check-post at such place and for such period as may be specified in the notification.

The words' avoidance' or 'evasion' have not been defined in the Rajasthan Sales Tax Act, 1994. Therefore, they have to be understood in the sence in which they are understood by the tax-collectors and the tax-payers. The Hon'ble Supreme Court has, in the context of a provision in the Income Tax Act, in the case of Management of Express Newspapers Vs. B. Somayajulu, reported at AIR 1964 SC 279, made a fine distinction between the word 'avoidance' and the word 'evasion' by saying that 'avoided' does not mean evaded and it has been used in the sense of escapement. But in the case of the Rajasthan Sales Tax Act, 1994, both the words 'avoidance' and 'evasion' have been used together with the word ' OR' in between and this joint expression in the context of the provision, enacted to prevent or check avoidance or evasion of tax, which is the expression of the deliberate state of mind, cannot be lost sight of.

In the context of evasion, Lord Green has, in the case of Howard de Walden Vs. IRC, observed:

"For years a battle of manoeuvre has been waged between the Legislature and those who are minded to throw the burden of taxation of their shoulders on to those of their fellow-subjects. In that battle the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents of whom the present applicant has not been the least successful. It would not shock us in the least to find that the Legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the tax-payer who plays with the fire to complain of burnt fingers."

"Avoidance" or "Evasion" as understood by the tax-collector and the tax-payer, is the depiction of a perverse and deliberate state of mind of the tax-payer which the tax-collector wants to stop with the legislative stockade or palisado. Bonafide lapses do not call for legislative rigorism. While enacting section 78 of the Rajasthan Sales Tax Act, 1994, the law makers visualized "avoidance" or "evasion" as a device to escape from the consequences of the Rajasthan Sales Tax Act. The use of the words "with a view to prevent or check avoidance or evasion of tax", gives the strength to the view that unwarranted or illegal action or omission is often perpetrated and that has got to be prevented or checked. The expression "with a view to prevent or check avoidance or evasion of tax" is a definite and positive intent of the Legislature that stands against the guilty minds.

Therefore, it appears that sub-section (1) of section 78 of the Act includes the conception of mens rea, because the evasion of tax always comes from a guilty mind.

8.8 Opportunity clause.—

In all the four penalty provisions, enacted in sub-sections (5), (8), (10) and (10A) of section 78, the expression 'after affording an opportunity of being heard (the use of word "reasonable" in sub-section (5) does not make any difference because opportunity should always be reasonble has been used. Opportunity cannot be notional or ornamental and it should be positive or effective in the sense that where a dealer or transporter gives a reasonable explanation to the point of conviction of the competent officer and removes the defects, penalty would not be imposed. If mens rea were to be excluded from the penalty clauses, then mere lapse or mistake was sufficient for imposition of penalty and there was no purpose of opportunity and no meaning of reasonable explanation. If such interpretation of excluding mens rea is to be taken, the provision of opportunity would become redundant. The Hon'ble Supreme Court, in the case of Kanpur Vanaspati Stores, reported at (1973) 32 STC 635, has observed that ordinarily no interpretation should be placed on a provision which would have the effect of making the provision either otiose or a dead letter. In the cases of M.K. Mandawani (1975 : 38 STC 191) and Hotel Balaji (1993 : 88 STC 98), the Hon'ble Supreme Court has held that in interpreting a provision, a construction which would defeat its purpose and, in effect, obliterate if from the Statute book, should be eschewed. Therefore, the provision of opportunity, which has to be kept alive, enables to reach the conclusion either of deliberate defiance of law or of bonafide error on the part of human conduct.

8.9 Enquiry clause.—

In sub-section (5) of section 78, there is an express provision of enquiry, i.e. "and after having held such enquiry as he (the incharge of the check post or the officer empowered under sub-section (3) of section 78 may deem fit." The intended enquiry may be with regard to the identity of the consignor and the consignee, or the owner of the goods, or for ascertainment of the State from which the goods moved and the State in which the goods were to be delivered, or to determine the nature, description and value of the goods, or to collect other evidence relevant to the issue. Before imposition of penalty, this enquiry becomes relevant in order to decide whether there was an attempt to avoid or evade tax. In other words, through such enquiry, the competent officer may come to a conclusion, whether there was reason to believe that the dealer or the transporter had managed his affairs in such a way as to escape from the consequences of the provisions of the Act. If violation simpliciter was to be punished, the Legislature would not have thought of adding this provision of enquiry. Therefore, the provision of enquiry becomes relevant for the purpose of deciding the question of mens rea, which has to be established by the competent officer before the levy of penalty. The Hon'ble Supreme Court has, in the case of Om Prakash Sheo Prakash Vs. Union of India, reported at AIR 1984 SC 1194, held that a penalty imposed by the Sales Tax Authority is only civil liability, though penal in nature, and it can be imposed provided the default committed by the dealer is established at an enquiry after giving the dealer concerned an opportunity of being heard.

8.10 Purpose of sub-section (2) of section 78 of the Act.—

Sub-section (2) of section 78, provides that the driver or the person incharge of a vehicle or carrier or of goods in movement shall -

(a) carry with him a goods vehicle record including 'challans" and "bilties", bills of sale or despatch memos and prescribed declaration forms;

(b) stop the vehicle or carrier at every check-post, and while entering and living the limits of the State, bring and stop the vehicle at the nearest check-post, set up under sub-section (1);

(c) produce all the documents including prescribed declaration forms relating to the goods before the Incharge of the check-post;

(d) give all the information in his possession relating to the goods; and

(e) allow the inspection of the goods by the incharge of the check-post or any other person authorised by such incharge.

At the very outset, it may be stated that to achieve the objective as enumerated in sub-section (1), i.e. "to prevent or check avoidance or evasion of tax', sub-section (2) has been incorporated in section 78 to provide for mechanism and the procedure. This sub-section specifies ad seriatim the steps which are required to be taken by the driver or the person incharge of a vehicle or a carrier or of goods in movement. This is not a penal clause. This is a machinery clause. This sub-section is not an end itself but it specifies a method of checking the movement of goods or a procedure for verification of facts, in order to ascertain whether the provisions of law have not been disregarded or flouted. Therefore, this sub-section (2) has to be read with sub-section (1) and other provisions of opportunity, enquiry and penalty in other sub-sections. This sub-section (2) cannot be viewed in isolation and if, for a movement, such an attempt is made, this sub-section in itself shall not be able to stand on its own and shall not serve any positive purpose. The Hon'ble Supreme Court, in the case of East India Hotel Ltd., reported at (2001) 121 STC 46, has observed that an Act has to be read as a whole, the different provisions have to be harmonized and effect has to be given to all of them. Resultantly sub-section (2) of section 78 has to be read with other relevant sub-sections in which provisions for prevention or checking of avoidance or evasion of tax and clauses for opportunity and enquiry before imposition of penalty, have been inserted. The harmonized reading of the said provisions leads to the conclusion that the element of mens rea has not been excluded from the penal provisions under section 78 of the Act.

8.11 Reference to specific penal provisions under section 78 of the Act.—

8.11A Sub-section (5) of section 78 of the Act.—

Under sub-section (5) of section 78 of the Rajasthan Sales Tax Act, penalty equal to thirty per cent of the value of the goods can be imposed under two situations:—

(i) for possession or movement of goods whether seized or not, in violation of the provisions of clause (a) of section (2); or

(ii) for submission of false or forged documents or declaration.

In the first situation, clause 2(a) provides that the driver or the person incharge of a vehicle or carrier or of goods in movement shall carry with him a goods vehicle record including challans and bilties, bills of sale or despatch memos and prescribed declaration forms. As states earlier, this is a mechanism provision and it has to be read with sub-section (1), i.e. intention to avoid or evade tax. If possession or movement of goods are found with a view to avoid or evade tax after affording an opportunity of being heard and after holding an enquiry as deemed necessary, it shall be a case for imposition of penalty. But, where the dealer or the transporter in response to a notice issued to him removes the defects and proves to the satisfaction of the competent authority that the possession or movement of the goods was not to avoid or evade tax, it shall not be a case for imposition of penalty.

In the second situation, submission of false or forged documents or declaration in itself is a guilty conduct to avoid or evade tax and penalty cannot be escaped.

8.11B Sub-section (8) of section 78 of the Act.—

According to sub-section (8) of section 78, where the driver or the person incharge of the vehicle or the carrier is found guilty for violation of the provisions of sub-section (2), the competent officer may impose a penalty on him as provided in sub-section (5). According to sub-section (2), the driver or the person incharge of a vehicle or carrier or of goods in movement is required to carry documents and declaration forms, to stop the vehicle or carrier at every check-post to produce all the documents and declaration forms relating to the goods, to give all the information in his possession and to allow the inspection of the goods. The competent officer may draw a presumption of disregard of law on non-compliance of any one or more than one requirements enumerated in sub-section (2). But such presumption should have nexus directly or indirectly to the avoidance or evasion of tax. The bonafide omission against the requirements of sub-section (2) with plausible explanation, may not warrant penalty under sub-section (8) of section 78.

8.11C Sub-section (10) of section 78 of the Act.—

According to sub-section (10) of section 78, where a transporter is found to be in collusion with a trader to avoid or evade tax, his vehicle and carrier may be conspiscated. In this sub-section, the mens rea is explicit in the expression "in collusion to avoid or evade tax". But according to the ratio of the judgments delivered by the Hon'ble Supreme Court in the cases of Mool Chand and Shyam Lal (1988 : 71 STC 226) and Padmini Products (1990 : 76 STC 411) , it is for the Department to prove that the sufficient grounds exist for confiscation of the vehicle or the carrier.

8.11D Sub-section (10A) of section 78 of the Act.—

According to sub-section (10A) of section 78, where the driver or the person incharge of the vehicle or the carrier abstains from bringing or stopping the vehicle or the carrier at the nearest check-post, such driver or person incharge of the vehicle or the carrier shall be liable to a penalty equal to fifty percent of the value of the goods transported.

In view of the discussions made in the proceeding paras, this provision has to be read with the object of prevention or check of avoidance or evasion of tax. Where a driver or a person incharge of a vehicle or a carrier, without any intent to abet or help avoidance or evasion of tax but for genuine reasons such as, of breakdown and repair of the vehicle or of seeking urgent medical aid, is found not complying with the provision of this sub-section (10A), the imposition of penalty under the said circumstances would not be justified.

8.12 Section 78 in the Rajasthan Sales Tax Act, 1994, has been enacted with a specific object of preventing or checking of avoidance or evasion of tax and the documents including declaration forms, required to be carried with the goods in movement, are mechanism to ensure that objective. Section 78, with deterrent penal provisions, stands against those tax-evaders who in broad-day light challenge the authority of law, it stands against those law-breakers who act or omit in conscious disregard to their legal obligations, and it stands against those unscrupulous traders and transporters who proceed deliberately in defiance of law or who are guilty of conduct contumacious or dishonest. This stick of section 78 is not intended to beat the persons who, under bonafide understanding or innocent forgetfulness and without throwing dust in the eyes of the tax-collectors and with no intention to avoid or evade tax, commit some lapses which are technical or venial in nature and things are set right on an opportunity of hearing being given to them.