Application of mens rea in fiscal law has always been a matter of great concern and debate . Even various legal pronouncements have expressed conflicting views on this issue but it is pertinent to note that such pronouncements have been made by the respective courts on the basis of the material facts and related legal provisions  of the particular case . Thus in the GST regime , it will be pertinent to discuss this issue in details so that imposition of penalty may be substantive and legally sustainable .

        The word “offence ” has not been defined in the Constitution and hence its meaning as assigned in section 3(38) of the General Clauses Act has to be applied in different enactments . It is pertinent to note that section 3(38) of the General Clauses Act , 1897 embodies following provisions :

(38) ” offence ” shall mean any act or omission made punishable by any law for the time being in force . ”

             The expression “Offence “ as defined in Section 3(38) of the General Clauses Act , 1897 means an act or omission made punishable by any law for the time being in force . The context of Article 20 leaves no room for any doubt that the offence contemplated in that article of the Constitution is a criminal offence although it does not use the word “criminal ” . Article 20(1) of the Constitution of India uses the words “ convicted of any    offence “ , “charged as an offence ” , and “penalty greater than that which might have been inflicted ” . These are the words of criminal offence . Nobody uses these words when it is a civil wrong  or when the act is an act in delicto and not an act in criminis . Article 20(2) of the Constitution of India , again uses the words “prosecuted” and “punished” . They , again , are the words of criminal offence and not of civil wrong . Article 20(3) of the Constitution coming at the end of this sequence and juxtaposition uses again the words “accused of any offence” which can be only taken and read as a criminal offence .

           The Supreme Court in C.A. Abraham vs. Income Tax Officer (1961) 41 ITR 425 and Commissioner of Income Tax vs. Bhikaji Dadabhai & Co.   ( 1961 ) 42 ITR 123 has indicated that the imposition of penalty under a fiscal law requiring payment of an extra sum of money is in reality a requirement of an additional tax imposed upon a person in view of his dishonesty and contumacious conduct . Thus a perusal of the aforesaid  legal scenario makes it quite evident that the penalty proceeding under any fiscal law are different from the penalty for offence as contemplated in Article 20 of the Constitution .

          However it has been made abundantly clear in Jiwanmal Sons vs. Dy. C.S.T. (1971) 28 STC 247 (M.P.) that the provisions relating to penalty should be strictly construed and there should not be any ambiguity in such provisions .

Mens rea Necessary in Fiscal Law to Impose Penalty ?

          Whether mens  rea  , the blameworthy state of mind , has been excluded expressly or impliedly cannot be readily assumed . It shall depend upon the objective of the Act , the language of the section , legislative intention , evil it intends to curb and the assistance it shall render in the observance of the Act or the Statute .

          It has been observed in Paras Nath Jaiswal vs. Commissioner of Sales Tax     [ 1981 UPTC 1197 ] that it is more than apparent that levy of penalty is not automatic . Further the requirement of satisfaction of the Sales Tax Officer making enquiries and then imposing penalty negatives exclusion of mens rea .

          The Supreme Court in Hindustan Steel Ltd. vs. State of Orissa ( 1970) 25 STC 211 (S.C.) had the occasion to construe section 9(1) and section 25(1)(e) of the Orissa Sales tax Act , which provided for imposition of penalty for failure to registered a s a dealer . That was a case where the HindustanSteel Ltd. defaulted in registering as a dealer and submitting the returns . The sales tax officer directed the company to pay tax and penalty in addition , for failure to register itself as a   dealer . There is no doubt that there was non-compliance with the requirements of section 9(1) and section 25(1)(e) of the Orissa Sales Tax Act , but non-compliance by itself was not held to be sufficient by the Supreme Court to attract the penal provisions which provided for imposition of penalty . Shah J. , speaking for the Court observed that :

” Under the Act the penalty may be imposed for failure to registered as a dealer ….But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer . An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings and penalty will 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 his obligation . Penalty will not also imposed merely because it is lawful to do so . Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances . “

             In other words , the view of the Supreme Court is that the mere fact that there is a liability to pay sales tax does not by itself give rise to imposition of penalty because of the default committed by the dealer unless or until it is settled that such a default has been deliberate and in conscience disregard to the provisions of the Act.

              The Supreme Court again , in Khemka and Company vs. State of Maharashtra   ( 1975) 35 STC 571 (S.C. ) considered the question as to when penalty can be imposed . The opinion expressed by the Apex Court in Khemka and Company’s case is as follows :

” Penalty is not merely a sanction . It is not merely adjunct to assessment  It is not merely consequential to assessment . It is not merely machinery . Penalty is in addition to tax and is a liability under the Act . reference may be made to section 28 of the Income Tax Act , 1922 where penalty is provided for concealment of income . Penalty is in addition to the amount of Income Tax . This Court in Jain Brothers vs. Union of India said that penalty is not a continuation pf assessment proceedings and that penalty partakes of the character of additional tax.

           In Commissioner of Sales Tax vs. Goyal Bandhu [ STI 1982 All . H.C. 143 , 1982 UPTC 596 ] , the Allahabad High Court has made following observations :

” The supreme Court in Hindustan Limited vs. State of Orissa ( 1970) 25 STC 211 , has observed that liability to penalty did not arise merely upon the proof of default in registering as a dealer and that an order imposing penalty for failure to carry out a statutory obligation is a result of quasi-criminal proceedings and penalty will not ordinarily be imposed unless the party obliged to do that acted deliberately in defiance of law or was guilty of conduct , contumacious of dishonest or acted in conscious disregard to its obligation . Also , that the decision whether penalty should be imposed for failure to perform a statutory obligation was a matter of discretion of the authority to be exercised judicially and  on a consideration of all the relevant circumstances . Even if minimum penalty is prescribed , the authority competent to impose the penalty could be justified in refusing to impose it when there is a technical or venial breach of the provisions of the Act . The decision in this case continues to be good law . “

             In Kishorilal Rakesh Kumar vs. Commissioner Sales Tax  ( 1885 ) 59 STC 323 (All. ) the Allahabad high Court held that though mens rea  is a necessary ingredient of an offence but the Legislature can free any provision relating to an offence from this fetter and the argument that no mens rea – no penalty , should not therefore hold good . Their  Lordships took note of the ratio of the decision of the Hon’ble Supreme Court in the case of Hindustan Limited vs. State of Orissa       ( 1970) 25 STC 211(S.C.) and were pleased to pronounce that –

” From the observations of the Supreme Court as produced above , it is manifested that they relate to section 25(1)(a) , read with section 9(1) of the Orissa Sales Tax Act , 1947 , which creates an offence governed by the Criminal Procedure Code , to be tried by a Magistrate of the First Class within the meaning of sub-section (2) of           section 25 .” Their Lordship further held that the observations of the Supreme Court made in regard to an offence can not be applied to a default which is not an offence and which is punishable by the Assessing Authority .

          A full Bench of Orissa High Court in the case of Commissioner Income Tax vs. Ganga Ram Chapolia , [103 ITR 613 ] held that the decision of the Supreme Court in the case of  Hindustan Steel Ltd. is no authority for the proposition that u/s 12(5) of the Orissa Sales tax Act the expression “without sufficient cause ” carries an import of mens rea or that the burden of proof is on the revenue to establish the absence of ” sufficient cause ” .

          The Madras High Court also held in the case of Rajam Textile vs. State of Tamil Nadu [ (1977) 39 STC 124 ( Mad. H.C. ) ]that it is open to the Legislature to impose penalties even in the case where the contravention was not deliberate or willful .

       The Allahabad High Court in the case of Kishorilal Rakesh Kumar vs. Commissioner Sales Tax  ( 1885 ) 59 STC 323 (All. ) held –

” Applying the rule laid down by the Supreme Court in the said authority , we hold that the decision in the case of Hindustan Steel Limited will not cover the penal provisions made to diverse statutes , but they will be confined to the provisions which are pari material with section 25(1)(a) read with section 9(1) of the Act , 1947 ( Orissa Act ) . ”

           In Commissioner Sales tax vs. Super Rubber Foam Products [ (1986) 61 STC 325 ( All. H.C. ) the Allahabad High Court held that element of mens rea has to be determined while imposing penalty under section 10(d) of the Central Sales tax Act , 1956 , in as much as the words used in section 10(d) are “without reasonable cause ” .

          The Madras High Court in Hindustan Import Export Corporation vs. State of Tamil Nadu [ (1988) 69 STC 195 ( Mad. H.C. ) ] has made following   observations –

” Mens rea , is a concept in Criminal Law , which enables the Court to scrutinize what has passed in the mind of an accused person during the commission of an offence , so as to find him guilty or not guilty . This doctrine has been now very much reduced in its ambit and scope and the law, as it stands , now , so far as the penalty law of the land is concerned , is more governed by the specific provisions of the penal enactments . Curing the time when the Indian Penal Code had been drafted by Macaulay this chapter had been very much in his mind , since India was under the foreign domination then ( Wide Terevelyan ‘s Life Macaulay ) . Subsequent to the attainment of freedom and when our country had been declared to be a Sovereign Democratic Republic now , we are governed by the Organic Law of the Land  , namely the Constitution . The provisions of the penal laws including the India Penal Code ,are now followed with strict adherence to the letters of the provisions of the enactments than giving much importance to the doctrine of mens rea , since mens rea recedes to the background in view of the special enactment regarding various offences including white collar offences . Imposition of penalty cannot be construed as punishment as contemplated by the criminal law . In fiscal laws , it is an eye-opener for the assessee concerned as well as others to see that they comply with the provisions of the relevant enactments strictly in their dealings . In other words , the dealer has to place all the materials before an inspecting and Assessing Authority or any other authority concerned regarding the collection of tax under the fiscal Act and does not become a victim to the accusation that he had suppressed any material . Just as an investigating officer , in an offence , acts promptly and in accordance with the procedure established by the law , namely , the Criminal Procedure Code , so also an authority empowered to investigate into as well as to impose the appropriate tax is accordance with law , has to be furnished with all the particulars . If there is any withdrawal or an attempt to of withdrawal , certainly the dealer concerned comes within the quasi-offence of suppression . Since an argument had been advanced in this case by the learned counsel that there had been no mens rea  on the part of the assessee and that it had collected the surcharge inadvertently and not with any motive , the above observations have been necessitated .”

          In Additional Commissioner of Income Tax Gujarat vs. I.M. Patel and company (1992) 86 STC 185 ( S.C.) the Supreme Court  following the decision in the case of Gujrat Travancore Agency vs. Commissioner of Income Tax ( 1989 ) 177 ITR 455 (S.C. ) while replying to a question –whether mens rea has to be proved for imposing penalty for non-filing of return within prescribed time under section 271(a) of the Income Tax Act , when the statute did not require the mens rea to be proved for imposing the penalty for such default , held – In such cases  reasonable cause for non-filing of return within the prescribed time is to be proved by the assessee and mens rea is not to be proved by the department . The term in which penalty under consideration falls are significant . Unless there is something in the language of the statute to indicate the need to establish mens rea , it is generally sufficient to prove that a default is complying with the statute has occurred .

          In Jwala Industries , Nainital vs. Commissioner of Sales Tax , 1995 UPTC 1218 the Allahabad High Court while discussing the issues relating to section 15-A(1)(qq) held – the unit was exempted from tax under section 4-A and it had to pay no tax during this period . It had realized the tax but the tax had not been deposited voluntarily bu it nor had he refunded to the customers . He deposited it to the department only when the penalty proceedings had become imminent . Therefore , the intention of the assessee to unduly enrich himself was clear from the facts of the case . Moreover section 15-A(1)(qq) does not make guilty intention as a precondition for imposition of penalty for wrong realization of   tax . Bone fide of the act is to be proved by the dealer , which was not proved in this case . therefore the imposition of penalty was justified .

          Thus it is abundantly clear that the violation of fiscal provisions , unless or until such construction is provided in related provision , is different form ‘offence ‘ as has been embodied in Article 20 of the Constitution or section 3(38) of the General Clauses Act , 1897 which clearly envisage a criminal offence . The application of mens rea in fiscal law shall be only in such cases where the related penal provisions are so constructed that they warrant such application. The Legislature in its legal competence can always enact such provisions in fiscal law that the penalty may be imposed without the application of mens rea .

          Thus penal provisions as embodied in embodied in CGST Act , 2017 or SGST Act 2017 are to be applied in the light of the aforesaid conclusions . For example in section 122 of the aforesaid Acts ,  where in clause (i) of sub-section (1) of this section embodies words ” issues false invoice ” or in clause (viii) embodies the words “fraudulently obtains refund ” or in clause (x) embodies the words “falsifies or substitutes financial records ….with an intention to evade tax ” , or  clause (xii) embodies the words ” furnishes any false information ” , or clause (xiii) embodies the words  “obstructs or prevents any officer”, or in clause(xv) embodies the words “suppresses his turnover …to evade tax ”  or clause (xvii) embodies the words “furnishes false information” or clause (xx) embodies the words “tempers with or destroy ” and clause (b) of sub-section (2) provides the construction of words “for reason of fraud or any willful  misstatement”,  the element of mens rea becomes essential ingredient to impose penalty  but where such construction has not been enacted , penalty may be imposed even if there exist no element of mens rea in the related matter . As a matter of fact in such cases mere violation of the provisions of the Act shall be sufficient to impose penalty .

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