In A breather to the assessees, the Supreme Court has ruled that revenue department cannot impose penalty under provisions of the Central Sales Tax Act for furnishing incorrect representation without proving the intention (mens rea) for false representation. The penalty in tax matters is to levied strictly in accordance with the intention of the statutes, said the apex court over-ruling an Allahabad High Court order. “In our opinion, therefore, a finding of mens rea is a condition precedent for levying penalty under section 10(b) read with section 10A of the Act (Central Sales Tax Act, 1956)”, said a bench comprising justices D K Jain and H L Dattu.
Section 10 (b) of the Act provides for penalty, if any person being a registered dealer, falsely represents when purchasing any class of goods that goods of such class are covered by his certificate of registration. Section 10A of the Act provides for the imposition of penalty in lieu of prosecution.
The court said that in examining whether mens rea is an essential element of an offence created under a taxing statute, regard must be given to the three factors
- the object and scheme of the statute,
- the language of the law and
- the nature of the penalty stipulated under the law.
The apex court noted that on earlier occasions it had examined the issue of requirement of mens rea for impsotition of penalty in tax matters but no abstract principle of law has been formulated so far. So, the levy of penalty in tax cases depends on the object of the statute and the language employed in the provision of the statutes, the court said.
The apex court rejected the plea of the state of UP. It had said mens rea is not an essential ingredient of the offence under Aection 10(b) of the Act, as penalty stipulated under it is in the nature of a civil liability. The bench, said, the object of section 10(b) of the Act is to prevent any misuse of the registration certificate but the legislature has used the expression “falsely represents” in contradistinction to “wrongly represents.” Therefore, what we are required to construe is whether the words “falsely represents” would cover a mere incorrect representation or would embrace only such representations which are knowingly, wilfully and intentionally false.