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PETITIONER: CEMENT MARKETING CO. OF INDIA LTD.

       Vs.

RESPONDENT: ASSTT. COMMISSIONER OF SALES-TAX, INDORE & ORS.

DATE OF JUDGMENT30/10/1979

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. PATHAK, R.S.

CITATION:  1980 AIR  346            1980 SCR  (1)1098  1980 SCC  (1)  71  CITATOR INFO :  R          1981 SC1887  (3,17)

ACT:      Madhya Pradesh  General Sales  Tax Act  1958,  S2(o)  & Central Sales Tax Act 1956 S2(h)-’Sale Price’-Sale of cement under Cement  Control Order-amount of ’freight’-whether part of ’sale  price’  includible  in  taxable  turnover  of  the assessee.      Madhya Pradesh  General  Sales  Tax  Act  1958,  S43  & Central Sales  Tax Act  1956, S9(2)-’false’ return-Bona fide belief of  assessee that  that amount  of ’freight’  did not form part  of the  ’sale price’  and not  includible in  the taxable turnover-penalty whether leviable.

HEADNOTE:      The assessee  (appellant) effected certain transactions of sale  of cement  in accordance with the provisions of the Cement Control  order.  The  amount  of  freight  which  was included in  the ’free  on rail destination railway station’ price and  which was paid by the purchaser was deducted from the price  shown in the invoices sent to the purchasers. The assessee proceeding  on the basis that the amount of freight did not  form part  of the sale price and was not includible in the  taxable turnover  did not  show it  in  the  returns submitted by it.      The Assistant  Commissioner of  Sales Tax took the view that having  regard to  the provisions of the Cement Control Order, the  amount of  freight formed part of the sale price and was  includible in the taxable turnover of the assessee, and passed  two orders  of assessment, one under the Central Sales Tax  Act 1956  and the  other under the Madhya Pradesh General Sales Tax Act, 1958, including the amount of freight in the taxable turnover of the assessee and levying tax upon it and  also imposing  heavy penalty  on the assessee on the ground that  the assessee  had failed  to  disclose  in  its returns the amount of freight as forming part of the taxable turnover.      In appeals  to this  Court on  the  questions  of:  (1) inclusion of  the amount  of freight in the taxable turnover of the  assessee and  (2)  imposition  of  penalty  for  not showing the amount of freight as forming part of the taxable turnover in the returns.

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^      HELD: 1.  (i) The  amount of freight formed part of the sale price  within the  meaning of  the first  part  of  the definition of  that term  in  Section  2(o)  of  the  Madhya Pradesh General  Sales Tax Act, 1958 and Section 2(h) of the Central Sales,  Tax Act,  1956’ and  was rightly included in the taxable turnover of the assessee. [1101E]      (ii) In  Hindustan Sugar  Mills v.  State of  Rajasthan [1979] 1  SCR 276  this Court  held that  by reason  of  the provisions of the Cement Control Order, 1967, which governed the transactions  of sale  of cement  entered  into  by  the assessee the amount of freight formed part of the sale price within the meaning 1099 of the  first part  of the definition of that term contained in Section  2(p) of  the Rajasthan  Sales Tax  Act, 1954 and Section 2(h)  of the  Central Sales  Tax Act,  1956 and  was includible in the taxable turnover of the assessee. The said decision must equally apply under the Madhya Pradesh General Sales Tax  Act, 1958,  as the  definition of ’sale price’ in Section 2(o)  of the  Madhya Pradesh  General Sales Tax Act, 1958 is  materially in the same terms as Section 2(p) of the Rajasthan Sales Tax Act, 1954. [1101C-E]      2(i) The  Assistant Commissioner  of Sales  Tax was not justified in  imposing penalty on the assessee under Section 43 of  the Madhya  Pradesh General  Sales Tax  Act, 1958 and section 9  sub-section (2)  of the  Central Sales Tax Act of 1956 as the assessee could not be said to have filed ’false’ returns when it did not include the amount of freight in the taxable turnover shown in the returns. [1103C, B]      (ii) Section 43 of the Madhya Pradesh General Sales Tax Act, 1958  providing for imposition of penalty requires 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. The Section being penal in character, unless the  filing of an inaccurate return is accompanied by a guilty  mind, the  section cannot  be invoked for imposing penalty. [1102D, 1102H]      (iii) Where  the assessee does not include a particular item in the taxable turnover under a bonafide 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. [1102F]      Hindustan Steel Ltd. v. State of Orissa, 25 S.T.C. 211, referred to.      In the  instant case,  the assessee did not include the amount of  freight in  the taxable turnover under a bonafide belief that  the amount  of freight did not form part of the sale price  and was  not includible in the taxable turnover. The contention  of the  assessee through  out was  that on a proper construction  of the  definition of  ’sale price’  in Section 2(o)  of the  Madhya Pradesh  General Sales Tax Act, 1958 and  Section 2(h)  of the  Central Sales Tax Act, 1956, the amount of freight did not fall within the definition and was not  liable to  be included  in the taxable turnover. It cannot be said that this was a frivolous contention taken up merely for  the purpose  of avoiding  liability to tax. This was a  highly arguable contention. The belief entertained by the assessee that it was not liable to include the amount of freight in  the taxable  turnover could  not be  said to  be malafide or unreasonable. It cannot, therefore, be said that the assessee  filed ’false’ returns necessitating imposition of penalty. [1102A-D,E]

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JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 191-193 of 1978.      Appeals by  Special Leave  from the  Judgment and Order dated 28-12-77  of the  Assistant Commissioner of Sales Tax, Indore in  R. C. No. IND/1/X/XIX/5 in case No. 118/72-73 for the period 1-8-71 to 31-7-72, R. C. No. IND/I/1344 (Central) in Case No. 84/72-73 for the period 1-8-71 to 31-7-72 and R. C. No. IND/I/X/XIX/5 (TOT) 1100 in Case No. 118/72-73 for the period 15-11-71 to 31-7-72 and rectified by orders dated 7-1-1978.      V. S.  Desai (CA  191/78), B.  R. Agarwala  and  P.  G. Gokhale for the Appellant.      S. K. Gambhir for the Respondent.      The Judgment of the Court was delivered by      BHAGWATI,  J.-These  appeals  by  special  leave  raise common questions  of law  and  it  would  be  convenient  to dispose them of by a single judgment.      The assessee  effected certain  transactions of sale of cement in  accordance with  the  provisions  of  the  Cement Control Order  during the assessment period Ist August, 1971 to 31st  July, 1972  and in  the course of the assessment of the assessee  to sales  tax under the Madhya Pradesh General Sales Tax  Act, 1958  and Central  Sales Tax  Act,  1956,  a question arose  whether the  amount  of  freight  which  was included in  the ’free  on rail destination railway station’ price, but  which was  paid  by  the  purchasers  and  hence deducted from  the price  shown in  the invoices sent to the purchasers, formed part of the sale price so as to be liable to be  included in the taxable turnover of the assessee. The assessee, proceeding on the basis that the amount of freight did not  form part  of the sale price and was not includible in the  taxable turnover did not show it in the returns, but the Assistant  Commissioner of  Sales Tax took the view that having regard to the provisions of the Cement Control Order, the amount  of freight formed part of the sale price and was includible in  the taxable  turnover of  the assessee and on this view, he passed two orders of assessment, one under the Central Sales  Tax Act,  1956 and the other under the Madhya Pradesh General Sales Tax Act, 1958, including the amount of freight in  the taxable turnover of the assessee and levying tax upon  it and also imposing heavy penalty on the assessee on the  ground that  the assessee  had failed to disclose in its returns  the amount  of freight  as forming  part of the taxable turnover.  The same position obtained also in regard to the  assessment period  15th November, 1971 to 31st July, 1972 and  a similar  order bringing the amount of freight to tax and imposing heavy penalty on the assessee was passed by the Assistant  Commissioner of  Sales Tax  under the  Madhya Pradesh General  Sales Tax  Act, 1958. Since the question as to whether  in respect  of transactions  of sale  of  cement governed by  the Cement Control Order, the amount of freight formed part  of the sale price and was liable to be included in the  taxable turnover of the dealer, was pending decision in this Court, the assessee 1101 preferred appeals  directly to  this Court  by special leave against the  Orders of  assessment  made  by  the  Assistant Commissioner of  Sales Tax.  The assessee  challenged in the appeals not  only the  inclusion of the amount of freight in the  taxable   turnover  of   the  assessee,  but  also  the imposition of  penalty for not showing the amount of freight as forming part of the taxable turnover in the returns.

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    So far  as the  first question  is  concerned,  namely, whether the  amount of freight formed part of the sale price and was  includible in  the taxable turnover of the assessee so as  to be exigible to sales tax, it stands concluded by a recent decision given by this Court in Hindustan Sugar Mills v. State  of Rajasthan  & Ors.(1)  It has  been held by this Court in  that case  that by reason of the provisions of the Cement Control  Order, 1967, which governed the transactions of sale  of cement  entered into  by the  assessee with  the purchasers, the  amount of  freight formed  part of the sale price within the meaning of the first part of the definition of that  term contained in sec. 2 (p) of the Rajasthan Sales Tax Act, 1954 and section 2(h) of the Central Sales Tax Act, 1956 and  was includible  in the  taxable  turnover  of  the assessee. The  definition of ’sale price’ in section 2(o) of the Madhya Pradesh General Sales Tax Act, 1958 is materially in the same terms as section 2(p) of the Rajasthan Sales Tax Act, 1954,  and this  decision must  therefore equally apply under the  Madhya Pradesh General Sales Tax Act, 1958 and it must be  held that  the amount of freight formed part of the sale price  within the  meaning of  the first  part  of  the definition of  that term  in  section  2(o)  of  the  Madhya Pradesh General  Sales Tax  Act 1958 and section 2(h) of the Central Sales  Tax Act, 1956 and was rightly included in the taxable turnover of the assessee.      We may  point out  that the  observations made  by this Court in  the Order  dated 31st  August, 1979  allowing  the Review Application  of the assessee in Hindustan Sugar Mills case (supra)  are equally applicable in the present case and the State  will do what is fair and just to the appellant as indicated by this Court in that Order.      The next  question that  arises  for  consideration  is whether the Assistant Commissioner of Sales Tax was right in imposing penalty  on the assessee for not showing the amount of freight  as forming  part of  the taxable turnover in its returns. The  penalty was  imposed under  section 43  of the Madhya Pradesh  General Sales  Tax Act,  1958 and  section 9 sub-section (2) of the Central Sales Tax Act, 1956 on the 1102 ground that  the assessee had furnished false returns by not including the  amount of  freight in  the  taxable  turnover disclosed in the returns. Now it is difficult to see how the assessee could  be said  to have filed ’false’ returns, when what the  assessee did,  namely, not including the amount of freight in  the taxable turnover was under a bonafide belief that the  amount of  freight did  not form  part of the sale price and  was not  includible in  the taxable turnover. The contention of  the assessee  throughout was that on a proper construction of  the definition  of ’sale  price’ in section 2(o) of  the Madhya  Pradesh General Sales Tax Act, 1958 and section 2(h)  of the Central Sales Tax Act, 1956, the amount of freight  did not  fall within  the definition and was not liable to  be included in the taxable turnover. This was the reason why  the assessee  did  not  include  the  amount  of freight in  the taxable turnover in the returns filed by it. Now, it  cannot be said that this was a frivolous contention taken up merely for the purpose of avoiding liability to pay tax. It  was a  highly arguable  contention  which  required serious  consideration   by  the   Court  and   the   belief entertained by  the assessee  that   it was  not  liable  to include the  amount of freight in the taxable turnover could not be  said to be malafide or unreasonable. What section 43 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

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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  bonafide 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. This view which is being taken by us is supported  by the  decision of  this Court  in  Hindustan Steel Limited  v. State  of Orissa(1) where it has been held 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 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....." It is  elementary that  section 43  of  the  Madhya  Pradesh General Sales  Tax Act,  1958 providing  for  imposition  of penalty is  penal in  character and  unless the filing of an inaccurate return  is accompanied  by  a  guilty  mind,  the section cannot  be invoked for imposing penalty. If the view canvassed on behalf of the Revenue were accepted, the re- 1103 sult would  be that  even if  the assessee raises a bonafide contention that  a particular  item  is  not  liable  to  be included in  the taxable  turnover, he would have to show it as forming  part of  the taxable  turnover in his return and pay tax  upon it on pain of being held liable for penalty in case his  contention is  ultimately found by the Court to be not acceptable.  That surely  could never have been intended by the Legislature.      We are,  therefore, of the view that the assessee could not be  said to  have filed  ’false’ returns when it did not include the  amount of freight in the taxable turnover shown in the  returns and  the Assistant Commissioner of Sales Tax was not  justified in imposing penalty on the assessee under section 43 of the Madhya Pradesh General Sales Tax, 1958 and section 9  sub-section (2)  of the  Central Sales  Tax  Act, 1956.      We accordingly  reject the  appeals in  so far they are directed against  the inclusion  of the amount of freight in the taxable  turnover of  the assessee but allow the appeals in so far as they relate to imposition of penalty of freight in the  taxable turnover  of  the  assessee  but  allow  the appeals in  so far  as they  relate to imposition of penalty and  set   aside  the   Orders  passed   by  the   Assistant Commissioner of Sales Tax imposing penalty on the assessee.      There will be no order as to costs of the appeals. N. V. K.                             Appeals partly allowed. 1104