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C.A. No.10554 of 2010 etc.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.10554 OF 2010   

M/s. Electro Optics (P) Ltd.        …..Appellant   

Versus

State of Tamil Nadu         …..Respondent

W I T H

C.A.Nos.10562 of 2010 and 10563 of 2010

J U D G M E N T

SHIVA KIRTI SINGH, J.

1. Common judgment and order of the High Court of Judicature at

Madras dated 29.09.2009 in Tax Case Nos.1834 of 2006, 2307 of 2008

and Writ Petition No.18770 of 2000 is under challenge in these appeals.

The High Court has rejected the case of the appellant assessee in respect

of Assessment Years 1993-94 and 1994-95 and as a consequence also

rejected the challenge to the penalty and thereby upheld order of Sales

Tax  Appellate  Tribunal  which  arose  out  of  orders  under  Tamil  Nadu

General Sales Tax Act, 1959 (hereinafter referred to as ‘the Act’) passed

by the original authority as well as appellate authority, all against the

appellant.

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C.A. No.10554 of 2010 etc.

2. For both the assessment years the dispute is confined to an issue

of  law  relating  to  classification  of  the  goods  sold  by  the  appellant.

According to the appellant it is engaged in the sale of electronic goods

(survey  instruments)  imported  from  other  countries  and  such  goods

should rightfully fall  within Entry 50, Part B of Schedule I of the Act

attracting rate of 3%.  On the other hand the authorities have taken the

stand  that  survey  instruments,  whether  electronic  or  otherwise,  are

covered by Entry 14, Part F of Schedule I, chargeable @ 16%.  Since

appellant’s claim was not accepted by the Commercial Tax Officer who

assessed  the  appellant  at  16%  leading  to  demand  of  tax  as  well  as

penalty,  the  appellant  preferred  appeal  before  the  Appellate

Commissioner.  On being unsuccessful, the appellant preferred further

appeal before the Tribunal and then the matter reached the High Court

leading to the impugned order under appeal.  The two relevant entries,

i.e.,  Entry 50 of  Part  B and Entry 14 of  Part  F of  Schedule I  are as

follows:  

“Part B

Sl. No.

Description of Goods Point of levy Rate of tax

50 Electronic  systems,  instruments, apparatus,  appliances  and  other electronic  goods  (other  than  those specified  elsewhere  in the  Schedule) but  including  electronic  cash registering, indexing, card punching, franking,  addressing  machines,  and computers  of  analog  and  digital varieties,  one  record  units,  word

At the point of first sale in the

State

3%

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C.A. No.10554 of 2010 etc.

processor and other electronic goods and parts and accessories of all such goods

Part F

Sl. No.

Description of Goods Point of levy Rate of tax

14 Binoculars,  monoculars,  opera glasses,  other  optical  telescope, astronomical  instruments, microscopes,  binocular  microscopes, magnifying  glasses,  diffraction apparatus  and  mountings  therefor including  theodolite,  survey instruments and optical lenses parts and accessories thereof

At the point of first sale in the

State

16%

3. There  is  no  difficulty  in  accepting  the  consistent  finding  of  the

authorities based upon appellant’s own declaration in respect of goods

which  were  imported  and declared  before  the  customs authorities  as

survey instruments, that the goods are covered by the generic expression

‘survey instruments’.   The main controversy is whether on account of

being electronic survey instruments the goods would be out of Entry 14

so as to fall under Entry 50.  The High Court and all the authorities have

taken a consistent  view that Entry 50 itself  clarifies that it  covers all

electronic instruments, apparatus, other than those specified elsewhere

in the Schedule and since the goods in question are specified under the

generic  term ‘survey instruments’  in  Part  F Entry 14,  they will  stand

excluded from Entry 50 of Part B.  

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C.A. No.10554 of 2010 etc.

4. We have heard learned counsel appearing for the parties at length.

In order to persuade us to take a different view than that of the High

Court and the Authorities, learned counsel for the appellant reiterated

the submissions advanced before the High Court and further highlighted

some entries in Part – B of Schedule I such as Entries 38 to 42 and

pointed out that these entries, all providing for rate of tax at 3% use the

word  “electronic”  in  all  the  entries  before  various  machines  such  as

duplicating  machines,  teleprinters,  typewriters,  tabulating/calculating

machines  and  clocks/time  pieces.  The  submission  is  that  after

enumerating  such  electronic  machines  in  the  various  entries  noted

above,  the policy was to charge same 3% rate of tax for all  residuary

electronic system, apparatus and other electronic goods and if any other

meaning  is  given  by  placing  reliance  upon  words  used  in  Entry  50,

especially those in parenthesis – “other than those specified elsewhere in

the  Schedule”  then  there  would  be  no  rationale  for  using  the  word

“electronic” to qualify duplicating machines, teleprinters etc. covered by

Entries 38 to 42. The submission lacks merits. Part-B of the Schedule

covers various kinds of goods such as agricultural products, vegetable

oils,  kerosene,  aluminium domestic  utensils,  raw wool,  hosiery goods,

gold  and  silver  articles,  cycles,  tractors,  different  electronic  items,

television sets, gramophones, all chargeable at the rate of 3%.  In this

background, Entry 50 of Part-B is meant to accommodate only such left

over electronic system, apparatus etc. which are not specified elsewhere

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C.A. No.10554 of 2010 etc.

in the Schedule and are therefore chargeable at the rate of 3%. Clearly, if

specified elsewhere and chargeable at a different  rate,  they cannot be

included under Entry 50. This conclusion is further strengthened by a

look at some of the entries in Part-F, just preceding Entry 14. Entries 10,

11,  12  and  13  cover  goods  chargeable  at  the  rate  of  16%,  such  as

typewriters,  teleprinters,  tabulating,  calculating  machines  and

duplicating  machines  etc.  In all  these  four  entries  there  is  a  specific

exclusion of electronic variety of these machines. On the other hand in

relevant Entry no. 14 such exclusion of electronic variety of any of the

machines and apparatus such as survey instruments is conspicuously

missing.  Clearly  the  intended  effect  is  deliberate  so  as  to  include

binoculars, monoculars, survey instruments etc. of all varieties, be they

manual or electronic. Had the intention been different, in Entry 14 also

exclusion of ‘electronic’ survey instruments could have been inserted and

specified as in Entry Nos. 10 to 13 in respect of other different machines

or instruments.  Hence,  the conclusion is obvious that even electronic

survey instruments are covered by Entry No. 14 in Part-F of the First

Schedule of the Act.  

5. Learned  Counsel  for  the  appellant  has  placed  reliance  upon

judgment  in the  case  of  M/s BPL Ltd.  v.  State  of  Andhra Pradesh

reported  in  (2001)  2  SCC  139.  This  judgment  has  been  elaborately

discussed by the High Court and held to be not applicable to the facts of

this case. We have also considered the facts and law involved in the said

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C.A. No.10554 of 2010 etc.

judgment and we agree with the conclusion of the High Court. In that

case the dispute under the Andhra Pradesh General Sales Tax Act, 1957

was on the interpretation of definition of the term “Electronic Goods”.

On the  basis  of  the  definition  it  was held  that  the  goods  “automatic

washing  machine”  was covered  by  the  term electronic  goods and not

under the other item i.e, Entry 38 (IV) which related to electrical items

including  electrical  washing  machine.  The  wordings  and  expressions

used and interpreted in that case were entirely different and are of no

help to the appellant in the present case.

6. As a result, the Civil Appeals arising out of Tax Case Nos. 1834 of

2006 and 2307 of 2008 must fail. However, the Appeal arising out from

Writ  Petition  containing  challenge  to  imposition  of  penalty  deserves

further  consideration  in  the  light  of  submissions  to  the  effect  that

appellant has been in same business since 1985 and no controversy or

dispute of this nature ever arose except for the two assessment years

under consideration. It has been pointed out that all earlier Schedules

were re-written on account of extensive amendments in the year 1993

and since  most  of  the  electronic  items were  brought  under  Part-B,  a

genuine controversy or misunderstanding arose as to whether the goods

in question would be covered by Entry No. 50 of Part B or not. Genuinely

believing that it is so covered, the appellant contested the matter and in

the  process  suffered  penalty  for  both  the  assessment  years  in  total

amounting  to  Rs.  15.48  lakhs  approximately.  Out  of  this,  appellant

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claims to  have  paid  approximately  Rs.  3.74  lakhs but  still  about  Rs.

11.73 lakhs remain as balance payable towards penalty. It was pointed

out that considering the merit of appellant’s case this Court has stayed

realization of penalty. Hence, it has been submitted that in the interest of

justice the balance penalty be set aside on account of bona fide belief on

the part of the appellant that it was liable to pay only at the rate of 3%

and therefore there was absolute lack of any mens rea in not paying in

time the tax assessed by the authorities. It  was also pointed out that

against  the  total  tax  demand  of  Rs.  16.39  lakhs  approximately  the

appellant has by now paid about Rs. 16.18 lakhs.  

7. Learned counsel for the appellant has supported the submissions

against  imposition  of  penalty  by  placing  reliance  upon  the  following

judgments:-  

(1) M/s Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627

(2) Commissioner of Sales Tax, Uttar Pradesh v. Sanjiv Fabrics,   

(2010) 9 SCC 630

In  M/s Hindustan Steel  Ltd.  in  paragraph 8 it  was held  that

although  the  Statute  permitted  imposition  of  penalty  but  still  the

authority  concerned  had  the  judicial  discretion  to  consider  whether

penalty should be imposed for failure to perform a statutory obligation.

In such a situation the discretion has to be exercised judicially  after

consideration of all the relevant circumstances. Even if minimum penalty

is prescribed, the authority may be justified in refusing to impose any

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penalty  in some peculiar  situations,  such as,  where the breach flows

from a bona fide belief that the offender is not liable to act in the manner

prescribed by the Statute. In Sanjiv Fabrics it was reiterated that there

is a rebuttable presumption that mens rea is essential ingredient in every

offence.  For  examining  whether  mens  rea is  essential  for  an  offence

created under a tax Statute, three factors require particular attention, (i)

the object and scheme of the Statute; (ii) the language of the section; and

(iii) the nature of penalty. Since the relevant expression for constituting

the offence in that case was – “falsely represents”, the Court held that the

offence attracting penalty would be established only where it is proved

that the dealer has acted deliberately in defiance of law and is guilty of

contumacious or dishonest conduct.

8. In the present case penalty is imposable by the assessing authority

under Section 12 of  the Act, both, for failure to submit return or for

submission of incorrect or incomplete return. Appellant, in the eyes of

the Authorities has submitted incorrect return leading to imposition of

penalty in accordance with relevant clauses of Section 12. Considering

that  the situation of  dispute arose on account of  amendments in the

Schedule in 1993 and was confined only to immediate two assessment

years and also considering that the appellant had a good arguable case

even in this Court which had stayed the penalty orders, we find that the

return submitted by the appellant was on account of bona fide belief in

correctness  of  appellant’s  stand  that  the  goods  in  question  were

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chargeable only at the rate of 3%. In our considered view, in the facts of

the case it would not be proper to hold that the appellant had submitted

a return which was incorrect to its knowledge or belief. Only after the

outcome of the legal dispute by virtue of this judgment, the authorities

can be justified in holding henceforth that the return was incorrect. In

such a situation it would not be just and proper exercise of discretion to

hold the appellant guilty of submitting incorrect return so as to attract

penalty for the same. Hence, in the peculiar facts of the case and in the

interest of justice, we set aside the balance dues of penalty. However, the

penalty already paid by the appellant shall not be refunded and the same

may be retained by the respondent authorities by way of  cost  of  this

protracted litigation.  

9. In  the  result,  the  Civil  Appeal  Nos.  10554  and 10562  of  2010

containing  challenge  to  assessments  orders  are  dismissed.  The

remaining appeal Civil Appeal No. 10563 of 2010 relating to penalty is

allowed to the extent that balance amount of penalty shall not be realised

from the appellant. There shall be no order as to further costs.

     …………………………………….J.       [SHIVA KIRTI SINGH]

      ……………………………………..J.                  [R. BANUMATHI]

New Delhi. February 26, 2016.

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