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IN THE HIGH COURT OF KARNATAKADHARWAD BENCH

Dated this the 17th day of September 2014

Present

THE HON’BLE MR.JUSTICE RAM MOHAN REDDY

AND

THE HON’BLE MR.JUSTICE B. MANOHAR

STRP No.1004/2013 & STRP No.1005/2013

In STRP No.1004/2013

Between:

Shree Renuka Sugars Ltd.,A Company incorporated underthe Companies Act, 1956,Having its Registered Office atBC 105, Havelock Road, Camp,

Belgaum-590001.Represented by its Officer-Legal,Mr. Sanjeev S/o Prahlad Kulkarni. ...Petitioner

(By Shri. Sangram S.Kulkarni & Shri VivekGramopadhya, Advocates)

A n d :

The State of Karnataka,Represented by theDeputy Commissioner of

Commercial Taxes,(Recovery)-I, Belgaum. ...Respondent

(By Shri. C.S.Patil, Government Advocate)

®

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This STRP is filed under Section 23(1) fo theKarnataka Sales Tax Act, 1957, praying to set aside theorder dated 10.10.2012 passed by the Karnataka

Appellate Tribunal, Bangalore in STA No.2197/2011 byallowing this revision.

- - - - - - - - - -

In STRP No.1005/2013

Between:

Shree Renuka Sugars Ltd.,A Company incorporated underthe Companies Act, 1956,

Having its Registered Office atBC 105, Havelock Road, Camp,Belgaum-590001.Represented by its Officer-Legal,Mr. Sanjeev S/o Prahlad Kulkarni. ...Petitioner

(By Shri. Sangram S.Kulkarni & Shri VivekGramopadhya, Advocates)

A n d :

The State of Karnataka,

Represented by theDeputy Commissioner ofCommercial Taxes,(Recovery)-I, Belgaum. ...Respondent

(By Shri. C.S.Patil, Government Advocate)

This STRP is filed under Section 23(1) of theKarnataka Sales Tax Act, 1957, praying to set aside the

order dated 10.10.2012 passed by the Karnataka

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Appellate Tribunal, Bangalore in STA No.2196/2011 byallowing this revision.

These STRPs coming on for Admission this day,Ram Mohan Reddy, J, made the following:

ORDER

Since common questions of law and that of fact

arise for decision making, petitions are clubbed together

and with the consent of the learned counsel, though

listed for admission, are finally heard and disposed off

by this common order.

2. These two petitions are filed invoking Section 23(1)

of the Karnataka Sales Tax Act, 1957, for short ‘KST

Act’, calling in question the common order dated 10th

October 2012 in STA Nos.2196-2197/2011 of the

Karnataka Appellate Tribunal at Bangalore, for short

the ‘KAT’.

3. Facts briefly stated are:- Petitioner claims to be a

company incorporated under the Companies Act, 1956

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and registered under the ‘KST Act’ and the Central Sales

Tax Act, for short the ‘CST Act’, carrying on business of

manufacture and sale of sugar in the State of Karnataka

with manufacturing unit at

(i) Munavalli with 2500 tonne crushing

capacity per day;

(ii) Aland taken on lease;

(iii) Haveri taken on lease;

(iv) Havalaga owned by the petitioner; and

(v) Burlatti owned by the petitioner.

4. According to the petitioner, the State of

Karnataka, in terms of its policy relating to incentive

and concession to entrepreneurs starting new industries

in the State, extended concession to new sugar factories

permitting conversion of purchase tax into interest free

loan, pursuant to which a New Unit Certificate dated

19.04.2001 was issued in the name of M/s. Sree

Renuka Sugars Limited, for its new manufacturing unit

at Munavalli, Savadatti Taluk, Belgaum District,

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registered with the Government of India, vide

No.IL/253/ILS/98 dated 16.07.1998 for the

manufacture of sugar with installed capacity of 2500

TC, having commenced production on 22.11.1999, as

evident from the first sale invoice i.e., bill issued by the

unit, which had the approval of the Commissioner for

Industrial Development and Director of Industries and

Commerce, Annexure-A.

5. It is the assertion of the petitioner that the leased

units at Aland and Haveri and owned units at Havalaga

and Burlatti, commenced production much later, since

new acquisitions of the petitioner-company. According

to the petitioner, the purchase of sugar cane liable to

tax under Section 25-B of the ‘KST Act’ at the rate

prescribed was declared in the returns of turnover filed

declaring the quantity of sugar cane purchased from

growers both within and outside the State, and sought

the benefit of conversion of the purchase tax due for the

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assessment years 2006-07; 2007-08 to interest free

loan, on the premise that all the five units being new

industrial units were eligible for the said tax incentive,

hence did not pay any tax due under Section 25-B of

the KST Act.

6. The Assessing Authority, accepted the return

recording a finding that the appellant was eligible for

the tax incentive in terms of the certificate Annexure ‘A’

as if applicable to all the five units. The Assessing

Authority exercising powers of rectification under

Section 25-A of the KST Act, by order dated 23.01.2010,

rectified its earlier order recording a finding that from

out of the 5 units, only one unit at Munavalli was

entitled to the benefit and accordingly, on the same day,

issued a demand notice in Form No.7. Petitioner is said

to have paid the total taxes due though in respect of the

four units, on 15.02.2010.

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7. The non payment of the Purchase Tax in respect of

the four units, led to a notice dated 20.04.2011 invoking

Section 12-B(4) of the KST Act proposing penalty as

under:

(i) 2006-07 `2,76,78,805/-

(ii) 2007-08 `1,18,49,937/-

8. The said proposition notice was confirmed by

order dated 25.06.2011, aggrieved by which, petitioner

preferred W.P.Nos.64639-640/2011, whence, by order

dated 12.08.2011, petitions were permitted to be

withdrawn with liberty to file an appeal.

9. Petitioner preferred appeal before the Joint

Commissioner of Commercial Taxes (Appeals), Belgaum,

under Section 20(5) of the KST Act. The Appellate

Authority, having considered the explanation for not

paying the purchase tax in respect of purchase of

sugarcane by the four units, regard being had to the

minimum penalty stipulated under Section 12-B(4) of

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the KST Act, by order dated 19th August 2011, reduced

the penalty for the assessment year:-

(i) 2006-07 to `1,38,39,402/-(ii) 2007-08 to `59,24,969/-

10. Aggrieved by that order, petitioner preferred two

separate appeals registered as STA Nos.2196-

2197/2011 before the KAT, whence by the common

order dated 10th October 2012, impugned, the appeals

were dismissed.

11. Learned Counsel for petitioner submits that the

State Government, having issued a ‘New Unit Certificate’

dated 19.04.2001 certifying that the petitioner had

w.e.f. 22.11.1999 commenced commercial production of

manufacture of sugar in its unit at Munavalli having

installed crushing capacity of 2,500 tonnes was entitled

to incentive and concession by conversion of purchase

tax payable into interest free loan on purchase of sugar

cane for manufacture of sugar at the four other units

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operating at Aland, Haveri, Havalga and Burlatti in

addition to the unit at Munavalli. Learned Counsel’s

submission is that though the Rectification Order

permitted the concession for the unit at Munavalli,

nevertheless, the Assessing Authority having concluded

that the petitioner committed a mistake in assuming the

certificate extended concession to all the units, since

‘company specific” and not “unit centric” and the

payment of tax on 15.02.2010, pursuant to the demand

notice dated 23.01.2010 hence established bonafides.

According to the learned Counsel, there was no

intention to make unlawful gain to itself or avoid

payment of tax. Learned Counsel hastens to add that in

several reported opinions of this Court and that of the

Apex Court, it is held that Section 18-A of the KST Act

and Section 12-B(4), permits exercise of discretion in

the matter of imposition of penalty by the Assessing

Authority in which case, two factors are to be kept in

mind, viz., bonafides of the petitioner in not paying the

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purchase tax within time and its conduct after having

done so.

12. Learned Government Advocate for the

respondent/Revenue seeks to sustain the orders of the

Appellate Authority and the KAT as being well merited,

fully justified and not calling for interference. Learned

Counsel submits that appellant when issued with the

New Unit Certificate, Annexure-A specifying its

applicability to the unit at Munavalli with installed

crushing capacity of 2,500 tonne, there can be no

mistake in understanding that the said certificate was

inapplicable to other units of the petitioner hence, ‘unit

centric’ and not ‘company specific’. Even otherwise, as

on 19.04.2001, the New Unit Certificate, Annexure-A

when issued, was in respect of Munavalli unit, since the

four other units at Aland, Haveri, Havalga and Burlatti

were not commissioned.

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13. According to the learned Government Advocate,

despite lack of bonafides, the first appellate authority

exercised its discretion to reduce the penalty to its

minimum to modify the order of the Assessing

Authority, petitioner cannot be heard to have a

grievance.

14. Having heard the learned Counsel for parties,

perused the pleadings and examined the orders

impugned, the common point for consideration in these

petitions is:

“Whether the Joint Commissioner of

Commercial Taxes (Appeals), Belgaum, was

not justified in imposing penalty of

`1,38,39,402/- for the year 2006-07 and

`59,24,969/- for the years 2007-08 under

Section 12-B(4) of the KST Act and

sequentially the KAT was not justified in

confirming the imposition of penalty by

dismissing the appeals?”

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15. The crux of the matter lies in the New Unit

Certificate dated 19.04.2001, Annexure-A issued by the

Joint Director of Industrial Development of the State of

Karnataka, which reads thus:

“Government of Karnataka

Department of Industries and Commerce

No.IDF.F2.71.BGM.SF.I & C.99-00

Office of the DirecotrKhanija Bhavan,

Race Course Road,Bangalore-1, Dt. 19.04.01

NEW UNIT CERTIFICATE

SUB: Incentives & Concessions toEntrepreneur starting of NewIndustries in the State-Grant ofconcessions to Sugar factories-conversion of Purchase Tax

payable by New Sugar Factoriesinto interest free loan to M/s SreeRenuka Sugars Ltd., Munavalli,Savadatti Taluk, Belgaum District-reg.

Ref: 1. G.O.No.CI 140 FMI 71 dt.6.6.732. G.O. No. FD.373 CSL.73. dt.17.1.753. G.O. No. CI.200.SGF.84. dt. 30.3.88

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4. Units representation dt. 15.12.995. Judgment and decree, DIC,Belgaum report No. BGM/DIC/

DD(PTD)/Renuka/00-01/ dt. 22.2.01& 29.3.01.

----

This is to certify that M/s Sree Renuka Sugars

Ltd., Munavalli, Savadatti Taluk, Belgaum

District, is a new sugar industry registered with

Government of India vide No.IL/253/FILS/98

dt.16.07.98 for the manufacture of Sugar with

installed capacity of 2500 TC. The unit had

started the commercial production on 22.11.99

as evidenced from the first sale invoice i.e., bill

issued by the unit.

This issues with the approval of the

Commissioner for Industrial Development and

Director of Industries and Commerce.

Sd/-Joint Director (ID)

To,

M/s Sree Renuka Sugars Ltd.,Munavalli, Savadatti Taluk,Belgaum District.”

16. Apparently, in the preamble to the certificate,

Annexure-A makes reference to the incentive and

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concession to entrepreneurs starting new industries in

the State entitled to concessions by conversion of

purchase tax payable into interest free loan. The

certificate states that M/s Renuka Sugars Limited,

Munavalli, Savadatti Taluk, registered with Government

of India for manufacture of sugar with installed capacity

of 2,500 TC commenced commercial production on

22.11.1999, evident from the first sale invoice issued by

the unit at Munavalli, with approval of Commissioner

for Industrial Development and Director of Industries

and Commerce. The only impression that any rational,

prudent man could gather from the certificate is that, it

was ‘unit centric’ and not ‘company specific’. In other

words, concession was available to the petitioner’s unit

at Munavalli, which commenced production on

22.11.1999. This certificate did not extend benefit to

four other units since not commenced commercial

production of sugar by the petitioner company. It is not

the case of the petitioner that the New Unit Certificate,

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Annexure-A was either modified or a fresh certificate

issued covering the other four units at Aland, Haveri,

Havalga and Burlatti, or that similar such New

Certificates were issued to those four units on the

commencement of commercial production in the said

units. In the circumstances, it is unacceptable that the

petitioner company was under the bonafide mistaken

belief that the New Unit Certificate, dated 19.04.2001

was applicable to all the units including unit at

Munavalli.

17. The contention advanced by the petitioner as

disclosed in the reply to the proposition notice is

extracted in the order dated 25.06.2011 of the Deputy

Commissioner of Commercial Taxes, Recovery-I,

Belgaum, is that petitioner was under a bonafide

mistaken belief that the New Unit Certificate, Annexure-

A was applicable to all its units including the unit at

Munavalli. The Assessing Authority, having regard to

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Section 12-B(4) of the KST Act, as extracted in the said

order, held that default on the part of the petitioner in

the matter of payment of tax cannot be unintentional or

due to ignorance, since they are immaterial and are not

grounds for levy of penalty, and as the law invested a

jurisdiction in the authority to levy penalty on the

failure of the petitioner to make payment of purchase

tax, by order dated 25.06.2011, hence the imposition of

penalty for the year 2007-08 of an amount equal to the

amount of tax not paid, finally assessed and confirmed.

Similar such order was passed in respect of levy of

penalty for the year 2006-07 by the assessing authority.

18. The Appellate Authority having regard to the very

same plea of bonafide mistake, re-appreciated the said

contention, framed points for consideration, more

appropriately over whether the petitioner had any

deliberate intention on its part in not paying the

purchase tax in respect of four units, amongst other

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questions, answered the said points in the ‘negative’

having regard to the New Unit Certificate, Annexure-A

and its applicability to the unit at Munavalli alone. The

first Appellate Authority observed that soon after the

order dated 23.01.2010 rectifying the mistake in the

assessment order, petitioner on 15.02.2010 discharged

the entire amount of purchase tax in respect of the four

units ineligible for interest free loan facility. The said

authority, having noticed the opinion of this Court in

M/s Mysore Kirloskars Limited, Harihar, vs. State of

Karnataka1 observing that, when once the Tribunal

comes to the conclusion that the defiance was not

deliberate and there was no dishonest intention on the

part of the assessee in not acting in accordance with law

in payment of advance tax and that the contravention

had occurred because of circumstances beyond its

control, opined that penalty for failure to deposit

advance tax within the time limit as provided under

1 (1997) 43 KLJ 294

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Section 12-B(4) is not automatic without considering

facts and circumstances of the case. The said

authority, further observed the opinion of the Apex

Court in Hindustan Steel Limited vs. State of

Orissa2, as also M/s Naren Constructions, Shimoga

vs. State of Karnataka3, in the light of which, held

that imposition of the maximum penalty equal to the

amount of tax is “too heavy” and it was reasonable to

levy minimum penalty stipulated under Section 12-B(4)

of the Act and accordingly by order dated 19th August

2011, reduced the penalty. The KAT too, on a re-

appreciation of the entire material placed before it in a

second appeal, concurred with the views of the first

Appellate Authority to dismiss the appeals.

19. A co-ordinate Division Bench of this Court in

Gujarat Co-operative Milk Marketing Federation

Limited vs. State of Karnataka4, while interpreting

2 (1970) 25 STC 211 (SC)

3 2000 (48) KLJ 34 (Tri) (DB)

4 (1996) 103 STC 369

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Section 18 and 18-A of the KST Act, opined that the

commission of statutory offence would not require proof

of mens rea as an essential ingredient and at paragraph

22, observed thus:

“22. In the case of section 18-A of the

State Act however there is no need for

reading down the provision as was done by

the Supreme Court, for the provision is

couched in a language which lends itself to

only the interpretation, namely, the

imposition of the penalty is left to the

discretion of the assessing authority.

Discretion howsoever wide can never be

exercised arbitrarily. On the contrary the

wider the discretion, the more careful and

objective has its exercise to be. And yet it is

difficult for any court to enumerate let alone

place in a strait jacket formula, as to what

would be an appropriate penalty in a given

case or class of cases. All that can be said is

that the assessing authorities, shall be

bound to take into consideration all the

circumstances relevant to the question of

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imposition and the quantum of penalty

imposed. Of these circumstances two

factors shall have to be particularly kept in

view, these are – the bona fides of the dealer

in making the excess collection and his

conduct after having done so. An order

imposing penalty which is passed for no

better reason than the proof of a

contravention or is demonstrably oblivious of

the relevant consideration would be liable to

be interfered with in appeal, revision or even

writ jurisdiction under article 226 of the

Constitution. Assessing authorities

exercising the statutory powers of imposing

penalties would therefore do well to act fairly

and objectively and let not their exuberance

in collection of taxes overtake their onerous

obligation of discharging their statutory

powers along judicial lines. Ample support

for this view is available from a Division

Bench judgment of this Court in Manilal

Monaji Somayya vs. Commercial Tax Officer

(1973) 32 STC 541; where this Court

observed thus:

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“The Act provides for imposition

of penalty for failure to pay every

month the advance tax on the dealer’s

taxable turnover during the preceding

month. But the liability to pay penalty

does not arise merely upon proof of

default in payment of tax in advance

every month. As observed by the

Supreme Court in Hindustan Steel

Limited vs. State of Orissa (1970)

25 STC 211 (SC) at page 214, an

order imposing penalty for failure to

carry out a statutory obligation is the

result of a quasi-criminal proceeding,

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 its

obligation. Penalty will not also be

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

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discretion of the authority to be

exercised judicially and on a

consideration of all the relevant

circumstances."

(Emphasis supplied.)

20. In Shanthi Industries vs. Commissioner of

Commercial Taxes5, a co-ordinate Division Bench,

observed that it was well neigh impossible to lay down

all tests for all cases but possible to lay down some tests

as applicable to all cases. When discretion with duty is

invested in the authority, the requirement is a

consideration of all explanations offered in regard to the

alleged breach of law inviting the penalty though the

authority has the power to impose such penalty.

21. Section 12(B-4) of the KST Act reads thus:

“If at the end of the year it is found

that the amount of tax paid in advance by

any dealer for any month or quarter or for

the whole year in the aggregate was less

than the tax payable for that month or

5 (1993) 89 STC 190 (Kar) (Division Bench)

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quarter or the tax for the whole year as

finally assessed, as the case may be, by more

than fifteen per cent, the assessing authority

may direct such dealer to pay, in addition to

the tax, a penalty (which shall not be less

than one half of the tax so paid in short, but

not exceeding the amount by which the tax

so paid fall short) of the tax payable for the

month or quarter or for the whole year as the

case may be.

22. In terms of the said provision, if the assessee pays

tax for the whole year, in advance, in the aggregate

when found to be less than the tax payable for the year

or month, as finally assessed, being more than 15% of

the difference in tax, the penalty should not be less than

50% of the tax so paid in short, but not to exceed one

and half times the amount by which the tax so paid falls

short of the tax payable for the month or quarter or for

the whole year as the case may be.

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23. It is no doubt true that the Assessing Authority

was not justified in recording a finding that in the

matter of levy of penalty, it is immaterial to consider

whether the non-payment of tax was unintentional or

due to ignorance, while it is true that proof of ‘mens rea’

in the levy of penalty in a taxing statute is unavailable is

by and far well settled. From the facts of these cases

what is apparent is that the Certificate dated

19.04.2001, Annexure-A certifies its applicability to the

petitioner’s unit at Munavalli, since registered with the

Government, having crushing capacity of 2500 tonne

and having commenced commercial production on

22.11.1999. As on the said date four other units of the

petitioner were not commissioned, nor were in the

offing. Hence, petitioner cannot be heard to contend

that it was under a bonafide mistake that the

concession was applicable to the said four units, in

addition to the unit at Munavalli, while in the face of the

contents of Annexure-A, belies the petitioner’s assertion

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that the concession was ‘company specific’ and not ‘unit

centric’.

24. Petitioner, though did not establish bonafides over

the mistaken belief that all its five manufacturing units

producing sugar cane were entitled to the conversion of

purchase tax into interest free loan, nevertheless, did

discharge its liability immediately after issue of the

demand notice dated 23.01.2010. The contention that

at the first instance the Assessing Authority accepted

petitioner’s return for the years 2006-07 and 2007-08,

claiming concession followed by the Assessing Authority

rectifying the said order and issuing a demand notice

pursuant to which the purchase tax was paid, is

acceptable explanation, cannot be countenanced. The

facts and circumstances are a pointer to the conscious

disregard of petitioner’s obligation to pay the Tax, hence

disentitled to a concession in the levy of penalty under

Section 12(B-4) of the KST Act, by exercise of discretion.

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The First Appellate Authority in exercise of its discretion

modified the order of the Assessing Authority by

reducing the penalty to 50% of the tax. The order

admittedly is not challenged by the revenue and is

allowed to rest.

25. In the facts and circumstances, the point raised

for consideration is answered in the negative and

against the petitioner, and these petitions devoid of

merit, are accordingly dismissed.

SD/-JUDGE

SD/-JUDGE

Kms/kcm