/2023 INSC 0297/
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.  3481 OF 2022
State of Gujarat and Anr.  …Appellant(s)
Versus
M/s Saw Pipes Ltd.                …Respondent(s)
(known as Jindal Saw Ltd.)   
J U D G M E N T
M.R. SHAH, J.
1. Feeling   aggrieved   and   dissatisfied   with   the
impugned   judgment   and   order   dated
04.08.2016   passed   by   the   High   Court   of
Gujarat   at   Ahmedabad   in   Tax   Appeal   No.
Page  1  of  64

1283/2006,   by   which,   the   Division   Bench   of
the High Court has set aside the penalty  and
interest levied under sub­section (6) of Section
45   of   the   Gujarat   Sales   Tax   Act,   1969
(hereinafter   referred   to   as   the   Act,   1969),   the
State   of   Gujarat   has   preferred   the   present
appeal. 
2. The   respondent   company   ­   assessee   is
engaged   in   the   business   of   executing
indivisible   works   of   undertaking   contract   of
coal   tar   and   enamel   coating   on   pipes.   The
respondent  ­ assessee had opted for  payment
of   lump­sum   tax   as   provided   under   Section
55A   of   the   Gujarat   Sales   Tax   Act,   1969.   The
respondent   ­   assessee   deposited   tax   at   the
rate   of   2%   on   sales   involved   in   the   execution
of   works   contract   of   coating   of   pipes   by
treating   the   same   as   civil   works   contract   as
Page  2  of  64

prescribed in Entry­1 of the notification dated
18.10.1993   issued   by   the   Government   of
Gujarat.       The   Assessing   Officer   (AO)   vide
order   dated   30.03.2005   for   assessment   year
(AY) 2002­03 held that the contract of coating
of   pipes   is   not   a   civil   works   contract   and
therefore,   the   composition   amount   is   payable
not   at   the   rate   of   2%   as   deposited   by   the
respondent   but   it   falls   under   Residuary
Entry­8   to   the   notification   dated   18.10.1993.
The AO raised the total demand as under: ­
Particulars  Amount 
Tax  2,36,55,529/­ 
Interest   u/s
47(4A)  1,04,56,181/­ 
Penalty u/s 45(6)  1,41,93,312/­ 
Total  4,83,05,013/­
 
2.1 The   assessee   preferred   a   first   appeal   before
the   First   Appellate   Authority   i.e.,   Joint   Sales
Tax   Commissioner.   By   order   dated
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30.07.2005,   the   First   Appellate   Authority
dismissed   the   said   appeal.   The   assessee
approached   the   Gujarat   Value   Added   Tax
Tribunal   by   filing   Second   Appeal   No.
820/2005.   The   learned   Tribunal   vide   order
dated   29.09.2006   dismissed   the   appeal   and
confirmed   the   orders   passed   by   the   AO   as
well   as   the   First   Appellate   Authority   and
thereby   confirmed   the   aforesaid   demand   of
difference in tax as well as the levy of interest
under   Section   47   (4A)   and   penalty   under
Section   45(6)   of   the   Act,   1969.   The   assessee
preferred   a   further   appeal   before   the   High
Court   being   Tax   Appeal   No.   1283/2006.
Before   the   High   Court,   the   learned   Senior
Advocate appearing on behalf of the assessee
fairly   conceded   that   looking   to   the   fact   that
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the   authority   has   passed   the   assessment
order   on   the   basis   of   material   available   with
it,   they   were   required   to   pay   the   tax   on   the
basis   of   12%   and   that   has   been   paid   by   the
assessee   since   the   opinion   of   the   expert   was
turned   out,   however,   the   respondent   –
assessee restricted the appeal to the extent of
challenging   the   levy   of   penalty   and   interest
only   by   submitting   that   the   assessee   was
under   a   bonafide   belief   that   the   works
contract   of   the   assessee   would   fall   under
Entry­1   requiring   payment   of   tax   at   the   rate
of   2%   only.   Reliance   was   placed   on   the
decision   of   the   High   Court   in   the   case   of
Brooke   Bond   India   Limited   Vs.   State   of
Gujarat;   1998   JX   (Guj)   128   and   it   was
prayed   that   the   imposition   of   penalty   and
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interest   not   be   upheld.   By   the   impugned
judgment   and   order,   the   High   Court   has   set
aside  the   penalty  and   interest  on  the  ground
that   the   assessee   was   under   the   bonafide
opinion and following the advice, paid the tax
at 2% and that thereafter, when the enhanced
tax as  imposed has  already   been  paid by  the
assessee,   the   penalty   and   interest   is   not
required to be paid by the assessee. The High
Court   allowed   the   appeal   to   the   aforesaid
extent,   deleting   the   penalty   and   interest
levied   under   Section   45(6)   and   Section   47
(4A) of the Act, 1969. 
          
2.2 Feeling   aggrieved   and   dissatisfied   with   the
impugned  judgment  and order  passed by  the
High   Court   whereby   the   penalty   and   interest
has   been   set   aside,   the   State   has   preferred
the present appeal.     
Page  6  of  64

3. Ms.   Aastha   Mehta,   learned   counsel   has
appeared   with   Ms.   Deepanwita   Priyanka,   on
behalf of the State. 
3.1 Ms.   Mehta   learned   counsel   appearing   on
behalf of the State has vehemently submitted
that   in   the   facts   and   circumstances   of   the
case, the High Court has committed a serious
error   in   deleting   the   penalty   and   interest
levied under Section 45(6) and Section 47(4A)
of the Act, 1969.
3.2 It is further submitted that while deleting the
penalty,   the   High   Court   has   not   at   all
considered sub­section (6) of Section 45 of the
Act, 1969 in its true spirit. 
3.3 It   is   next   submitted   that   the   High   Court   has
not   properly   considered   the   fact   that   the
penalty   leviable   under   Section   45(6)   of   the
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Act,   1969,   is   a   statutory   penalty   and   hence,
is compulsorily leviable. 
3.4 It is contended by Ms. Mehta, learned counsel
appearing   on   behalf   of   the   State   that   the
penalty   leviable   under   Section   45(6)   of   the
Act,   being   a   statutory   penalty,   there   is   no
discretion   vested   with   the   Commissioner   to
levy   or   not   to   levy,   as   long   as   the   assessee
falls under Section 45(5) of the Act, 1969. 
3.5 It   is   further   contended   that   even   the
Commissioner   has   no   discretion   and/or
authority   to   levy   the   penalty   other   than   the
penalty   provided   under   Section   45(6)   of   the
Act, 1969. 
3.6 It   is   submitted   by   the   learned   counsel
appearing   on   behalf   of   the   State   that   the
moment   it   is   found   that   the   amount   of   tax
assessed or reassessed exceeds the amount of
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tax   already   paid   by   the   dealer   under   Section
47   in   respect   of   such   period   by   more   than
25% of the amount of tax so paid, the dealer
can be deemed to have failed to pay the tax to
the   extent   of   the   difference   between   the
amount   so   assessed   or   reassessed   and   the
amount   paid   and   in   that   eventuality   the
dealer is liable to pay a penalty not exceeding
one and one­half times the difference and/or,
on such dealer, who is deemed to have failed
to pay the tax to the extent mentioned in sub­
section   (5)   of   Section   45,   a   penalty   shall   be
levied   not   exceeding   one   and   one­half   times
the   difference.   It   is   further   submitted   that
even   the   Commissioner   has   no   jurisdiction
and/or   authority   to   levy   the   penalty   lesser
than one and one­half times the difference. 
Page  9  of  64

3.7 It is contended by Ms. Mehta learned counsel
appearing   on   behalf   of   the   State   that   the
phrase   used   in   sub­section   (6)   of   Section   45
of   the   Act   is   “shall   be   levied”.   Reliance   was
placed on the decision of a three­judge bench
of   this   Court   in   the   case   of   Union   of   India
and   Ors.   Vs.   Dharamendra   Textile
Processors   and   Ors.;   (2008)   13   SCC   369
wherein  it has  been held  that  when  the  term
is   used   “shall   be   leviable”   the   adjudicating
authority will have no discretion.  
3.8 It   is   further   submitted   that   the   penalty
leviable under sub­section (6) of Section 45 of
the Act, is a statutory penalty and legislature
has   consciously   used   the   word   “shall”   and
even   for   interest   the   same   language   is
employed   in   Section   47(4A)   of   the   Act.   That
Page  10  of  64

the   assessee   is   statutorily   liable   to   pay   the
penalty and interest. That therefore, the High
Court   has   committed   a   serious   error   in
deleting   the   penalty   and   interest,   mainly,   on
the   ground   that   the   amount   of   tax   has
already   been   paid   by   the   assessee   and   that
the   assessee   was   under   the   bonafide   belief
that it was liable to pay the tax at rate of 2%.
3.9 It is further contended by Ms. Mehta, learned
counsel appearing on behalf of the State that
the   non­payment   of   penalty   is   met   with
consequences   under   Section   45   of   the   Act,
1969, and is recoverable as an arrear of land
revenue.   That   it   is   well­settled   that   when
non­compliance   or   violation   of   a   provision   is
met   with   a   consequence,   then,   the   language
of the provision is deemed to be mandatory in
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nature.   It   is   therefore   submitted   that   the
statutory penalty cannot be done away with.
3.10 It   is   submitted   that   in   case   the   penalty   is   a
statutory   penalty,   there   is   no   requirement   to
prove   mens   rea   or   to   consider   the   aspect
regarding bonafide belief of the assessee while
computing   payment   of   penalty   and   interest.
In support of the above submissions, learned
counsel   appearing   on   behalf   the   State   has
heavily relied upon the decisions of this Court
in   the   cases   of   State   of   Gujarat   Vs.   Arcelor
Mittal Nippon Steel India Limited; (2022) 6
SCC   459   and   Chairman,   SEBI   Vs.   Shriram
Mutual   Fund   and   Anr.;   (2006)   5   SCC   361;
Guljag   Industries   Vs.   Commercial   Taxes
Officer   (2007)   7   SCC   269;   Competition
Commission   of   India   Vs.   Thomas   Cook
Page  12  of  64

(India) Limited and Anr. (2018) 6 SCC 549 ,
as   well   as   the   decisions   of   the   Gujarat   High
Court   in   the   cases   of   Riddhi   Siddhi   Gluco
Biols  Ltd.   Vs.   State   of   Gujarat;   (2017)   100
VST   305   (Guj)   and   State   of   Gujarat   Vs.   Oil
and   Natural   Gas   Corporation   Limited;
(2017) 97 VST 506 (Guj) .           
3.11 It   is   submitted   that   mens   rea   can   only   be
expressly   included   in   the   law   by   the
legislature.   The   Court   cannot   fill   in   the   gaps
and   purport   the   requirement   of   an   intention
or   guilty   mind   of   the   assessee   before   levying
penalty   and   interest   where   the   same   is   not
prescribed by the legislature.
3.12 In   so   far   as   the   decision   of   this   Court   in   the
case   of   Hindustan   Steel   Ltd.   Vs.   State   of
Orissa;   1969   (2)   SCC   627   relied   upon   on
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behalf   of   the   assessee   is   concerned,   it   is
vehemently submitted by the learned counsel
appearing on behalf of the State that the said
decision   shall   not   be   applicable   while
considering  penalty and interest levied under
Section   45(6)   and   47(4A)   of   the   Act,   1969.   It
is   contended   that   even   otherwise   in   the
present   case,   the   learned   Tribunal   had
specifically   recorded   findings   that   the   said
decision shall not be applicable since there is
nothing   on   record   to   prove   that   there   was   in
fact   a   bonafide   belief   of   the   respondent   ­
assessee.
3.13 In   so   far   as   the   reliance   placed   on   behalf   of
the   assessee   upon   the   decision   of   this   Court
in   the   case   of   Dharamendra   Textile
Processors   (supra)   is   concerned,   it   is
Page  14  of  64

submitted   by   Ms.   Mehta,   learned   counsel
appearing on behalf of the State that the said
decision   also   shall   not   be   applicable   to   the
facts   of   the   case   at   hand,   more   particularly,
considering   the   statutory   provisions,   namely,
Section 45(6) and Section 47(4A) of the Act. It
is submitted that in the said case, this Court
was   considering   Section   11AC   of   the   Central
Excise Act. That the Parliament in its wisdom
has   specifically   incorporated   the   element   of
mens   rea   in   Section   11AC   by   employing   the
words,   “fraud,   collusion   or   any   wilful
misrepresentation or any wilful misstatement
or   suppression   of   facts”   and   “intent   to   evade
payment   of   duty”.   It   is   submitted   that   only
when   an   intention   is   built   into   the   provision
and   when   the   assessee’s   intention   is   made
Page  15  of  64

relevant   by   the   Parliament,   can   the   courts
interpret and go into  the issue as to  whether
or   not   the   evasion   was   bonafide   or   malafide.
No   such   language   is   employed   in   Section
45(6)   and   Section   47(4A)   of   the   Act,   1969.
That   a   similar   decision   of   this   Court   relied
upon on behalf of the assessee in the case of
Commissioner   of   Central   Excise,
Chandigarh   Vs.   Pepsi   Foods   Ltd;   (2011)   1
SCC   601   is   misconceived   and   shall   not   be
applicable   to   the   facts   of   the   case   at   hand
since   it   interprets   Section   11AC   of   Central
Excise   Act   and   the   language   of   the   provision
at   hand   and   that   in   Section   11AC   is   starkly
opposite. 
3.14 Ms.   Mehta,   learned   counsel   appearing   on
behalf of the State has further contended that
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even the reliance placed by the assessee upon
the decision of the Gujarat High Court in the
case   of   Jyoti   Overseas   P.   Ltd.   Vs.   State   of
Gujarat; 2017 SCC Online Guj 2511: (2017)
6   GSTL   388,   is   also   misconceived   and   shall
not   be   applicable   to   the   facts   of   the   case   at
hand.   It   is   submitted   that   in   the   said   case,
the High Court was dealing with Section 34(7)
of   Gujarat   VAT   Act,   in   which   the   language
used is “If the Commissioner  is satisfied that
the dealer, in order to evade or avoid payment
of tax…” That under the VAT Act, not only is
the   Commissioner   vested   with   discretion   but
the   said   penalty   provision   is   applicable
specifically   when   the   assessee   has   an
intention   to   “evade   or   avoid   payment   of   tax.”
That in the present case, the legislature in its
Page  17  of  64

wisdom   imposed   a   liability   of   penalty   and
interest without reference to any requirement
of  mens rea  on the part of the assessee.
3.15 Making   the   above   submissions   and   relying
upon   the   above   decisions,   it   is   prayed   that
the   present   appeal   be   allowed   and   the
impugned   judgment   and   order   deleting   the
penalty   and   interest   levied   under   Section
45(6)   and   Section   47(4A)   of   the   Act,   1969   be
quashed and set aside.      
4. The present appeal is vehemently opposed by
Shri   V.   Lakshmikumaran,   learned   counsel
appearing   on   behalf   of   the   respondent   –
assessee   –   dealer.   It   is   submitted   at   the
outset   that   the   penalty   and   interest   is   not
payable   by   the   assessee   in   the   facts   of   the
present case. It is further submitted that with
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reference   to   imposition   of   penalty,   as   per
statutory  provision,  penalty  is  leviable  only  if
differential tax liability (difference between tax
assessed   and   tax   paid)   is   more   than   25%.
That   according   to   the   assessee,   the
differential tax liability on merits is less than
25%, however, for the sake of argument, it is
assumed that the condition of 25% is fulfilled.
4.1 Learned   counsel   appearing   on   behalf   of   the
respondent – assessee has made the following
submissions in support of the case on behalf
of the assessee that the assessee is not liable
to pay the penalty and interest: ­
(1) That   for   the   purpose   of   argument   that
penalty is not payable, the respondent is
within   his   legal   rights   to   argue   that
quantum   of   tax   demand   is   not   correct,
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even if the same was not pressed before
the High Court. 
(2) That   section   45(5)   of   Gujarat   Sales   Tax
Act,   1969   creates   a   presumption   which
is rebuttable in nature. 
(3) That   for   the   purpose   of   imposition   of
penalty   under   Section   45(6)   Gujarat
Sales   Tax   Act,   1969,   mens   rea ,
blameworthy   conduct,   deliberate
violation,   evil   doing,   fraud,   suppression
(either   one   or   more   of   them)   must   be
proved. 
(4) That   section   45(6)   of   the   Act,   1969
provides   for   imposition   of   penalty   not
exceeding   one   and   one­half   times   the
differential   tax.   The   provision   provides
for   an   upper   limit   for   imposition   of
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penalty;   however,   no   minimum   penalty
is   prescribed.   This   indicates   that   in
appropriate   cases   where   there   is   no
mens   rea ,   the   authority   has   the
discretion to impose no penalty. 
(5) That   in   case   the   claim   of   the   dealer   for
payment of composition amount of 2% is
rejected, the dealer could pay the tax on
actual   value   of   goods   involved   in   the
execution   of   a   works   contract.   Even   in
such   a   scenario,   the   additional   tax
payable   would   be   less   than   25%   and
hence,  the   provision   for  penalty  will  not
be attracted. 
(6) No   interest   is   payable   under   Section
47(4­A) of Gujarat Sales Tax Act, 1969.
Page  21  of  64

4.2 Elaborating   the   above   submissions,   it   is
submitted   that   the   levy   of   penalty   under
Section   45(6)   of   the   Act   would   depend   upon
the   liability   of   the   dealer   to   pay   tax.   That
accordingly,   in   case   where   there   is   a   dispute
regarding imposition of penalty under Section
45(6),   it   becomes   necessary   to   determine   if
the dealer is liable to pay additional tax. It is
submitted   that   this   position   would   remain
unaltered   even   when   the   correctness   of
imposition   of  tax  has  not   been  argued  before
the High Court. 
4.3 It is next submitted that the respondent can,
in   an   appeal   filed   by   the   opposite   party,   re­
canvass   for   reversal   of   a   finding   reached
against   him   in   the   judgment.   Reliance   is
placed upon the decisions of this Court in the
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case of  J.K. Cotton Spg. and Wvg. Mills Co.
Ltd.   Vs.   CCE;   (1998)  3   SCC   540   and   BHEL
Vs.   Mahendra   Prasad   Jakhmola;   (2019)   13
SCC 82.  Learned counsel appearing on behalf
of   the   assessee   has   also   relied   upon   the
decision of the Gujarat High Court in the case
of   Elecon Engineering Vs. State of Gujarat;
(1994) 93 STC 397.
4.4 Relying upon the decision of this Court in the
case   of   Director   of   Elementary   Education
Vs.   Pramod   Kumar   Sahoo;   (2019)   10   SCC
674 ,   it   is   submitted   that   as   held   by   this
Court   any   concession   in   law   made   by   either
counsel   would   not   bind   the   parties,   as   it   is
legally   settled   that   advocates   cannot   throw
away   legal   rights   or   enter   into   arrangements
contrary to law. 
Page  23  of  64

4.5 It is contended that in the present case, since
the   penalty  and   interest   were   proposed   to  be
waived   by   following   the   decision   in   case   of
Brooke   Bond   India   Limited   (supra) ,   the
advocate of the dealer did not press the issue
of   demand   on   merits.   That   in   case   the
judgment   of   High   Court   is   proposed   to   be
reversed   and   penalty   is   proposed   to   be
imposed,   it   will   become   necessary   to
adjudicate the dispute on merits as the same
is detrimental to the imposition of penalty.
4.6 It   is   further   contended   that   Section   45(5)   of
the Act, 1969, provides that in case difference
between   assessed   tax   and   tax   paid   by   the
dealer   is   more   than   25%,   the   dealer   shall   be
deemed   to   have   failed   to   pay   the   tax   to   the
extent   of   the   difference.   That   therefore,
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Section 45(5) creates presumption against the
dealer. 
4.7 It   is   submitted   that   as   held   by   this   Court   in
the   case   of   Nandlal   Wasudeo   Badwaik   Vs.
Lata   Nandlal   Badwaik;   (2014)   2   SCC   576 ,
there   is   a   clear   distinction   in   law   between   a
legal   fiction   and   presumption.   Legal   fiction
assumes   existence   of   a   fact   which   may   not
really exist. However, a presumption of a fact
depends   on   satisfaction   of   certain
circumstances.   In   support   of   above
submissions,   reliance   is   also   placed   on
another   decision   of   this   Court   in   case   of
Bhuwalka   Steel   Industries   Ltd.   Vs.   Union
of India; (2017) 5 SCC 598 . 
4.8 It   is   next   submitted   that   even   otherwise
Section   45(5)   of   the   Act   creates   a
Page  25  of  64

presumption   against   the   dealer   and   such
presumption is rebuttable in nature. That the
term   “burden   of   proof”   connotes   the
obligation   to   prove   a   fact   or   facts,   by
adducing   the   necessary   evidence.   It   is
submitted   that   any   statutory   provision   by
way   of   which   penalty   is   imposed   by   tax
authorities,   the   burden   of   proof   to   prove
mens   rea   lies   with   revenue,   however,   a
statute  can  shift the burden  on the  dealer   in
certain   circumstances.   That   therefore,   such
presumption would be rebuttable in nature.
4.9 It   is   submitted   that   Section   45(5)   provides   a
presumption   that   in   case   differential   tax   is
more than 25%, the dealer shall be deemed to
have   failed   to   pay   the   tax.   That   the
presumption   contained   in   sub­section   (5)   is
Page  26  of  64

not   irrebuttable   but   rebuttable   in   nature.
That   this   is   specifically   so   because,   sub­
section   (6)   of   Section   45   grants   discretionary
power   to   the   assessing   officer   to   impose
penalty.   It   is   submitted   that   in   case   the
presumption   is   rebutted   by   the   dealer,   the
assessing   officer   will   not   impose   penalty   in
exercise of its discretionary power. Reliance is
placed upon the decision of this Court in the
case   of   State   of   M.P.   Vs.   Bharat   Heavy
Electricals;   (1997)   7   SCC   1 .   That   therefore,
Section   45(5)   of   the   Act,   1969,   merely   shifts
the   burden   of   proof,   however,   the
presumption   contained   in   the   Section   is   not
irrebuttable. 
4.10 As   regards   the   other   preposition   that   for   the
purpose   of   imposition   of   penalty   under
Page  27  of  64

Section 45(6),  mens rea , etc., must be proved,
it is vehemently submitted that it is a general
principle   of   law,   based   on   the   maxim   of
“ actus non facit reum mens sit rea ” that an act
does   not   make   a   man   guilty,   unless   it   can
also be shown that he was aware that he was
doing   wrong.   It   is   submitted   that   legislative
attitude   towards   the   concept   of   mens   rea   in
tax   laws   and   the   judicial   practice   in
emphasising   its   importance   therefore,
deserves   careful   consideration.   Learned
counsel   appearing   on   behalf   of   the
respondent   ­   assessee   has   also   relied   upon
the   decision   of   this   Court   in   the   cases   of
Hindustan   Steel   Ltd.   (supra) ;   Cement
Marketing   Co.   of   India   Ltd.   Vs.   Assistant
Commissioner   of   Sales   Tax,   Indore   and
Page  28  of  64

Ors.;   1980   (6)   ELT   295   (S.C.)   and
Commissioner   of   Central   Excise,
Chandigarh   (supra)   in   support   of   his   above
submissions   to   the   effect   that   before   levy   of
penalty   and   interest   mens   rea   has   to   be
proved by the department. 
4.11 It is further submitted by the learned counsel
appearing   on   behalf   of   the   respondent   –
assessee   that   Section   45(6)   of   the   Act,   1969,
provides   for   imposition   of   penalty   “not
exceeding”   one   and   one­half   times   the
differential   tax   demand.   That   employment   of
the   term   “not   exceeding”   postulates   that   the
authority   has   been   conferred   with   a
discretionary   jurisdiction   to   levy   penalty.   By
necessary   implication,   the   authority   may   not
levy penalty. If it has the discretion not to levy
Page  29  of  64

penalty,   existence   of   mens   rea   becomes
relevant   factor.   Relance   is   placed   upon   the
decision of the Gujarat High Court in the case
of  Jyoti Overseas P. Ltd. (supra) . 
4.12 Learned   counsel   appearing   on   behalf   of   the
assessee has submitted that on the aforesaid
grounds   the   interest   levied   under   Section
47(4A) of the Act, 1969, is also bad in law and
therefore, the High Court has rightly set aside
the same.
4.13 Making   the   above   submissions,   it   is   prayed
that the present appeal be dismissed.           
      
5. We  have  heard learned counsel appearing  on
behalf of the respective parties at length.
6. At   the   outset,   it   is   required   to   be   noted   that
the   assessing   officer   levied   the   penalty   and
interest   against   the   respondent   –   assessee
under   the   provisions   of   Section   45(6)   and
Page  30  of  64

Section   47(4A)   of   the   Act,   1969,   which   levy
came   to   be   confirmed   by   the   learned
Tribunal.   However,   by   the   impugned
judgment   and   order,   the   High   Court   has   set
aside the levy  of penalty  and interest, mainly
on   the   grounds   that   the   tax   imposed   had
already   been   paid   and   that   the   assessee   was
under a bonafide opinion as to its tax liability
and   was   following   expert   advice   and
therefore,   paid   the   tax   at   the   rate   of   2%.
Therefore,   according   to   the   High   Court,
though   not   specifically   mentioned/opined,
there   was   no   mens   rea   on   the   part   of   the
respondent   –   assessee   in   not   paying   the   tax
at the rate of 2% and in making the payment
of the tax at 2%. Therefore, the short question
which is posed for consideration of this Court
Page  31  of  64

is   whether   while   imposing/levying   penalty
and interest leviable under Section 45(6) and
Section 47(4A) of the Act, 1969,   mens  rea   on
the   part   of   the   assessee   is   required   to   be
considered.
6.1 While   appreciating   the   submissions   made   on
behalf  of the  respective parties  on  the  levy  of
the   penalty   and   interest   under   Section   45(6)
and   Section   47(4A)   of   the   Act,   the   relevant
sections i.e., Section 45 and Section 47(4A) of
the   Act,   1969   are   required   to   be   referred   to,
which are as under: ­
“45.   Imposition   of   penalty   in   certain
cases and bar to prosecution. 
(1) Where any dealer or Commission
agent   becomes   liable   to   pay
purchase   tax   under   the
provisions   of   sub­section   (1)   or
(2)   of   section   16,   then,   the
Commissioner   may   impose   on
him,   in   addition   to   any   tax
payable –
Page  32  of  64

(a) if   he   has   included   the   purchase
price of the goods in his turnover
of   purchase   as   required   by   sub­
section   (1)   of   section   16,   a   sum
by   way   of   penalty   not   exceeding
half the amount of tax, and
(b) if   he   has   not   so   included   the
purchase   price   as   aforesaid,   a
sum   by   way   of   penalty   not
exceeding   twice   the   amount   of
tax.
(2) If it appears to the Commissioner
that such dealer ­
(a) has   failed   to   apply   for
registration   as   required   by
section 29, or
(b) has   without   reasonable   cause,
failed   to   comply   with   the   notice
under section [41, 44 or 67] or
(c) has   concealed   the   particulars   of
any   transaction   or   deliberately
furnished   inaccurate   particulars
of any transaction liable to tax, 
the   Commissioner   may   impose
upon   the   dealer   by   way   of
penalty,   in   addition   to   any   tax
assessed   under   section   41   or
reassessed   under   section   44   or
revised   under   section   67   a   sum
not   exceeding   one   and   one­half
times the amount of the tax.
(3) If   a   dealer   fails   to   present   his
licence,   recognition   or   as   the
Page  33  of  64

case   may   be,   permit   for
cancellation   as   required   by
section   35   or   36,   the
Commissioner   may   impose   upon
the   dealer   by   way   of   penalty,   a
sum not exceeding two thousand
rupees.
(3A)  If   a   dealer   fails   to   furnish   any
declaration   or   any   return   by   the
prescribed   date   as   required
under   sub­section   (1)   of   section
40,   the   commissioner   shall
impose  upon  such  dealer   by  way
of penalty for each declaration or
return,   a   sum   of   two   hundred
rupees for every month or part of
a  month  comprised  in  the  period
commencing   from   the   day
immediately   after   the   expiry   of
prescribed   date   and   ending   on
the   date   on   which   a   declaration
or return is furnished.  
(4) If a dealer fails without sufficient
cause   to   furnish   any   declaration
or   any   return   [as   required   by
proviso to sub­section (1) or sub­
section   (2)   of   section   40],   the
Commissioner   may   impose   upon
the   dealer   by   way   of   penalty,   a
sum not exceeding two thousand
rupees.
(5) Where in the case of a dealer the
amount of tax ­
(a) assessed for any period under
section 41 or 50; or
Page  34  of  64

(b)   reassessed   for   any   period
under section 44; 
exceeds   the   amount   of   tax
already   paid   under   sub­section
(1), (2) or (3) of section 47 by the
dealer   in   respect   of   such   period
by more than twenty five per cent
of the amount of tax so paid, the
dealer   shall   be   deemed   to   have
failed to pay the tax to the extent
of   the   difference   between   the
amount   so   assessed   or
reassessed   as   aforesaid   and   the
amount paid.
(6) [Where   under   sub­section   (5)   a
dealer is deemed to have failed to
pay   the   tax   to   the   extent
mentioned   in   the   said   sub­
section,   there   shall   be   levied   on
such   dealer   a   penalty   not
exceeding one and one­half times
the   difference   referred   to   in   sub­
section (5).]”
XXX XXX  XXX
“47.   Payment   of   Tax   and   Deferred
Payment of Tax, etc.
(4A)   (a)  Where   a   dealer   does   not
pay   the   amount   of   tax
within   the   time   prescribed
for its payment under sub­
section   (1),   (2)   or   (3),   then
there shall be paid by such
dealer   for   the   period
commencing on the date of
expiry   of   the   aforesaid
Page  35  of  64

prescribed time and ending
on   the   date   of   payment   of
the   amount   of   tax,   simple
interest,   at   the   rate   of
[eighteen   per   cent],   per
annum   on   the   amount   of
tax   not   so   paid   or   on   any
less   amount   thereof
remaining   unpaid   during
such period.
(b)  Where   the   amount   of   tax
assessed   or   reassessed   for
any   period,   under   section
41 or section 44, subject to
revision   if   any   under
section   67,   exceeds   the
amount of tax already paid
by  a  dealer   for  that  period,
there shall be paid by such
dealer,   for   the   period
commencing   from   the   date
of   expiry   of   the   time
prescribed   for   payment   of
tax   under   sub­section   (1),
(2)   or   (3)   and   ending   on
date   of   order   of
assessment,   reassessment
or,   as   the   case   may   be,
revision,   simple   interest   at
the   rate   of   [eighteen   per
cent]   per   annum   on   the
amount   of   tax   not   so   paid
or   on   any   less   amount
thereof   remaining   unpaid
during such period.”
6.2 On   a   fair   reading   of   Section   45   of   the   Act,   it
can   be   seen   that   as   per   sub­section   (2)   of
Page  36  of  64

Section   45   of   the   Act,   1969,   penalty   is
leviable if it appears to the Commissioner that
a dealer has concealed the particulars of any
transaction   or   deliberately   furnished
inaccurate   particulars   of   any   transaction
liable to tax. In the present case, it cannot be
said   that   the   dealer   has   concealed   the
particulars   of   any   transaction   or   deliberately
furnished   inaccurate   particulars   of   any
transaction liable to tax. However, in so far as
penalty   leviable   under   sub­section   (6)   of
Section 45 of the Act, 1969 is concerned, the
penalty leviable under the said provision is as
such,   a   statutory   penalty   and   there   is   no
discretion vested with the Commissioner as to
whether   to   levy   the   penalty   leviable   under
sub­section (6) of Section 45 of the Act, 1969
or not. Sub­section (5) of Section 45 provides
Page  37  of  64

that in the case of a dealer where the amount
of tax assessed for any period under sections
41 or  50 or re­assessed for any  period under
Section 45 exceeds the amount of tax already
paid   by   the   dealer   in   respect   of   such   period
by   more   than   25%   of   the   amount   of   tax   so
paid,   the   dealer   shall   be   deemed   to   have
failed to pay the tax to the extent of difference
between   amount   so   assessed   or   re­assessed
as   aforesaid   and   the   amount   paid.
Considering   sub­section   (5)   of   Section   45   of
the   Act,   1969,   if   a   dealer   is   deemed   to   have
failed   to   pay   the   tax   to   the   extent   mentioned
in   sub­section   (5),   there   shall   be   levied   on
such   dealer   a   penalty   not   exceeding   one   and
one­half   times   the   difference   referred   to   in
sub­section   (5).   Under   the   circumstances,   to
Page  38  of  64

the   aforesaid   extent   and   on   the   difference   of
tax,   as   per   sub­section   (5)   of   Section   45,   the
respondent – assessee – dealer shall be liable
to   pay   the   penalty   as   mentioned   under   sub­
section (6) of Section 45.       
6.3 Section   45   confers   power   to   levy/impose
penalty   in   certain   cases.   In   certain   cases,
enumerated   in   Section   45   of   the   Act,   the
penalty   imposable   is   distinct   with   the
assessment   such   as   Section   45(1)(a)(b).
However,   in   so   far   as   penalty   imposable
under   Section   45(5)   and   45(6)   of   the   Act   is
concerned,   it   has   a   direct   bearing   or
connection  with  the  order   of  assessment  and
the   determination   of   the   tax   liability.   Sub­
section   (5)   of   Section   45   provides   that   where
in   the   case   of   a   dealer   the   amount   of   tax
assessed   for   any   period   under   Section   41   or
Page  39  of  64

50;   or   re­assessed   for   any   period   under
Section 44; exceeds the amount of tax already
paid   by   the   dealer   under   sub­section   (1),   (2)
or   (3)   of   Section   47   of   the   Act,   in   respect   of
such period by more than 25% of the amount
of   tax   so   paid,   the   dealer   shall   be   deemed   to
have failed to pay the tax to the extent of the
difference between the amount so assessed or
re­assessed   as   aforesaid   and   the   amount
paid.   Sub­section   (6)   of   Section   45   provides
that   where   under   sub­section   (5),   a   dealer   is
deemed   to   have   failed   to   pay   the   tax   to   the
extent   mentioned   in   the   said   sub­section,
there  shall  be levied on such dealer a penalty
not   exceeding   one   and   one­half   times   the
difference referred to in sub­section (5). Thus,
on   a   bare   reading   of   sub­sections   (5)   and   (6)
Page  40  of  64

of   Section   45,   it   is   evident   that   it   is   integral
part   of   the   assessment   that   the   penalty   be
levied on the difference of amount of tax paid
and amount of tax payable as per the order of
assessment or re­assessment as the case may
and   the   same   shall   be   automatic.   Therefore,
when the penalty on the difference of amount
of tax paid and tax payable is more than 25%
of   the   amount   of   tax   so   paid,   there   shall   be
automatic levy of penalty under Section 45(6)
of the Act. 
6.4 From the language of Section 45(6) of the Act,
it can be seen that the penalty leviable under
the  said provision  is a statutory  penalty. The
phrase used is “shall be levied.” The moment
it   is   found   that   a   dealer   is   deemed   to   have
failed   to   pay   the   tax   to   the   extent   mentioned
in sub­section (5) of Section 45, there shall be
Page  41  of  64

levied on such dealer a penalty not exceeding
one and one­half times the difference referred
to   in   sub­section   (5).   As   per   sub­section   (5),
where   in   the   case   of   a   dealer   the   amount   of
tax   assessed   or   re­assessed   exceeds   the
amount   of   tax   already   paid   by   the   dealer   in
respect   of   such   period   by   more   than   25%   of
the amount of tax so paid, the dealer shall be
deemed   to   have   failed   to   pay   the   tax   to   the
extent   of   the   difference   between   the   amount
so   assessed   or   re­assessed   and   the   amount
paid. Therefore, the moment it is found that a
dealer   is   to   be   deemed   to   have   failed   to   pay
the   tax   to   the   extent   mentioned   in   sub­
section (5), the penalty is automatic. Further,
there   is   no   discretion   with   the   assessing
officer   either   to   levy   or   not   to   levy   and/or   to
levy   any   penalty   lesser   than   what   is
Page  42  of  64

prescribed/mentioned   in   Section   45(6)   of   the
Act, 1969. In that view of the matter, there is
no   question   of   considering   any   mens   rea   on
the part of the assessee/dealer.
6.5 At this stage, a few decisions of this Court as
well   as   decisions   of   the   Gujarat   High   Court
(on   levy   of   penalty   and   interest   under   the
Gujarat   Sales   Tax   Act)   are   required   to   be
referred   to.   In   the   case   of   Dharamendra
Textile Processors   (supra)  after referring and
considering   another   decision   of   this   Court   in
the  case of   Shriram   Mutual   Fund   (supra) , it
is observed and held that when the term used
“shall   be  leviable,”   the  adjudicating   authority
will have no discretion. 
6.6 In  the case of   Shriram  Mutual   Fund   (supra)
while   dealing   and/or   considering   similar
Page  43  of  64

provision   under   the   SEBI   Act,   it   is   observed
and   held   that   mens   rea   is   not   an   essential
ingredient   for  contravention  of   the   provisions
of   a   civil   Act.   While   interpreting   the   similar
provision  of   SEBI   Act,   it   is   observed   that   the
penalty  is attracted as soon as contravention
of   the   statutory   obligations   as   contemplated
by   the   Act   is   established   and,   therefore,   the
intention   of   the   parties   committing   such
violation   becomes   immaterial.   In   the   case
before   this   Court,   the   Tribunal   relied   on   the
judgment in the case of  Hindustan Steel Ltd.
(supra).   However,   this   Court   did   not   agree
with   the   view   taken   by   the   Tribunal   relying
upon   the   decision   in   the   case   of   Hindustan
Steel   Ltd.   (supra)   by   observing   that   it
pertained   to   criminal/quasi   criminal
Page  44  of  64

proceedings.   This   Court   observed   that   the
decision in the case of   Hindustan  Steel  Ltd.
(supra)   shall  not have  any  application  as the
same   relates   to   imposition   of   civil   liabilities
under  the  SEBI   Act  and  the   Regulations   and
the   proceedings   under   the   said   Act   are   not
criminal/quasi­criminal   proceedings.   In
paragraphs 34 and 35, it is observed and held
as under: ­       
“34.   The   Tribunal   has   erroneously
relied   on   the   judgment   in   Hindustan
Steel   Ltd.   v.   State   of   Orissa   [(1969)   2
SCC   627   :   AIR   1970   SC   253]   which
pertained   to   criminal/quasi­criminal
proceedings.   That   Section   25   of   the
Orissa   Sales   Tax   Act   which   was   in
question   in   the   said   case   imposed   a
punishment   of   imprisonment   up   to   six
months and fine for the offences under
the   Act.   The   said   case   has   no
application   in   the   present   case   which
relates   to   imposition   of   civil   liabilities
under   the   SEBI   Act   and   the
Regulations   and   is   not   a
criminal/quasi­criminal proceeding.
35.   In   our   considered   opinion,   penalty
is   attracted   as   soon   as   the
Page  45  of  64

contravention   of   the   statutory
obligation   as   contemplated   by   the   Act
and  the Regulations  is  established  and
hence   the   intention   of   the   parties
committing   such   violation   becomes
wholly   irrelevant.   A   breach   of   civil
obligation which attracts penalty in the
nature   of   fine   under   the   provisions   of
the   Act   and   the   Regulations   would
immediately   attract   the   levy   of   penalty
irrespective   of   the   fact   whether
contravention   must   be   made   by   the
defaulter   with   guilty   intention   or   not.
We   also   further   held   that   unless   the
language   of   the   statute   indicates   the
need  to establish the presence  of   mens
rea ,   it   is   wholly   unnecessary   to
ascertain whether such a violation was
intentional or not. On a careful perusal
of   Section   15­D( b )   and   Section   15­E   of
the Act, there is nothing which requires
that   mens   rea   must   be   proved   before
penalty   can   be   imposed   under   these
provisions.   Hence   once   the
contravention   is   established   then   the
penalty is to follow.”
6.7 In the case of  Guljag Industries (supra)  while
considering   Sections   78(2)   and   78(5)   of   the
Rajasthan   Sales   Tax   Act,   1994   which
provided for penalty equal to thirty percent of
the   value   of   goods   for   possession   or
movement of goods, whether seized or not, in
Page  46  of  64

violation   of   the   provisions   of   Clause   (a)   of
sub­section   (2)   or   for   submission   of   false   or
forged   documents   or   declaration,   this   Court
in paragraph 9 observed as under: ­ 
“ 9.   Existence   of   mens   rea   is   an
essential   ingredient   of   an   offence.
However,  it   is  a   rule   of  construction.   If
there is a conflict between the common
law   and   the   statute   law,   one   has   to
construe   a   statute   in   conformity   with
the common law. However, if it is plain
from the statute that it intends to alter
the   course   of   the   common   law,   then
that plain meaning should be accepted.
Existence   of   mens   rea   is   an   essential
ingredient   in   every   offence;   but   that
presumption   is   liable   to   be   displaced
either   by   the   words   of   the   statute
creating   the   offence   or   by   the   subject­
matter   with   which   it   deals.   A   penalty
imposed for a tax delinquency is a civil
obligation,   remedial   and   coercive   in   its
nature,   and   is   different   from   the
penalty for a crime. “
 
That   thereafter,   after   following   the
decision in the case of  Shriram Mutual Fund
(supra),   this   Court   observed   and   held   that
mens   rea   is   not   an   essential   ingredient   for
contravention   of   the   provisions   of   a   civil   act.
Page  47  of  64

It is further observed that the breach of a civil
obligation   which   attracts   penalty   under   the
Act   would   immediately   attract   the   levy   of
penalty   irrespective   of   the   fact   whether   the
contravention was made by the defaulter with
any   guilty   intention.   In   paragraph   30,   it   is
observed and held as under: ­
“30.   In   Chairman,   SEBI   v.   Shriram
Mutual   Fund   [(2006)   5   SCC   361]   this
Court   found   on   facts   that   a   mutual
fund   had   violated   the   SEBI   (Mutual
Funds)   Regulations,   1996.   Under   the
said Regulations there was a restriction
placed   on   the   mutual   fund   on
purchasing   or   selling   shares   through
any broker associated with the sponsor
of   the   mutual   fund   beyond   a   specified
limit.   It   is   in   this   context   that   the
Division   Bench   of   this   Court   held   that
mens   rea   was   not   an   essential
ingredient   for   contravention   of   the
provisions of a civil act. The breach of a
civil   obligation   which   attracts   penalty
under   the   Act   would   immediately
attract   the   levy   of   penalty   irrespective
of   the   fact   whether   the   contravention
was   made   by   the   defaulter   with   any
guilty   intention.   It   was   further   held
that   unless   the   language   of   the
provision   intends   the  need   to  establish
mens   rea ,   it   is   generally   sufficient   to
prove   the   default/contravention   in
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complying   with   the   statute.   In   the
present   case   also   the   statute   provides
for   a   hearing.   However,   that   hearing   is
only   to   find   out   whether   the   assessee
has   contravened   Section   78(2)   and   not
to   find   out   evasion   of   tax   which
function is assigned not to the officer at
the   check­post   but   to   the   AO   in
assessment   proceedings.   In   the
circumstances,   we   are   of   the   view   that
mens rea   is not an essential element in
the   matter   of   imposition   of   penalty
under Section 78(5).”
6.8 In   the   case   of   Competition   Commission   of
India   (supra)   while   considering   Section   43A
of   the   Competition   Act,   2002   which   provides
for a penalty, it is observed in paragraphs 34
to 37 as under: ­
“34.   If   the   ultimate   objective   test   is
applied,   it   is   apparent   that   market
purchases   were   within   view   of   the
scheme   that   was   framed.   As   such   the
subsequent   change   of   law   also   did   not
come   to   the   rescue   of   the   respondents
considering   the   substance   of   the
transaction.   The   market   purchases
were   part   of   the   same   transaction   of
the combination.
35.   Lastly,   the   submission   raised   that
there were no mala fides on the part of
the   respondent   as   such   penalty   could
not   have  been imposed.  We  are  unable
Page  49  of  64

to   accept   the   submission.   The   mens
rea   assumes   importance   in   case   of
criminal   and   quasi­criminal   liability.
For   the   imposition   of   penalty   under
Section   43­A,   the   action   may   not   be
mala   fide   in   case   there   is   a   breach   of
the statutory provisions of the civil law,
penalty   is   attracted   simpliciter   on   its
violation. The imposition of penalty was
permissible and it was rightly imposed.
There   was   no   requirement   of   mens   rea
under   Section   43­A   or   intentional
breach as an essential element  for  levy
of penalty. Section 43­A of the Act does
not   use  the   expression   “the  failure   has
to   be   wilful   or   mala   fide”   for   the
purpose   of   imposition   of   penalty.   The
breach   of   the   provision   is   punishable
and   considering   the   nature   of   the
breach,   it   is   open   to   impose   the
penalty.
36.   In   SEBI   v.   Shriram   Mutual
Fund   [SEBI   v.   Shriram   Mutual   Fund,
(2006)   5   SCC   361]   ,   with   respect   to
imposition   of   penalty   on   failure   to
comply   with   the   civil   obligation   this
Court   has   laid   down   thus:   (SCC   pp.
371 & 376, paras 29 & 35)
“29.   …   In   our   opinion,   mens   rea
is   not   an   essential   ingredient   for
contravention of the provisions of a civil
Act.   In   our   view,   the   penalty   is
attracted   as   soon   as   the   contravention
of   the   statutory   obligations   as
contemplated   by   the   Act   is   established
and,   therefore,   the   intention   of   the
parties   committing   such   violation
becomes   immaterial.   In   other   words,
the   breach   of   a   civil   obligation   which
Page  50  of  64

attracts penalty under the provisions of
an   Act   would   immediately   attract   the
levy   of   penalty   irrespective   of   the   fact
whether   the   contravention   was   made
by   the   defaulter   with   any   guilty
intention   or   not.   This   apart   [that]
unless   the   language   of   the   statute
indicates   the   need   to   establish   the
element   of   mens   rea ,   it   is   generally
sufficient   to   prove   that   a   default   in
complying   with   the   statute   has
occurred.   …   the   penalty   has   to   follow
and   only   the   quantum   of   penalty   is
discretionary.
***
35.   In   our   considered   opinion,   a
penalty   is   attracted   as   soon   as   the
contravention   of   the   statutory
obligation   as   contemplated   by   the   Act
and  the Regulations  is  established  and
hence   intention   of   the   parties
committing   such   violation   becomes
wholly   irrelevant.   …   We   also   further
hold   that   unless   the   language   of   the
statute   indicates   the   need   to   establish
the   presence   of   mens   rea ,   it   is   wholly
unnecessary to ascertain whether such
a violation was intentional or not. On a
careful   perusal   of   Section   15­D(b)   and
Section   15­E   of   the   Act,   there   is
nothing   which   requires   that   mens   rea
must be proved before a penalty can be
imposed under these provisions. Hence
once   the   contravention   is   established
then the penalty is to follow.”
37.   The   imposition   of   penalty   under
Section 43­A is on account of breach of
a   civil   obligation,   and   the   proceedings
are neither criminal nor quasi­criminal;
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the   penalty   has   to   follow.   Only
discretion   in   the   provision   under
Section   43­A   is   with   respect   to
quantum of penalty.”
    
6.9 The Gujarat High Court while considering the
very   provision   and   penalty   and   interest
imposed   under   Section   45(6)   and   Section
47(4A)   of   the   Act,   1969,   has   taken   a
consistent view in the cases of  Riddhi Siddhi
Gluco Biols Ltd. (supra)  and  Oil and Natural
Gas   Corporation   Limited   (supra)   that   the
penalty leviable under Section 45(6) of the Act
is   a   statutory   and   mandatory   penalty   and
there   is   no   question   of   any   mens   rea   on   the
part   of   the   assessee   to   be   considered.   In   the
aforesaid   decisions,   it   is   observed   and   held
that   levy   of   penalty   is   automatic   on   the
eventualities   occurring   under   sub­section   (5)
of Section 45 of the Act, 1969. 
Page  52  of  64

6.10 In   the   recent   decision   in   the   case   of   Arcelor
Mittal   Nippon   Steel   India   Limited   (supra) ,
while   dealing   with   the   very   provision   of
Section 45 of the Act, 1969, it is observed and
held in para 23 and 23.1 as under: ­ 
“23.   Now,   so   far   as   the   levy   of
penalty   is   concerned,   it   is   to   be
noted   that   the   penalty   is   leviable
under   Section   45   and   such   a
penalty   is   leviable   under   sub­
sections   (5)   and   (6)   of   Section   45   of
the   Act,   1969   and   the   penalty   is
leviable on purchase tax assessed. It
provides   that  if   the   difference   of   tax
paid   and   tax   leviable/assessed   is
more   than   twenty­five   percent,   in
that   case,   the   dealer   shall   be
deemed to have failed to pay the tax
to   the   extent   of   the   difference
between the amount so assessed/re­
assessed   and   the   amount   paid   and,
in that case, there shall be levied on
such dealer  a penalty  not extending
one   and   one­half   times   the
difference   as   per   sub­section   (5).
Therefore,   there   being   difference   of
more   than   twenty   five   percent,
penalty to  the aforesaid extent shall
be   leviable.   This   is   a   clear   case   of
false and wrong claim of exemption,
as   the   exempted   goods   were
Page  53  of  64

transferred   to   a   third   person   and
used  in an  ‘ineligible’  industry.  This
is   a   case   of   deliberate   violation   and
evil doing.
23.1   In   the   present   case,   as   the
difference   between   total   tax   paid
and   the   purchase   tax   is   more   than
twenty­five   percent,   the   respondent
is   deemed   to   have   failed   to   pay   the
tax as per sub­section (5) of Section
45   and,   therefore,   liable   to   pay   the
penalty   not   exceeding   one   and   one­
half   times.   The   words   used   in   sub­
section   (6)   of   Section   45   is   “there
shall   be   levied   on   such   dealer   a
penalty   not   exceeding   one   and   one­
half   times   the   difference”.   As   noted
above,   in   the   present   case,   the
modus operandi  which was adopted
by   the   respondent   ­   Essar   Steel
warrants a penalty. Though, the raw
material was required to be used by
itself   for   the   manufacture   of   their
goods,   after   availing   the   exemption
as eligible unit and instead of using
the   same   for   itself/himself,   the   ESL
sold   the   raw   materials   to   an
‘ineligible’   entity   ­   EPL,   who   used   it
for   manufacture   of   its   own   goods   ­
generating   the   electricity,   which
again came to be sold to ESL under
the power purchase agreement.”
6.11 Even   otherwise,   the   word   used   in   Section
45(6)   is   “shall   be   levied”.   The   dealer   shall   be
Page  54  of  64

liable   to   pay   the   penalty   not   exceeding   one
and one­half times of the difference of the tax
as mentioned in sub­section (5) of Section 45
of   the   Act,   1969.   The   language   used   in
Section   45   is   precise,   plain   and
unambiguous. The intention of the legislature
is   very   clear   and   unambiguous   that   the
moment   any   eventuality   as   mentioned   in
Section   45(5)   occurs,   the   penalty   shall   be
leviable   as   mentioned   in   sub­section   (6)   of
Section   45.   No   other   word   like   mens   rea
and/or   satisfaction   of   the   assessing   officer
and/or other language is used like in Section
11AC   of   the   Central   Excise   Act.   It   is   a   well
settled principle in law that the Court cannot
read   anything   into   a   statutory   provision
which is plain and unambiguous. A statute is
Page  55  of  64

an   edict   of   the   legislature.   The   language
employed   in   a   statute   is   the   determinative
factor   of   legislative   intent.   As   per   the   settled
position of law, the intention of the legislature
is primarily to be gathered from the language
used,   which   means   that   attention   should   be
paid   to   what   has   been   said   as   also   to   what
has not been said. The courts cannot aid the
legislatures' defective phrasing of an Act; they
cannot   add   or   mend,   and   by   construction
make up deficiencies which are left there.  
6.12 Under   the   circumstances,   on   strict
interpretation of Section 45 and Section 47 of
the   Act,   1969,   the   only   conclusion   would   be
that   the   penalty   and   interest   leviable   under
Section   45   and   47(4A)   of   the   Act,   1969   are
statutory   and   mandatory   and   there   is   no
discretion   vested   in   the
Page  56  of  64

Commissioner/Assessing   Officer   to   levy   or
not to levy the penalty and interest other than
as mentioned in Section 45(6) and Section 47
of the Act, 1969. It is needless to observe that
such an interpretation has been made having
regard   to   the   tenor   of   Sections   45   and   47   of
the Act, 1969 and the language used therein. 
6.13 In   so   far   as   the   decisions   relied   upon   by   the
learned   counsel   appearing   on   behalf   of   the
respondent   –   assessee   –   dealer,   referred   to
hereinabove,   are   concerned,   none   of   the
decisions   shall   be   applicable   to   the   facts   of
the   case   at   hand,   while   dealing   with   Section
45   and   Section   47   of   the   Act,   1969.   The
words/language   of   the   relevant   provisions
that   fell   for   consideration   in   the   decisions
relied   upon   on   behalf   of   the   respondent   is
altogether different from the language used in
Page  57  of  64

Section 45 and Section 47 of the Act, 1969. In
the case of  Dharamendra Textile Processors
(supra) ,   this   Court   was   considering   Section
11AC   of   the   Central   Excise   Act.   In   Section
11AC, the words used are “fraud, collusion or
any   wilful   misrepresentation   or   any   wilful
misstatement   or   suppression   of   facts”   and
“intent   to   evade   payment   of   duty.”   In   that
view of  the  matter, the   mens  rea   will  play   an
important   role.   Therefore,   the   said   decision
shall   not   be   applicable   while   considering
Section 45 and Section 47 of the Act, 1969. A
similar   decision   in   the   case   of   Pepsi   Foods
Ltd   (supra)   also   shall   not   be   applicable
and/or of any assistance to the respondent –
assessee – dealer. 
Page  58  of  64

6.14 In so far as the submissions on behalf of the
respondent   –   dealer   –   assessee   that   as   such
the dealer shall not be liable to pay the tax at
the rate of 12% and that it was incompetence
on   the   part   of   the   authority   to   prove   the
difference   of   more   than   25%   and   that   the
concession   was   wrongly   given   by   the   learned
Senior   Advocate   appearing   on   behalf   of   the
respondent   –   assessee   –   dealer   before   the
High Court are concerned, at the outset, it is
required to be noted that a conscious decision
was   taken   by   the   learned   Senior   Advocate
appearing   on   behalf   of   the   dealer,   who
appeared   before   the   High   Court   and
therefore, he did not press the issue/question
on   the   liability   to   pay   the   tax   at   the   rate   of
12% was wrongly given. It is to be noted that
the   respondent   –   dealer   was   represented
Page  59  of  64

through   a   very   senior   advocate   before   the
High   Court.   Therefore,   it   cannot   be   said   that
the   concession   was   wrongly   given.   While
referring   the   submissions   made   by   the
learned Senior Advocate, appearing on behalf
of   the   respondent   –   assessee   –   dealer,   the
High Court has recorded as under: ­ 
“4.  Learned   Senior   Counsel   Mr.   S
N   Shel   at,   appearing   with   Mr.H   A
Dave,   learned   Advocate   for   the
appellant   has   fairly   conceded   that
looking   to   the   fact   that   the
respondent   has   passed   the
assessment   order   on   the   basis   of
material   available   with   it,   they   were
required to pay the tax on the basis
of   12%   and   that   has   been   paid   by
the   appellant   since   the   opinion   of
the expert was turned out.”
It   is   not   true   that   the   learned   Senior
Advocate,   appearing   on   behalf   of   the
respondent   –   assessee   –   dealer,   was
considering  the  decision  of the  in  the case of
Brooke Bond India Limited (supra) . It was a
Page  60  of  64

conscious   decision   taken   not   to   press   into
service   the   issue   No.   1   and   2,   that   is   with
respect   to   the   liability   to   pay   the   tax   at   the
rate   of   12%.   Therefore,   the   decision   relied
upon   by   the   learned   counsel   appearing   on
behalf   of   the   respondent   –   assessee   on   the
concession   given   by   the   learned   Senior
Advocate,   appearing   on   behalf   of   the
respondent – assessee before the High Court,
would   not   be   applicable   to   the   facts   of   the
case on hand. 
6.15 In so far as the reliance placed by the learned
counsel   on   behalf   of   the   respondent   –   dealer
on   the   decision   of   this   Court   in   the   case   of
Hindustan   Steel   Ltd.   (supra)   is   concerned,
at   the   outset,   it   is   required   to   be   noted   that
the   learned   Tribunal   specifically   found   that
there   was   nothing   on   record   to   prove   that
Page  61  of  64

there   was   in   fact   a   bonafide   belief   of   the
respondent   herein,   that   it   would   be   required
to   pay   tax   at   2%   only.   As   observed
hereinabove   and   on   plain   reading   of   Section
45   and   Section   47   of   the   Act,   1969   and   as
observed   hereinabove,   on   the   eventualities
occurring under sub­section (5) of Section 45,
there   shall   be   levied   penalty   mentioned   in
sub­section (6) of Section 45 and the liability
to   pay   the   interest   is   incurred   as   mentioned
in   Section   47(4A).   The   impugned   judgment
and   order   passed   by   the   High   Court   on   the
grounds   that   the   amount   of   tax   has   already
been   paid   by   the   assessee   –   dealer;   that   the
assessee   –   dealer   was   under   the   bonafide
belief   that   it   was   liable   to   pay   the   tax   at   the
rate   of   2%,   is   unsustainable.   None   of   the
aforesaid   grounds   would   justify   deletion   of
Page  62  of  64

the   penalty   and   interest   leviable/payable
under Section 45(6) and Section 47(4A) of the
Act,   1969.   As   observed   hereinabove,   in   the
case   of   Shriram   Mutual   Fund   (supra),   this
Court   distinguished   the   decision   in   the   case
of  Hindustan Steel Ltd. (supra)  and even set
aside the order passed by the Tribunal which
was   relying   upon   the   decision   in   case   of
Hindustan Steel Ltd. (supra) .      
7. In   view   of   the   above   and   for   the   reasons
stated   above,   the   present   appeal   succeeds.
The impugned judgment and order passed by
the   High   court   is   hereby   quashed   and   set
aside.   The   order(s)   passed   by   the   Assessing
Officer   confirmed   up   to   the   Tribunal   to   levy
penalty  and  interest  under   Section   45(6)  and
Section   47(4A)   of   the   Act,   1969,   are   hereby
Page  63  of  64

restored.   Present   appeal   is   accordingly
allowed.   In   the   facts   of   the   case,   there   shall
be no order as to costs.   
       
………………………………….J.
[M.R. SHAH]
………………………………….J.
[B.V. NAGARATHNA]
NEW DELHI;
APRIL 17, 2023
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