1. The case of the petitioner is that it is a Proprietary Firm engaged in the business of transportation of goods. The petitioner was engaged by one Pioma Industries at Gujarat to transport its goods from Kalol in Gujarat to Indore (Madhya Pradesh) where Pioma Industries has its depot. The goods involved are Rasna Soft Drink Concentrates. The petitioner loaded the goods in two trucks bearing No. GJ-1-TT-5400 and GJ-1-V-5368 from the factory at Kalol on 09.04.2003. The documents were also accompanying the goods in the vehicles. Both the vehicles were stopped at the Commercial Tax Check Post, Pitol, District Jhabua on 10.04.2003. The documents were demanded and the drivers produced the relevant documents before the Check Post Officer. With regard to the value of goods, the respondent No.2, namely, the Commercial Tax Officer calculated the value according to the Maximum Retail Price (MRP) of the goods, which were printed on the packets of different varieties. It was found that the total value of goods according to MRP being transported was 3.25 times the value according to the stock transfer invoice. The statement of the driver was recorded and goods were seized along with the trucks. The driver was asked to submit his explanation for the abnormal difference in the value of the goods. The consignor – Pioma Industries explained the position and indicated that the goods pass through 4 to 5 stages through registered dealers to reach the consumer finally and it is only at that stage the goods are sold at MRP rates. Therefore, there is a difference in the stock transfer price. Being dissatisfied with the explanation, a notice dated 10.04.2003 in Form-76 under Section 45-A of the Commercial Tax Act, 1994 was issued in respect of the goods being carried out in each truck. The notice indicated that the goods being carried by truck No. GJ-1-TT-5400 were under-valued to the tune of Rs.3,68,113/- and in respect of goods being carried by truck No.GJ-1-V-5368 were under-valued to the tune of Rs.5,05,849/- on which the tax was calculated @ 9.2%. The petitioner was asked to show cause as to why a penalty equal to 10 times of the said amount should not be levied upon him. He submitted his reply. Being dissatisfied with the same, an order was passed on 25.04.2003 in Penalty Case No.7 of 2003 imposing a penalty of Rs.3,38,660/- in respect of truck No.GJ-1-TT-5400 and in Penalty Case No.8 of 2003 imposing a penalty of Rs.4,65,380/- in respect of goods being transported by truck No.GJ-1-V-5368. Aggrieved by the same, a revision was filed under Section 62(1)(b) of the Commercial Tax Act before the Deputy Commissioner of Commercial Tax Act, Indore. The respondent No.2 rejected both the revisions by a common order dated 10.02.2004 passed in Revision Nos.207 of 2003 and 208 of 2003, however, the penalty was reduced by Rs.48,014/- in respect of the goods carried by truck No.GJ-1-TT-5400 and reduced by an extent of Rs.65,980/- in respect of the goods carried by truck No.GJ-1-V-5368. Questioning these impugned orders, the instant petition is filed.

2. Shri Pradeep Choudhary, learned senior counsel appearing for the petitioner’s counsel contends that the orders passed by the authorities are erroneous and liable to be set aside. It is contended that the goods being sold by Pioma Industries – a registered dealer in Madhya Pradesh would pass through four registered dealers to ultimately reach the retailers and thereafter sell the goods to the consumer at MRP rates. The rates at every stage are fixed. It was explained that the tax is payable @ 9.2% by Pioma Industries under Section 9 and by subsequent registered dealers at the same rate under Section 9-B of the Commercial Tax Act on the difference amount of resale price of each registered dealer and the sale price of the goods in the hand of the selling registered dealer from whom they have purchased. It was clearly indicated that the price at which the goods are sold by each registered dealer, who is liable to pay tax. Thus, Pioma Industries pays tax @ 9.2% under Section 9 and the subsequent registered dealer pays tax at the same rate under Section 9-B of the Commercial Tax Act. Furthermore, similar goods were transported by Pioma Industries on the earlier occasion and in none of those occasions such an objection was raised by the respondents. Therefore, imposition of the penalty by the respondents is uncalled for. In support of his case, learned senior counsel has placed reliance on the judgment of the Hon’ble Supreme Court in the case of Shahnas Trading Co. and others vs. State of Kerala and others reported in Sales Tax Cases Vol. 127 2002 page 1; in the case of Mena Transport, Mumbai vs. Assistant Commissioner, Commercial Tax, Check Post, Sendhwa and others reported in (2013) 23 STJ 264(MP) passed by a Division Bench of this Court. Further reliance was placed on the Single Bench judgment of Gwalior Bench of this Court in the case of Cadbury India Ltd., Malanpur & Another vs. State of M.P. & others reported in (2007) 11 STJ 22(MP). Hence, it is stated that the petition be allowed by setting aside the impugned orders.

3. The same is disputed by the State through the return filed by them. It is their contention that under Sub-section (7) of Section 45-A of the Commercial Tax Act, in case the Check Post Officer finds that after searching the vehicle and verifying the declaration and other documents relating to such goods, the declaration filed in respect of such goods is false or incorrect, then they are liable for penalty. It is their case that two sets of invoices were prepared which were sought to be transferred by way of stock transfer to the branch in the State of Madhya Pradesh and Gujarat. As per the petitioner’s own showing in the representation (Annexure P-9) filed by it, it was stated that while the goods pass and exchange hands from the manufacturer and it reaches the consumer, there is a difference of approximately 60 to 70% in the price. That, when the goods start from the manufacturer and reaches the consumer there is an increase in price to the maximum extent of 60 to 70%, as shown in the said representation. Therefore, the data would clearly indicate that even as per the version of the petitioner the goods after addition of all expenses, profits and taxes can fetch an amount which is far less than what the MRP comes to. The same is more than double of the maximum as per the petitioner’s own version. Therefore, even based on the submissions made by the petitioner before the authorities, it is a clear case of under-valuation of the goods and accordingly the documents accompanied the vehicles are found to be incorrect regarding the value of the goods mentioned therein. Therefore, the proceedings initiated under Section 45- A are justified. That, there is no grievance of the petitioner so far as the procedure as contemplated under Section 45- A is concerned. The only reason assigned by the petitioner with regard to the taxes being paid at various stages is unacceptable. Hence, he pleads that the writ petition be dismissed.

4. Heard learned counsels.

5. The case of the petitioner is that after receipt of the goods they were transferred through a number of dealers, one after another, who are undoubtedly registered dealers for reaching the goods to the consumer, who pays the MRP for each product. That, there is a chain of dealers to whom the goods are routed one after another and every dealer who resells the goods pays VAT under Section 9-B of the Commercial Tax Act, therefore, the price of the goods shown in invoice being transported, no excise duty is payable on these goods. Therefore, in the column of excise duty the duty payable is shown as NIL. The price of the products also includes free offer pack for 60 cartons which includes not only the priced packets but also the free packets. After receipt of these goods they will be sold by Pioma Industries to M/s Rasna Enterprises Limited at Indore who is also a registered dealer. Thereafter, M/s Rasna Enterprises Limited will sell it to Citizen Marketing Pvt. Ltd, Indore, who will then sell it to various stockists, who in their turn, will sell it to the retailers. The price at which each dealer will sell the product to another dealer and the tax to be paid under Section 9 or under Section 9-B of the Commercial Tax Act, as applicable, is as follows:-

6. Therefore, it would be seen that the application of Section 45-A of the Commercial Tax Act while imposing penalty to the petitioner, in our considered view, may not be appropriate. The very question was considered by the Hon’ble Supreme Court in the judgment in the case of Shahnas Trading Company (supra) wherein the judgment of the High Court of Kerala in W.A. No.1065 of 1997 (S.B. Supari Centre vs. Assistant Commissioner (Assessment), Thrissur and Another) and connected cases passed on 10.09.1998 was approved. The Hon’ble Supreme Court in its judgment quoted the observations made by the High Court of Kerala in para 3 of its judgment in S.B. Supari Centre (supra), which reads as follows:-

“3. The submission of learned counsel for the appellants is that section 19-B of theis a self-contained code regarding valuation of the goods and that valuation of the goods can be done only under section 19-B of theand under no other provision. It is, therefore, urged before us by learned counsel for the appellants that valuation of the goods in transit cannot be determined by the check-post authority under section 29-A(2) of the. We are not at all impressed by the submission of learned counsel for the appellants. Section 19-B(1) of theoperates at the stage of assessment. Sub-section (1) of section 19-B clearly provides that if the assessing authority is satisfied that a dealer has, with a view to evade the payment of tax, shown in his accounts, sale or purchase of any goods at prices lower than the prevailing market price of such goods, it may estimate the value of each goods, on the basis of the prevailing market price and assess or reassess the dealer to the best of its judgment, after making such enquiry, as it may consider necessary and after affording the dealer a reasonable opportunity of being heard. Thus, section 19-B(1) of thecan be pressed into service by the assessing authority only at the stage of making assessment. Section 29-A(2) can be invoked by the check-post authority while the goods are in transit. Under sub-section (2) of section 29-A of the Act, goods can be detained if the check-post authority has reasons to suspect that there is an attempt to evade payment of the tax. If the check-post authority prima facie, believe from under-valuation of the goods that the same was done with a view to evade the payment of tax, the goods can be detained. Of course, it does not depend upon the ipse dixit of the check- post authority. It must be on cogent materials to come to the conclusion that there was an attempt to evade tax. The goods are to be detained not for under-valuation, but only when there was an attempt to evade the tax. From under-valuation of the goods, unless there is cogent explanation from the side of the owner of the goods, an inference can be drawn that under-valuation was done in the documents to evade the tax. No doubt, the owner of the goods can explain the under- valuation of the goods. The check-post authority is not supposed to decide conclusively as to what was the correct valuation of the goods. The power to detain the goods in transit can be exercised only when there is an attempt to evade the tax. If the check-post authority can draw a reasonable inference from under-valuation of the goods that there was an attempt to evade the tax, the goods can be detained under section 29-A(2) of the.”

7. So also in the case of Mena Transport, Mumbai (supra) it was held in para 22 and 23 as follows:-

“22. In the present case, the irregularity was detected when both the vehicles were checked. It is not in dispute in both the writ petitions that the declaration required under form Nos. 75 and 85 were not produced by the transporter when the goods were seized that being so, the check-post was well within his right in taking action. However, while taking action the competent authority of the check-post, and the revisional authority proceeded on the assumption that the declaration under Form No. 75 and 85 was not produced and the intention to facilitate evasion of tax was presumed due to non-production of this statutory form in the check- post. The presumption was drawn in the matter of evasion of tax without taking note of the circumstances that were existing in the present case. Neither the assessing authority in the check-post nor the revisional authority have considered this aspect of the matter before holding that there was intention to evade tax. The invoices and other documents produced by the transporter in the check-post do not indicate that any attempt was made to evade tax. It is not the case of the assessing authority or revisional authority that the documents produced at the time of checking showed any difference in the matter. Record indicates that all the material particulars and information which were required were available in the documents produced at the time of checking of the vehicle and no mala fides are proved or established and the nexus to the act of non-production of documents and the intention to evade tax is not proved. Under these circumstances, the question is - can penalty be imposed merely because some documents were not produced at the time of checking of the vehicle or because instead of declaration of Form No. 75, declaration of Form No. 85 was produced by the petitioner. In this regard, the principle laid down by the apex court in the case of Hindustan Steel Ltd. V. State of Orissa (2007) 10 STJ 207(SC), AIR 1970 SC 253 [LQ/SC/1969/257] may be considered. In paragraph 7 of the aforesaid judgment, the Supreme Court has held as under:

“…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 discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.

23. If the facts and circumstances of the present case are evaluated in the backdrop of the aforesaid principles laid down by the Supreme Court in the matter of imposition of penalty, it would be seen that in the present case, penalty has been imposed mechanically without any dishonest intention or malice or mens rea having been established or proved. The bona fide reason given by the company explaining the circumstances in the matter of non- availability of Form No. 75 is not at all considered by the authorities concerned while imposing the penalty. Imposition of penalty has penal consequence. Penalty is a measure of punishing a wrong doer and the discretion for imposing penalty has to be exercised judiciously after considering all the relevant facts and circumstances in a given case. Merely, because the law empowers an authority to impose penalty that by itself is not a reason for imposing penalty. Deliberate defiance of law, guilty conduct and dishonest intention are the necessary ingredients which should be available for imposing penalty. Merely, because some technical or venial breach of a statutory provision is established that by itself is not a reason for imposing penalty. In the present case the authorities have proceeded to impose penalty without taking note of all these factors. There is nothing on record to indicate that the act of the company or concerned transporter in the matter of non- production of Forms No. 75 was a deliberate and intentional act for the purpose of evasion of tax. On the contrary, the records indicates that all the necessary information which was required under the law was supplied during the time of verification at the check-post. Under these circumstances, it was incumbent upon the authorities concerned to examine the entire matter and find out if there was any intention to evade payment of tax. Before imposing penalty on the

petitioner a finding should have been recorded as to whether there was any intention on the part of the petitioner to evade tax as no such intention is either established or proved. On the contrary, as a matter of course, mechanically penalty is imposed merely on the ground that the statutory provisions are violated and a particular declarations form is not produced. Mere non-production of a document, i.e., Form No.75 in the facts and circumstances of the case does not establish any intention on the part of the company to evade tax. The lapse found established is a technical lapse unaccompanied by any mala fide or dishonest intention and therefore, can be classified as a bona fide mistake, and accordingly under such circumstances, imposition of penalty was not warranted.”

8. In the case of Cadbury India Ltd; Malanpur (supra), it was held in paras 8, 9 and 10 as follows:-

“8. As far as imposition of penalty is concerned, section 45-A of theprovides for establishment of check posts. Sub-section (7) therein contemplates that if the check post officer on searching of a vehicle finds that the goods notified are being transported without proper declaration or declaration filed in respect of goods is false or incorrect, either in respect of the kind of goods, or the quantity of goods transported, or the consignor or the consignee of the goods is shown to be a dealer registered under the, while the records available in his office do not show the existence of such a dealer, the officer may presume, until contrary is proved, that an attempt is being made to facilitate the evasion of tax. Under such a situation, the check post officer may seize the vehicle and goods and ask for particulars from the consignor or consignee of the goods and if the particulars are not given and if the check post officer is not satisfied, he has to record his finding along with reason and issue a show cause notice within fifteen days as to why penalty specified in the notice be not imposed. Penalty shall be equal to ten times of the amount which would have been payable if the goods were sold within the State. Under sub-section (11), after noticing as required under sub-section (10), opportunity of hearing has to be granted and order passed under sub-section (12) imposing penalty.

9. In the present case, the irregularity that was detected when the vehicle was checked is the one contemplated under sub-section (7) of Section 45-A of theas the goods notified under sub-section (4) were being transported and in respect of the same, transporter had not filed any declaration. It is not in dispute in the present case that the declaration as required under Form 75 was not produced by the transporter when the goods were seized. That being so, the check post officer was well within his right in taking action. However, while taking action, the competent authority of the check post and the appellate authority, so also, the revisional authorities proceeded on a assumption that the declaration under Form No. 75 was not produced and the intention to facilitate evasion of tax was presumed due to non-production of this statutory form in the check post. The presumption was drawn in the matter of evasion of tax without taking note of the circumstances that were existing in the present case. The authorities concerned failed to take notice of important factor in as much as what was being transported was not a saleable item, as per Annexure P-2, invoice No. 283 which is a invoice pertaining to Excise advice-cum-invoice, the goods were LMC, according to Company it was transfer of goods (raw material) from depot to unit for manufacture of chocolates and not for sale. It was in fact transfer of raw material from one place to another. There is nothing on record to indicate that LMC which was being transported was a saleable product, and therefore, subjected to payment of tax. Neither the assessing authority in the check post nor the appellate authority or the revisional authority have considered this aspect of the matter before holding that there was intention to evade tax. An intention to evade tax would arise if the material was meant for sale, and

therefore, liable to be taxed. A pre-condition for the purpose of taking action under sub-sections (7) and (10) of Section 45-A of theis that the irregularity as contemplated under sub-section (7) is for evading tax and the goods seized were to be sold within the State of Madhya Pradesh. No finding is recorded to the effect that LMC brought into the State of Madhya Pradesh is for sale by the Company. Apart from this, merely because Form No. 75 is not produced that by itself may not be sufficient to assume mala fides or intention on the part of the Company to evade tax. The invoice and other documents produced by the transporter in the check post do not indicate that any attempt was made to evade tax. Except Form No. 75, all the other relevant documents were produced at the time of seizure of the vehicle with the goods being transported. It is not the case of the competent authority or the appellate authority or the revisional authority that the documents produced at the time of checking and the material being transported showed any difference in the matter of quality, quantity or specification or otherwise. On the contrary, it is stated that Form No. 75 which was a separate document to be carried was not available. Records indicate that all the material particulars and information which were required were available in the documents produced at the time of checking of the vehicle and no mala fides are proved or established and the nexus between the act of non- production of the document and the intention to evade tax is not proved. Under these circumstances, the question is can penalty be imposed merely because some document is not produced at the time of checking of the vehicle. In this regard, the principle laid down by the Supreme Court in the case of M/s Hindustan Steels Ltd. AIR 1970 SC 253 [LQ/SC/1969/257] may be considered. In paragraph 7 of the aforesaid judgment, the Supreme Court has held as under:

“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 discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”

(Emphasis Supplied-Here italicised)

10. If the facts and circumstances of the present case are evaluated in the back drop of the aforesaid principle laid down by the Supreme Court in the matter of imposition of penalty, it would be seen that in the present case, penalty has been imposed mechanically without any dishonest intention or malice or mens rea having been established or proved. The bona fide reason given by the Company explaining the circumstances in the matter of non- availability of Form No. 75 is not at all considered by the authorities concerned while imposing the penalty. Imposition of penalty has penal consequence. Penalty is a measure of punishing a wrong doer and the discretion for imposing penalty has to be exercised judiciously after considering all the relevant facts and circumstances in a given case. Merely because the law empowers an authority to impose penalty that by itself is not a reason for imposing penalty. Deliberate defiance of the law, guilty conduct and dishonest intention are the necessary ingredients which should be available for imposing penalty. Merely because some technical or venial breach of a statutory provision is established that by itself is not a reason for imposing penalty. In the present case authorities have proceeded to impose penalty without taking note of all these factors.

There is nothing on record to indicate that the act of the Company or concerned transporter in the matter of non- production of Form No. 75 was a deliberate and intentional act for the purpose of evasion of tax. On the contrary, the records indicate that all the necessary information which was required under the law was supplied during the time of verification at the check post. That apart, the Company was granted total exemption from payment of entry tax from 17.11.1997 to 16.11.2002 vide order, Annexure P-11 dated 13.11.2001. Therefore, there cannot be intention on the part of the Company to evade payment of entry tax as they were already exempted from such payment. Similarly, a certificate of eligibility in the matter of deferment in payment of tax has been granted vide notification dated 3/8/2001 passed by the Government of Madhya Pradesh, Directorate of Industries, Bhopal. Under these circumstances, it was incumbent upon the authorities concerned to examine the entire matter and find out if there was any intention to evade payment of tax. Before imposing penalty on the Company a finding should have been recorded as to whether there was any intention on the part of the Company to evade tax as no such intention is either established or proved. On the contrary, as a matter of course, mechanically penalty is imposed merely on the ground that the statutory provisions are violated and a particular declaration form is not produced. Mere non-production of a document, i.e., Form No. 75 in the facts and circumstances of the present case does not establish any intention on the part of the Company to evade tax. The lapse found established is a technical lapse unaccompanied by any mala fide or dishonest intention and therefore can be classified as a bona fide mistake, and accordingly under such circumstances, imposition of penalty was not warranted.”

9. Therefore, while considering the aforesaid judgments, we are of the view that the same would cover the dispute at large. As held by the Hon’ble Supreme Court in the aforesaid judgment as well as the Division Bench and the Single Bench judgments of this Court, the penalty that has been imposed appears to be mechanically imposed against the petitioner. The provisions of Sub-section (7) of Section 45-A of the Commercial Tax Act would clearly contemplate the situation where the declaration is filed in respect of any goods that is false or incorrect. Both those elements do not seem to exist in the instant case. It is not even a case of any dishonest intention or malice by the petitioner. In fact, it is the very case of the petitioner that the price of goods when it has left the factory at Kalol is quite different from the price of the goods that the ultimate consumer will pay. It is not his case that there is a variation in the rate of goods which he is trying to justify. He himself has narrated the various stages in which the goods have to pass and the value of the goods at different stages. Therefore, the bona fide reason as submitted by the petitioner, in our considered view, requires to be accepted.

10. We do not find that in the given facts and circumstances of the case, there is any case that can be made out against the petitioner for either submitting false or incorrect information with regard to the same. Furthermore, the facts would also indicate that in similar circumstances none of the trucks that were carrying the very product till then were ever subjected to this kind of interpretation of law by the respondents. It is only on the first occasion that the respondents have come to interpret Section 45- A against the petitioner for the reasons that they have assigned therein.

11. Under these circumstances, we are of the considered view that the orders passed by the authorities are liable to be set aside. Consequently, the petition is allowed. The impugned order dated 10.02.2004 passed inRevision Case Nos. 207 of 2003 and 208 of 2003 and the orders of penalty passed in Case No.7 of 2003 and 8 of 2003 are quashed. The respondents are directed to refund the penalty, if any, deposited by the petitioner within a period of three months from today. Rule made absolute.