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M/S. Sterling Construction And Trading Co. v. The Commercial Tax Officer, Bangalore .
Judgment Summary — Govinda Bhat, C.J.
Factual and Procedural Background
This is a batch of 14 writ petitions arising under the Mysore Sales Tax Act, 1957 (the Act). The central question for decision was whether an order levying penalty — after affording an opportunity to a defaulting assessee — is a pre‑requisite to initiation of proceedings for recovery of the penalty under Section 13(2) of the Act.
The petitioners are dealers assessed under the Act. Assessments were made and demand notices served on different dates. The petitioners did not pay the taxes within the prescribed time and became defaulters. The Commercial Tax Officer who had made the assessments sent letters to the petitioners drawing attention to Section 13(2) and demanding payment of the penalties incurred; the letters warned that coercive steps would follow if the penalty amounts were not paid by specified dates. The petitioners filed these writ petitions under Article 226 of the Constitution challenging the proposed coercive recovery action.
Legal Issues Presented
- Whether the making of an order levying penalty after affording an opportunity of being heard to a defaulting assessee is a pre‑requisite condition for initiating proceedings to recover a penalty incurred under Section 13(2) of the Mysore Sales Tax Act, 1957.
Arguments of the Parties
Petitioners' Arguments (as presented in the opinion)
- The Commercial Tax Officer did not pass any formal order imposing the penalty under Section 13(2).
- No opportunity of being heard was afforded to the petitioners before demanding payment of the penalty.
- Therefore, the respondent was not entitled to take coercive recovery action without first making an order imposing penalty and affording a hearing.
- By implication — although there is no express provision — an order must be made and the rules of natural justice require that the defaulting assessee be heard before penalty is imposed; reliance was placed on the Supreme Court decision in Hindustan Steel Limited v. The State of Orissa to support this position.
- An alternative argument was that penalty under Section 13(2) should be incurred only where there is non‑payment without reasonable excuse, hence an opportunity should be given to show reasonable excuse.
Respondent's Arguments
The opinion does not contain a detailed account of the respondent's separate legal arguments. The record shows the respondent (Commercial Tax Officer) had sent letters demanding penalty and warning of coercive steps; the court's reasoning addresses the legal effect of Section 13(2) and Section 2A of the Act rather than a developed statement of the respondent's contesting submissions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Hindustan Steel Limited v. The State of Orissa | Where penalty is imposed by a court (or where discretion is vested in the authority to determine whether and what penalty to impose), the liability to pay penalty does not arise merely on proof of default; an order imposing penalty is the result of a quasi‑criminal proceeding and the authority must exercise discretion judicially — ordinarily after hearing the party. | The court distinguished Hindustan Steel: in that case the Orissa statute required the court to impose penalty on conviction with discretion as to quantum, so an order and hearing were necessary. By contrast, under Section 13(2) of the Mysore Act liability to penalty arises by operation of the statute on default and no discretion is left with assessing authorities to waive or reduce the penalty; thus Hindustan Steel's principle did not make prior hearing a pre‑requisite here. |
| Sha Jayantilal v. Additional Commercial Tax Officer | Section 13(2) creates statutory liability to pay penalty whenever an assessee defaults in payment as prescribed; the relevant inquiry is the fact of default, not reasons for it (i.e., whether default was wilful is not required to be shown before penalty attaches). | The court applied this precedent to confirm that under Section 13(2) penalty liability arises on default itself; questions about wilfulness or excuse do not negate liability under the statutory scheme and such contentions are matters for challenge in recovery proceedings rather than prerequisites to initiating recovery. |
Court's Reasoning and Analysis
The court began by placing the statutory text of Section 13 before itself. Section 13(2) provides that on default the whole amount outstanding becomes due and a charge on the property and that the person shall pay a penalty calculated at specified monthly rates. The court noted that Section 2A empowers the State Government to remit penalties subject to conditions but that no provision vests discretion in departmental authorities to waive or reduce penalties.
The court considered the petitioners' contention that an order imposing penalty and a hearing were required by implication of the rules of natural justice, relying on Hindustan Steel. The court examined Hindustan Steel and observed that there the penalty was to be imposed by a court upon conviction and the authority had discretion to determine the quantum of punishment — circumstances that necessitate an order and a hearing.
By contrast, under Section 13(2) of the Mysore Act the imposition of penalty is statutory and mechanical on the fact of default: the statute prescribes the penalty and leaves no discretion with the assessing authority to remit or reduce it. Given the absence of discretion, the court reasoned that there is no substantive purpose in requiring departmental authorities to afford a pre‑recovery hearing before initiating recovery proceedings. The court reinforced this view by citing authority from a tax treatise (Judge Cooley) which states that personal disability or financial embarrassment is not necessarily an excuse where a statute fixes penalties, and by relying on the decision in Sha Jayantilal which holds that what is relevant is the factum of default and not the reasons for it.
The court further explained the procedural safeguard available to an assessee: if recovery proceedings are initiated by the authorities, the assessee can then contend in those proceedings that he is not a defaulter or that the amount claimed is excessive. In those proceedings the Court or Recovery Officer will adjudicate whether penalty has been incurred or whether the amount claimed is correct. Thus, the court treated challenges to liability or quantum as matters to be decided in the recovery process rather than prerequisites to commencing recovery.
Holding and Implications
HOLDING: The writ petitions were dismissed. The court ordered the petitioners to pay costs (Advocate's fee Rs. 100).
Implications: The direct consequence of the decision is that, under Section 13(2) of the Mysore Sales Tax Act, 1957, a separate order imposing penalty after an opportunity to be heard is not a pre‑requisite to initiating coercive recovery proceedings for penalties that are statutorily incurred on default. Departmental authorities may proceed with recovery once penalty has arisen by operation of the statute; any contest as to whether an assessee is a defaulter or the correctness/excess of the amount claimed can be raised and decided in the subsequent recovery proceedings. The opinion does not discuss or declare any broader legal precedent beyond this application of Section 13(2) and related authorities.
Other Procedural Directions
Sri Chandrakanthraj Urs, the learned High Court Government Advocate for the respondent, was permitted to file his memo of appearance in W.P. Nos. 23 and 24 of 1973 within two weeks from the date of the judgment.
Govinda Bhat, C.J:— This is a batch of 14 writ petitions arising under the Mysore Sales Tax Act, 1957, hereinafter called the Act. The question presented for decision is whether the making of an order levying penalty after affording an opportunity to a defaulting Assessee is a pre-requisite condition for initiation of proceedings for recovery of the penalty incurred under Section 13(2) of the Act.
2. In order to appreciate the contentions urged on behalf of the petitioners, it is necessary to set out briefly the relevant facts. The petitioners are dealers under the Act. Assessments were made and demand notices were served on them on different dates. The petitioners did not pay the taxes demanded within the time allowed and consequently they became defaulters. The Commercial Tax Officer who had made the assessments wrote letters to the petitioners drawing their attention to the provisions of Section 13(2) of the Act and to pay the penalty incurred. The letters further stated that if the penalty amounts were not paid within the dates specified, coercive steps will be taken for recovery of the penalty amounts. At that stage, the petitioners preferred the above writ petitions seeking relief under Article 226 of the Constitution.
3. Section 13 which is the relevant provision reads thus:—
“13. Payment and recovery of tax.—
(1) The tax under this Act shall be paid in such manner and in such instalments, if any, and within such time, as may be prescribed.
(2) If default is made in making payment in accordance with sub-section (1).
(i) the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax under this Act; and
(ii) the person or persons liable to pay the tax under this Act shall pay a penalty equal to—
(a) one per cent of the amount of tax remaining unpaid for each month for the first three months, after the expiry of the time prescribed under sub-section (1) and
(b) two and one-half per cent of such amount for each month subsequent to the first three months as aforesaid.
Explanation.— (Omitted as unnecessary)”
“2A. Notwithstanding anything contained in sub-section (2), the State Government may, subject to such conditions as may be prescribed, remit the whole or any part of the penalty payable in respect of any period by any person or class of persons.
(Sub-sections 3 and 4 omitted as unnecessary.)”
4. The argument of Sri K. Srinivasan, learned counsel for the petitioners was that the respondent Commercial Tax Officer did not pass any order imposing penalty under Section 13(2) of the Act and that he did not grant to the petitioners any opportunity of being heard before demanding the penalty amounts. Therefore, the learned counsel urged that the respondent is not entitled to take coercive action for recovery of the penalty amounts.
5. The learned counsel conceded that there is no express provision made in the Act requiring the Commercial Tax Officer to make an order imposing penalty; but, he argued that by implication it has to be inferred that the Commercial Tax Officer is required to make an order and if he is required to make an order, the rules of natural justice require that the defaulting Assessee should be heard. According to Sri Srinivasan, the decision of the Supreme Court in Hindustan Steel Limited v. The State of Orissa(1) lends support to his contention. That was a case which arose under the Orissa Sales Tax Act which provided for levy of penalty on dealers for default in obtaining registration as dealers. In that case the Supreme Court stated:
“Under the Act penalty may be imposed for failure to register as a dealer: Section 9(1) read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. 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 Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”
Sections 9(1) and 25(1) of the Orissa Act with which the Supreme Court was concerned, read thus:—
“9(1) Registration of Dealers.— No dealer shall, while being liable under Section 4 to pay tax under this Act, carry on business as a dealer unless he has been registered under this Act and possesses a Registration Certificate.”
“25(1) Offence and Penalties:—Whoever ……………………
(a) Carrys on business as a dealer in contravention of sub-section (1) of Section 9 ………………… shall be punishable with imprisonment of either description which may extend to 6 months or with fine not exceeding Rs. 1,000 or with both ………………….”
It will be seen from the above provisions that the penalty has to be imposed by the Court on conviction and further, discretion is given to the Court to determine the quantum of fine or the term of imprisonment. The maximum fine and maximum term of imprisonment are provided by the statute. Where the discretion is given to an authority to fix the amount of fine it necessarily follows that there should be an order imposing penalty and it also follows that before making such an order the alleged defaulter should be heard in the matter.
6. The Act gives no discretion to authorities under the Act to waive or reduce the penalty. Obligation is cast on the defaulting Assessee to make payment of the penalty computed in the manner provided by sub-section (2) of Section 13. When no discretion has been left to the respondent to waive or reduce the penalty no purpose will be served by affording to the petitioners the opportunity of being heard. According to the argument of Sri Srinivasan opportunity ought to be afforded to show that there was reasonable excuse for non-payment of the tax assessed and that penalty under Section 13(2) is incurred only in cases where non-payment of tax is without reasonable excuse. This argument has been met by Judge Cooley in his Treatise on Taxation, Volume 3, Page 2532 thus:
“Excuses for Non-payment.— It is no excuse for non-payment that the owner is under personal disability. Thus, insanity is no excuse for non-payment. So it is no excuse for failure to pay a tax in full that the collector, without authority, and on his motion, has remitted a part of the tax, or that the person taxed is financially embarrassed, or that the proceeds of the tax are to be devoted to an unlawful purpose.”
The same learned author has stated at page 2535 that ‘in tax laws penalties are imposed for mere delinquencies, in order to hasten payment, and they are also imposed as a punishment for frauds, evasions, and neglect of duty’.
7. If financial embarrassment or personal disability affords no excuse for non-payment where payment of penalty is fixed by the statute, it cannot be contended that the penalty is not incurred when reasonable excuse for non-payment is shown by the defaulter. To afford relief in hard cases like insanity, disability or financial embarrasement etc., the statute has made express provision by sub-section (2-A) empowering the State Government to waive or reduce the amount of penalty, but that power is not vested in any authority constituted under the Act.
8. Our view is also supported by the decision of this Court in Sha Jayantilal v. Additional Commercial Tax Officer(2). There the contention on behalf of the Assessee was that the default, if any, was not a wilful default and therefore the Assessee had not incurred any liability to any penalty. Hegde, J., (as he then was) who delivered the judgment of this Court stated:—
“What Section 13(2) of the Act provides is that whenever an assessee makes default in making payment in accordance with sub-section (1), he is statutorily liable to pay the penalty prescribed therein. In a case like the one before us, the question whether the assessee had defaulted wilfully or not does not arise for consideration. What is relevant is the factum of the default and not the reason for the same.”
If the penalty incurred under Section 13(2) of the Act is not paid, the authorities constituted under the Act have to make recovery proceedings in the manner provided under the Act. When such proceedings are initiated against the alleged default-ting Assessee, it is open to him to contend that he is not a defaulter or that the amount of penalty sought to be recovered is excessive. If the Assessee contends that he is not a defaulter or that the amount claimed is excessive, then the Court or the Recovery Officer has to decide whether penalty has been incurred or that the amount claimed is correct. In that view, all the contentions urged by the learned counsel for the petitioners fail. Consequently, these writ petitions are dismissed with costs. Advocate's fee Rs. 100. One set.
9. Sri Chandrakanthraj Urs, learned High Court Government Advocate who appeared for the respondent is permitted to file his memo of appearance in W.P Nos. 23 and 24 of 1973 within two weeks from to-day.
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