Little Flower Hospital Trust, Angamaly v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** ## **&** **THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI TUESDAY, THE 02ND DAY OF JULY 2019 / 11TH ASHADHA, 1941** ## **OT.Rev.No.105 of 2018** **AGAINST THE ORDER IN TA 92/2014 DATED 22.06.2018 of AGRL.I.T.ADDITIONAL BENCH,ERNAKULAM** ## **REVISION PETITIONER/APPELLANT:** **LITTLE FLOWER HOSPITAL TRUST ANGAMALY, ERNAKULAM DISTRICT** **BY ADVS. SRI.J.JULIAN XAVIER SRI.FIROZ K.ROBIN** ## **RESPONDENT/RESPONDENT:** **STATE OF KERALA REPRESENTED BY THE INTELLIGENCE OFFICER (IB) DEPARTMENT OF COMMERCIAL TAXES, MATTANCHERRY, MINI CIVIL STATION, ALUVA** **SR.GOVERNMENT PLEADER - SRI.V.K.SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 18.06.2019, THE COURT ON 02.07.2019 PASSED THE FOLLOWING:** O.T (Rev) No.105/2018 2 **“CR”** ## **C.K.ABDUL REHIM** ## **&** ## **R.NARAYANA PISHARADI, JJ.** ************************** O.T.(Rev) No.105 of 2018 ---------------------------------------------Dated this the 2[nd] day of July, 2019 ## **O R D E R** ## **R.Narayana Pisharadi, J** 'Mens rea' means guilty mind. Is mens rea sine qua non for imposing penalty on an assessee under a taxing statute? This question essentially falls for consideration in this revision petition. 2. The petitioner/assessee is a hospital. It did not get itself registered under Section 4E of the Kerala Tax on Luxuries Act, 1976 (hereinafter referred to as 'the Act'). It did not file returns of luxury tax as required under Section 5 of the Act. It did not pay luxury tax for the period from 01.04.2012 to 31.12.2012. 3. The assessing authority, after complying with the necessary formalities, assessed luxury tax on the petitioner to the tune of Rs.3,09,370/-. The assessing authority also imposed O.T (Rev) No.105/2018 3 a penalty of Rs.6,18,740/- on the petitioner, it being twice the amount of the tax not paid. 4. The petitioner paid the luxury tax pursuant to the order passed by the assessing authority. The petitioner challenged in appeal the order of the assessing authority imposing penalty on it. The appellate authority confirmed the order of the assessing authority imposing penalty on the petitioner but reduced the amount of penalty to Rs.3,09,370/-. Further appeal filed by the petitioner before the Kerala Agricultural Income Tax and Sale Tax Appellate Tribunal was dismissed. This revision petition is filed challenging the order of the Tribunal. 5. We have heard Sri.Julian Xavier, learned counsel for the petitioner and Sri.V.K.Shamsudheen, learned Senior Government Pleader. 6. Learned counsel for the petitioner has submitted that the assessee was not aware of the amendment made to the Act in the year 2008 bringing hospitals within the purview of the Act. He would submit that non-registration of the hospital under the Act and non-payment of the luxury tax by the petitioner was not O.T (Rev) No.105/2018 4 intentional. Learned counsel would contend that mens rea on the part of the assessee is an essential element to impose penalty under the Act. 7. Per contra, learned Senior Government Pleader would contend that mere violation of the provisions of the Act would attract imposition of penalty on the assessee. He has contended that it is not necessary to establish mens rea to impose penalty under Section 17A of the Act. 8. Section 2(fb) of the Act states that 'luxury provided in a hospital' means accommodation for residence for use of amenities and services provided in a hospital the rate of charges of which, excluding charges of food, medicine and professional services, is one thousand rupees per day or more. Section 4(1) (iii) of the Act provides for levy and collection of tax in respect of luxury provided in a hospital. Section 4(2)(e) of the Act states that luxury tax shall be levied and collected in respect of a hospital, for charges of accommodation for residence for use of amenities and services, at the rate of ten per cent per room where the gross charges, excluding charges of food, medicine O.T (Rev) No.105/2018 5 and the professional services, is one thousand rupees per day or more. Section 4(3) of the Act states that the luxury tax shall be collected by the proprietor and paid within such period and in such manner as may be prescribed. Section 4E of the Act provides that every hospital having not less than five rooms to be rented for accommodation of patients for treatment or otherwise for which gross charges excluding charges for food, medicine and professional services is one thousand rupees or more per room, shall get itself registered with such authority and in such manner as may be prescribed. 9. Section 5 of the Act provides that every proprietor liable to pay luxury tax under the Act shall submit such return in such manner and within such period as may be prescribed. Section 6(1) states that on receipt of a return under Section 5, if the assessing authority is satisfied that the return is correct and complete, it shall assess the proprietor on the basis thereof. Section 6(2) states that if the proprietor fails to submit the return under Section 5 in due time or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, O.T (Rev) No.105/2018 6 the assessing authority shall, after making such enquiry as it may consider necessary and after taking into account all relevant materials gathered by it, assess the proprietor to the best of its judgment. The proviso to Section 6(2) states that before taking action as provided under that provision, the proprietor shall be given a reasonable opportunity of being heard. Section 6(3) of the Act provides that if the luxury tax is not paid within the prescribed period, the assessing authority may levy a penalty equal to a sum not exceeding the amount of luxury tax payable under the Act. Rule 3 of the Kerala Tax on Luxuries Rules, 1976 provides for the manner in which returns have to be filed by the proprietor. Rule 3(4) states that every proprietor registered under the Act and every proprietor liable to get himself registered under the Act and every proprietor who is required to do so by the assessing authority, irrespective of the quantum of his total income, shall, on or before the tenth day of every month, submit to the assessing authority a return as prescribed, together with a receipt of a treasury chalan, crossed cheque or crossed demand draft in favour of the assessing authority for the O.T (Rev) No.105/2018 7 amount of tax due. 10. Section 17A of the Act reads as follows: _“17A. Imposition of penalties by assessing authority.- If an assessing authority is satisfied that any person,-_ _(a) liable to pay tax under this Act,-_ _(i) has failed to keep true and complete account or_ _(ii) has failed to submit any return as required by the provisions of this Act or the rules made thereunder or has submitted an untrue or incorrect return; or_ _(b) has failed to submit any return as required by the provisions of this Act or the rules made thereunder or has submitted an untrue or incorrect return; or_ _(c) has prevented or obstructed inspection, entry, search or seizure by any officer, or_ _(d) has acted in contravention of the provisions of this Act or any rules made thereunder, for the contravention of which no express provision for payment of penalty or punishment is made by this Act,_ _such authority may direct that such person shall pay, by way of penalty, an amount not exceeding twice the amount of luxury tax or other amount_ O.T (Rev) No.105/2018 8 _sought to be evaded where it is practicable to quantify such evasion, or, an amount not exceeding five thousand rupees in any other case._ _**Explanation:-** The burden of proving that any person is not liable to the penalty under this section shall be on such person.”_ 11. Obligation to get registered under the Act is not disputed by the petitioner. Liability to pay luxury tax is also not disputed. Obligation to file return of tax is also not disputed. 12. Ignorance of law is not an excuse. The plea of ignorance of law raised by the petitioner stands rightly rejected by the assessing authority. 13. The only surviving contention is with regard to the requirement of mens rea on the part of the petitioner in not discharging the obligations under the Act. 14. In **Union of India v. Dharamendra Textile Processors: (2008) 13 SCC 369** , a three-Judge Bench of the Supreme Court considered the question whether Section 11AC of the Central Excise Act, 1944, with the intention of imposing mandatory penalty on persons who evaded payment of tax, should be read to contain mens rea as an essential ingredient. O.T (Rev) No.105/2018 9 After considering and discussing a catena of decisions on the point, the Apex Court has held that mens rea is not an essential element for imposing penalty for breach of civil obligations. 15. Learned counsel for the petitioner heavily relied upon the decision of the Supreme Court in **Employees' State Insurance Corporation v. HMT Limited : (2008) 3 SCC 35** to buttress his contention that mens rea is an essential element to impose penalty on an assessee. It has been held in this decision that existence of mens rea or actus reus to contravene a statutory provision must also be held to be a necessary ingredient to levy of damages and/or the quantum thereof. This decision is rendered by a two-Judge Bench of the Supreme court. However, we are bound to follow the subsequent decision of the three-Judge Bench of the Supreme Court in **Dharamendra Textile Processors** (supra) which holds that mens rea is not an essential element for imposing penalty for breach of civil obligations. 16. Learned counsel for the petitioner has also relied upon the decision of this Court in **Mathew M. Thomas v. Sales Tax** O.T (Rev) No.105/2018 10 **Officer : 1990(1) KLT 18** to contend that mens rea is an essential ingredient to be proved for imposing penalty on an assessee. It is a case in which legality of 'fine' imposed under Section 17 of the Kerala Tax on Luxuries in Hotels and Lodging Houses Act, 1976 was considered. It was held that Section 17 of that Act dealt with offences and mens rea is an essential ingredient of those offences and assessing authority cannot impose any fine and only a court can impose fine. This decision has no application to penalties imposed by assessing authority under Section 17A of the Act. 17. Mens rea is not an essential ingredient of contravention of the provisions of a civil statute. Penalty is attracted as soon as contravention of the statutory obligations as contemplated by the statute is established. The intention of the parties committing such violation is immaterial. Breach of a civil obligation which attracts penalty under the provisions of a statute 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. Unless the language of the statute O.T (Rev) No.105/2018 11 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. It is settled law that when a penalty is imposed by an adjudicating officer, it is done so in adjudicatory proceedings and not by way of fine as a result of prosecution of an accused for commission of an offence in a criminal proceeding (See **Chairman, SEBI v. Shriram Mutual Fund : AIR 2006 SC 2287** ). 18. In examining whether mens rea is an essential element to impose penalty under a taxing statute, regard must be had to the following factors: (i) the object and scheme of the statute; (ii) the language of the section and; (iii) the nature of penalty ( **Commissioner of Sales Tax v. M/s Sanjiv Fabrics : (2010) 9 SCC 630** ). Penalty is attracted simpliciter on violation of statutory provisions of civil law ( **Competition Commission of India v. Thomas Cook (India) Limited : (2018) 6 SCC 549** ). 19. When it is provided in the statute that the act which attracts levy of penalty shall be committed 'knowingly', 'falsely', 'intentionally', 'fraudulently', 'wilfully' etc, then it can be found O.T (Rev) No.105/2018 12 that it requires mens rea for imposing penalty. The use of such expressions indicates the intention of the legislature in clear terms that mens rea is an essential element. 20. The distinction between imposing punishment for an offence and imposing penalty for breach of a civil obligation has been clearly brought out by the Apex Court in **Gujarat Travancore Agency v. Commissioner of Income Tax : AIR 1989 SC 1671** with reference to Section 271(1)(a) and Section 276C of the Income Tax Act, 1961. The Apex Court has held as follows: _"It is sufficient for us to refer to Section 271(1) (a), which provides that a penalty may be imposed if the Income Tax Officer is satisfied that any person has without reasonable cause failed to furnish the return of total income, and to Section 276C which provides that if a person wilfully fails to furnish in due time the return of income required under Section 139(l), he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine. It is clear that in the former case what is intended is a civil obligation while in the latter what is imposed is a criminal sentence. There can be no dispute_ O.T (Rev) No.105/2018 13 _that having regard to the provisions of Section 276C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established. ...... In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection the terms in which the penalty falls to be measured is significant. Unless there is something in the language of the statute indicating 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. In our opinion, there is nothing in Section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provisions"._ 21. On a close scrutiny of the provisions contained in Section 17A of the Act, we are of the considered opinion that mens rea on the part of the assessee is not an essential element to be proved for imposing penalty under that provision. The O.T (Rev) No.105/2018 14 scheme of the Act in imposing penalty is very clear. The defaults and failures which attract penalty are nothing but violations or failures or defaults of statutory civil obligations provided under the Act. The proceedings for imposing penalty under the Act are neither criminal nor quasi-criminal. The penalty is leviable in cases of default or failure of obligations under the Act which are civil in nature. There is nothing in the provisions contained in Section 17A of the Act which indicates that guilty intention of the assessee is required to be established before imposing penalty. Therefore, there is no question of proof of guilty intention or mens rea by the assessee and it is not an essential element for imposing penalty under Section 17A of the Act. 22. True, the assessing authority has discretion to proceed or not under Section 17A of the Act. But, once the assessing authority has exercised the discretion, this Court cannot substitute its discretion and hold that the action taken by the assessing authority for levying penalty is illegal or improper, unless the discretion was exercised by the assessing authority in an arbitrary or capricious manner. In the instant case, we are O.T (Rev) No.105/2018 15 unable to find that the assessing authority has exercised the discretion to levy penalty in an arbitrary or capricious manner. 23. However, we take note of the fact that, for evasion of payment of luxury tax, penalty cannot be imposed under Section 17A of the Act. This is for the reason that the provision contained in Section 17(2)(b)of the Act takes care of that situation by providing punishment for such act. Evasion of luxury tax is not an act specifically mentioned under Section 17A of the Act. Since punishment is provided under Section 17(2)(b) for evasion of payment of luxury tax, in view of the provision contained in Section 17A(d) of the Act, penalty cannot be levied under Section 17A for committing such act. However, failure to get registration under the Act and failure to file monthly returns under the Act attract levy of penalty. But, we take note of the fact that the assessee has not collected luxury tax from the patients. We also take note of the fact that the assessee immediately paid the luxury tax due pursuant to the order passed by the assessing authority. Considering these circumstances, we find that the amount of penalty payable by the petitioner can be reduced to O.T (Rev) No.105/2018 16 Rs.1,00,000/-. 24. Consequently, the revision petition is allowed in part. Annexure-A1 order of the assessing authority, imposing penalty on the petitioner, which stands confirmed by Annexures A2 and A3 orders of the appellate authority and the Tribunal, is confirmed. However, we modify Annexure-A1 order passed by the assessing authority with regard to quantum of penalty and reduce the amount of penalty payable by the petitioner to Rs.1,00,000/- (Rupees one lakh only). No costs. (sd/-) **C.K.ABDUL REHIM, JUDGE** (sd/-) **R.NARAYANA PISHARADI, JUDGE** jsr20/06/2019 O.T (Rev) No.105/2018 17 ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **ANNEXURE A1** **TRUE COPY OF THE ORDER DATED 30.05.2013 ISSUED BY THE INTELLIGENCE OFFICER(IB) DEPARTMENT OF COMMERCIAL TAXES, MATTANCHERY, ALUVA.** ## **ANNEXURE- A2** **TRUE COPY OF THE ORDER DATED 12.8.2014 ISSUED BY THE DEPUTY COMMISSIONER (APPEALS)1, COMMERCIAL TAXES, ERNAKULAM.** **ANNEXURE-A3** **TRUE COPY OF THE ORDER DATED 22.6.2018 IN T.A. NO.92/2014 OF THE KERALA AGRICULTURAL INCOME TAX AND SALES TAX, APPELLATE TRIBUNAL, ADDITIONAL BENCH ERNAKULAM.** ## **RESPONDENT''S EXHIBITS:** ## **NIL** TRUE COPY PS TO JUDGE