Thursday 26 March 2015

Larger Bench of the High Court has held that mens rea is not relevant for imposition of penalty for failure to comply with statutory civil obligation

We are pleased to release a Tax Alert on the Larger Bench decision of the Rajasthan High Court; [TS-87-2015-(RAJ)-VAT]. The issue in question was regarding relevance of mens rea for purpose of determining liability for penalty in terms of section  78(5) of Rajasthan Sales Tax Act, 1994 (RST Act).

The ruling is significant because the Larger Bench has held that mens rea is not a relevant ingredient for imposition of penalty under  section 78(5) of the RST Act.  The Hon’ble Supreme Court’s ruling in Guljag Industries v. Commercial Taxes Officer held that non-declaration of goods in movement would invite strict civil liability. It was held that default in or failure to comply with section 78(2) is a failure of statutory civil obligation and therefore no mens rea was required, as the same was neither criminal nor quasi-criminal in nature.

By dismissing the relevance of mens rea for determining penalty in civil offences; the ruling of Larger Bench of the HC is likely to create a spectrum of issues for the taxpayer having a bona fide situation.

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