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CA Dr Arpit Haldia has conducted a masterful analysis of the entire law relating to the levy of penalty with particular emphasis on whether “mens rea” is an essential ingredient and whether “bonafide belief” can save the offender from penalty<\/strong><\/p>\n Longstanding and never ending has been the debate regarding what is penalty and whether mens rea is an essential ingredient in levy of penalty or bonafide belief that “what was being done was correct” would hold good and save the offender from penalty. Over the years the law has evolved and Courts of Law have tried to lay down a law providing clarity in this regard.<\/p>\n <\/p>\n Starting, it would be appropriate to quote an observation of Hon’ble Apex Court in the matter of Commissioner of Sales Tax, Uttar Pradesh Vs. Sanjiv Fabrics, Civil Appeal Nos. 2344-2347 of 2004 Judgement Dated 10th September 2010, wherein Hon’ble Apex Court while examining whether mens rea is an essential element of an offence created under a taxing statute, held regard must be had to the following factors;<\/u><\/em><\/strong><\/p>\n “(i) the object and scheme of the statute<\/em> It was held that <\/p>\n “Although in relation to the taxing statutes, this Court has, on various occasions, examined the requirement of mens rea but it has not been possible to evolve an abstract principle of law which could be applied to determine the question. As already stated, answer to the question depends on the object of the statute and the language employed in the provision of the statute creating the offence. There is no gain saying that a penal provision has to be strictly construed on its own language.” <\/em><\/p>\n Hence critical factors relevant for levy of penalty are<\/p>\n All these factors go a long way in evolving a principle that whether or not penalty is leviable in the given circumstances. 1. Definition of Penalty <\/u><\/em><\/strong><\/p>\n In normal parlance, penalty means a resultant of wrong which has been committed by the offender. Penalty can be both in form of monetary punishment or prosecution. The measure of penalty has been more often co-related with the nature of crime or fault committed. Penalty has been defined at various places and some of the definitions are as follows: "a loss, disability or disadvantage of some kind … fixed by law for some offence.”<\/em> “The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence.”<\/em><\/p>\n (c) Hon’ble Supreme Court in the matter of Karnataka Rare Earth & Anr vs The Sr.Gelt.,Dep.Of Mines And … on <\/u><\/em><\/strong>23 January, 2004<\/u><\/em><\/strong> <\/u><\/em><\/strong><\/p>\n “Penalty is a liability composed as a punishment on the party committing the breach. The very use of the term ‘penal’ is suggestive of punishment and may also include any extraordinary liability to which the law subjects a wrong-doer in favour of the person wronged, not limited to the damages suffered.” <\/u><\/strong><\/em> The levy of penalty is intended to work as a deterrent in committing the act or compensatory for loss caused to revenue. “A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is for different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws.”<\/em> " 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 276-C which provides that if a person willfully fail to furnish in due time the return of income required under Section 139(1), 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.”<\/em><\/p>\n The Hon’ble Court further went on to following necessary ingredients of a criminal liability<\/u><\/em><\/strong>: <\/p>\n “There can be no dispute that having regard to the provisions of Section 276-C, which speaks of willful 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 most cases of criminal liability, the intention of the legislature is that the penalty should serve as a deterrent. The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence.”<\/em><\/p>\n The Hon’ble Court further went onto hold following necessary ingredients of a civil liability<\/u><\/em><\/strong>: <\/p>\n “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.” <\/em><\/p>\n (b) Quasi Criminal Liability: <\/u><\/em><\/strong>The third nature of liability other than the Civil and Criminal liability is the liability which have the characteristics of both Civil and Criminal Liability and is known as Quasi Criminal Liability: <\/p>\n In the case of Pearks, Gunston and Tee, Ltd. Vs. Ward, reported in 1902 (2) KB 1 it was held that <\/u><\/em><\/strong><\/p>\n “But there are exceptions to this rule in the case of quasicriminal offences, as they may be termed, that is to say, where certain acts are forbidden by law under a penalty, possibly even under a personal penalty such as imprisonment, at any rate in default of payment of a fine; and the reason for this is, that the Legislature has thought it so important to prevent the particular act from being committed that it absolutely forbids it to be done; and if it is done the offender is liable to a penalty whether he had any mens rea or not, and whether or not be intended to commit a breach of the law. Where the act is of this character then the master, who, in fact, has done the forbidden thing through his servant, is responsible and is liable to a penalty. There is no reason why he should not be, because the very object of the Legislature was to forbid the thing absolutely”<\/em> Therefore it becomes all the more important to analyze what the statute intend to achieve and what is the liability which it intends to inflict upon the wrong doer. (a) What is meant by Mens Rea: <\/u><\/em><\/strong>
\n (ii) the language of the section; and<\/em>
\n (iii) the nature of penalty.”<\/em><\/p>\n\n
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\n With the above backdrop, I would try to analyse in this article various issues with regard to the levy of penalty and liabilities and punishment thereon. <\/p>\n
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\n (a) The <\/u><\/em><\/strong>Oxford<\/u><\/em><\/strong> Dictionary provides the definition of Penalty as<\/u><\/em><\/strong> <\/u><\/em><\/strong><\/p>\n
\n (b) Hon’ble Supreme Court in the matter of M\/s <\/u><\/em><\/strong>Gujarat Travancore Agency<\/u><\/em><\/strong>, <\/u><\/em><\/strong>Cochin<\/u><\/em><\/strong> vs. C.I.T. , (1989) 3 SCC 52.<\/u><\/em><\/strong><\/p>\n
\n Conclusion:<\/u><\/em><\/strong> It can be summarized from above that penalty is a kind of punishment which is imposed for an act which <\/p>\n\n
\n 2. Nature of Liability <\/u><\/em><\/strong>
\n The next question which comes across is the nature of liability which a person incurs while committing an offence in a statute. This categorization of the liability forms the very basic of the nature of proceedings to be initiated against the person committing the act against provisions of the statute. There are three kinds of liability which can broadly classified as follows i.e. Civil, Criminal and Quasi Criminal Liability.
\n (a) Nature and Difference between Civil and Criminal Liability : In 85, Corpus Juris Secundum, Paragraph 1023, it is stated : <\/u><\/em><\/strong><\/p>\n
\n In a Land Mark Decision by the Hon’ble Apex Court in the matter of M\/s Gujarat Travancore Agency, Cochin vs. C.I.T. , (1989) 3 SCC 52, the difference between a Civil Liability and Criminal Liability has been provided. The <\/u><\/em><\/strong>Hon’ble Court<\/u><\/em><\/strong> stated that <\/u><\/em><\/strong><\/p>\n
\n Hence Quasi Criminal offence is an offence forbidden by law. The punishment prescribed in the statue on being found guilty for committing such offence consists of punishment personal in nature such as prosecution and also punishment in the nature of monetary penalty such as fine. The main reason behind prescribing such a penal provision is that the law makers intend that person on being found guilty of committing such default should be punished even if there is absence of mens rea and whether or not it was intended to commit the default. <\/p>\n
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\n 3. Meaning of certain terminology usually associated with Levy of Penalty <\/u><\/em><\/strong><\/p>\n
\n Mens Rea has been considered extensively in matters relating to levy of penalty. It has been a matter of debate that whether or not mens rea is a necessary ingredient for levy of penalty in case of civil, criminal offences and Quasi Criminal Offences. It has not been possible to lay down a clear guideline in this matter and its presence or absence has always been an issue of greater debate.
\n Mens Rea is Latin Word meaning a "guilty mind"; guilty knowledge or intention to commit a prohibited act.”<\/em>
\n Hon’ble Rajasthan High Court in the matter of Parasnath Granite India Ltd vs State Of <\/u><\/em><\/strong>Rajasthan And Anr<\/u><\/em><\/strong> on <\/u><\/em><\/strong>2 June 2004<\/u><\/em><\/strong> 144 STC 271 made following observation with regard to mens rea <\/u><\/em><\/strong><\/p>\n