A very famous and simple case concerning mens rea i.e. R v. Prince[1] brought in the precedent that the offence should be one of strict liability with respect to the ‘age’ of person, and therefore a mens rea of knowledge of the girl’s actual age was not required to establish the offence. Appellant’s ‘reasonable belief’ was therefore not a defence and the conviction was upheld. So, for the commission of a crime the defendant must consist of all the elements of crime. So the four essentials of mens rea are:
(A) Intention;
(B) Knowledge;
(C) Recklessness;
(D) Negligence.
‘Mens rea’ in taxation offences
It refers to what accused was thinking and what his intent was at time the crime was committed i.e. (criminal intent). Tax crime requires a mens rea – a guilty mind in addition to illegal act or the breach of law – Actus Reus. The tax laws in India i.e. both direct and indirect, does not uses the term “mens rea” instead it uses the term that the tax payer is committing an act wilfully. The central idea here is that the tax payer must have acted wilfully in committing his or her tax crime. In certain offences, called statutory offences, it is argued that mens rea is not required. It is also argued that taxation offences are statutory offences, and hence mens rea is not required. The offences are strict statutory offences for which establishment of mens rea is not an essential[2] ingredient. Supreme Court, High Courts and Tribunals have consistently held that mens rea is not an essential ingredient for imposing a penalty unless statute specifically prescribes so. The SEBI Acts and Regulations also says breach of provisions of SEBI Act and Regulations which are civil in nature, mens rea is not essential. There are various decision in which the courts have given judgements that mens rea is not essential for imposing penalty.
Tax evasion has only three basic elements:
- Wilfulness – there is the offense of wilfully attempting to evade or defeat the assessment of tax. This is more obvious form of evasion and it occurs when a taxpayer files a false return by under reporting his income/turnover or overstating his deductions or credits. This can be also in cases where there has been procedural defaults. The role of mind or thinking is determined here through the series of acts or evidences.
- The existence of tax deficiency – There is the offence of wilfully attempting to evade or defeat the payment of tax. This step requires to check the difference between the actual tax paid and the tax liable to be paid as per the legal provisions.
- An affirmative act constituting an evasion (or attempted evasion) of tax [3]– the actual act done by the assesse which resulted in tax evasion is taken into consideration. This is normally seen in conjunction with ‘wilfulness’.
The Supreme Court held in a case[4] that it was possible to wilfully evade or defeat the payment of tax without engaging in fraud or deceit by filing a true return by moving one’s asset beyond the Indian Revenue service officer’s reach. That is, a taxpayer could simply file an accurate return, but take steps to evade paying the actual tax liability by transferring his assets to certain trusts or entities or locations where the IRS cannot reach them. In such case, technically, there was no deceit or fraud because there was no “misrepresentation” to the IRS. The tax return was correct.
In another case, The Hon’ble Supreme Court[5] considered as issue as to whether ingredients of mens rea was necessary in case of a person who is found violating the provisions of the Foreign Exchange Regulations Act, 1947. The Court observed as under:-“‘Mens rea’ is a state of mind. Under the criminal law, mens rea is considered as the ‘guilty intention’ and unless it is found that the ‘accused’ had the guilty intention to commit the ‘crime’, he cannot be held ‘guilty’ of committing the crime. 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 of forfeiture provided as punishment for the violation of criminal laws. We, therefore, hold that mens-rea (as understood in criminal law) is not an essential ingredient for holding a delinquent liable to pay penalty. Our answer to the first question formulated by us above is, therefore in the negative.”
‘Mens Rea’ under new law of GST
It is important to read and interpret the provisions of the GST Act with respect to the scope for mens rea. A person should be punished for deliberate defiance of law, rather than something which didn’t do intentionally or something which happened accidently etc. The provisions containing words like ‘voluntarily’, ‘intentionally’, ‘negligently’, ‘knowingly’, fraudulently’, ‘dishonestly’, ‘rashly’, ‘omits’, ‘without lawful authority’ etc. are words which clearly depicts the role of mens rea. Situations where ‘misrepresentation’ is clear, involves considering mens rea. As said[6], “The existence of mens rea as an essential ingredient of an offence has to be made out by the construction of the statute.”
Thus provisions under CGST ACT or SGST ACT like section 122, where in sub section 1 clause (i) embodies words like “issues false invoices” or in clause (viii) “fraudulently obtains refund” or in clause (x) “falsifies or substitutes financial records with an intention to evade tax” or clause (xii) “furnishes any false information” or clause (xvii) “furnishes false information” or sub section (2) clause (b) says “for reason of fraud or wilful mis-statement” are enacted where mens rea becomes necessary element.
Similarly, under section 130 it is prescribed that the goods are liable for confiscation where the transaction “Contravenes any provisions of the Act/Rules with the intention of evading payment of tax”.
“For the purpose of Section 129(1) of the Act, it is not only necessary for the revenue to establish that there is a technical violation of the Act and/or the Rules framed thereunder but that such a violation has a revenue impact inasmuch as the revenue is burdened to specifically allege and establish that the alleged violation of the Act and/or the Rules, as may be alleged, has been caused by the assesse with intention to evade payment of tax”[7].
Some important decisions of honourable High Courts under the new law of GST initially framing the ratio discussing mens rea on Section 129 and Section 130 of CGST Act, 2019
- Rule 138A of the CGST Rules 2017, Section 129 of the CGST / SGST Act, 2017 M/s Ramdev Trading Company and another Versus State of U.P. And 3 others[8]
Mere absence of TDF without an intention to evade taxes, is purely a technical breach and therefore penalty is not sustainable on the said grounds. Penalty and seizure is not sustainable for movement of goods without Transit Declaration Form (TDF) unless there exists malafide intention to evade taxes.
- Section 129 of Goods and Service Act, 2017 in the High Court of Allahabad, Ganga Industries v. Union of India
The goods and the vehicle of the petitioner had been seized as the date of the tax invoice mentioned in the E-WAY bill was different from the date mentioned in the tax invoice. The petitioner had filed a writ petition before High Court of Allahabad for release of goods & vehicle seized.
The High Court of Allahabad observed that the petitioner was the owner of the goods and there was no allegation of having mens rea or to evade tax, therefore, it would not be a valid ground for the seizure of the goods.
Whereas most of the decisions of honourable High Courts under the new law of GST does not at all recognise the essentiality of mens rea on Section 129 and Section 130 of CGST Act, 2019
- Section 129 (4) of the CGST Act Bright Road Logistics (P.) Ltd. v. Commercial Tax Officer, Bengaluru[9]
It is apparent that the contention raised by the learned counsel for the petitioner, that no opportunity has been afforded under Section 129 (4) of the CGST Act stands falsified. Court held that it is apparent that the alleged owners have waived the right of hearing and have consented, levy of tax and penalty and have undertaken to pay as per the provisions of Section 129 (1)(a) of the CGST Act. Despite the same, the petitioner has been heard in the matter. As stated earlier, the matter requires adjudication of facts, which are seriously disputed by the parties. This Court in exercise of supervisory jurisdiction cannot enter upon and adjudicate factual issues under Article 226 of the Constitution of India, in the light of availability of an alternative remedy.
- Section 129 of the Central Goods and Services Tax Act, 2017: Stove Kraft Pvt. Ltd. vs. Assistant State Tax Officer, SGST Dept., Muthanga[10]
Three invoices for one e-way bill generated can be possible where the e-way bill shows all the three invoice numbers. The department may get confused in such case. But the goods must not be detained since there is no illegality.
- Sec 129 of CGST Act 2017. F.S. Enterprise V. State of Gujarat[11]
Transporter carrying Xerox copy of lorry receipt with certain details mentioned manually as per the GST law, lorry receipt is not a prescribed document to be carried during the movement of goods. Therefore, the authorities are not empowered to detain goods / vehicles on account of deficiency in lorry receipt. Basis the above, the Court held the detention order to be illegal.
- Section 130, 2 (105), 122, 129 and 130 of CGST Act, 2017 Ashok Kumar Bhatia Vs State Of UP[12]
For seizure and detention of goods or vehicle, If ‘any person’ transports any goods or stores any goods while they are “in transit” in contravention of the provisions of the Act or Rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure shall be released on conditions as laid down in sub clauses (a), (b) and (c) of Sub Section (1) of Section 129 of Act, 2017. Such person need not be the owner of the business or the actual supplier.
[1] L.R. 2 C.C.R. 154 (1875)
[2] J.K industries ltd. v. chief inspector of factories and boilers
[3] https://klasing-associates.com
[4] In Kawashima v. Holder, 132 S. Ct. 1166 (2012)
[5] Director of Enforcement v. MCTM Corporation Pvt. Ltd. and Ors., AIR 1996 SC 1100
[6] A Full Bench of Andhra Pradesh High Court, in Additional, Commissioner, Income Tax v. Durga Pandari Nath Tulijayya & Co., 1977 Tax LR 258,
[7] Ramdev trading company v. state of UP(30.11.2017 – ALLHC)
[8] 2017 (12) TMI 341 – Allahabad High Court
[9] [2019] 101 taxmann.com 371 (Karnataka)
[10] KERHC W.P. (C) No. 3957 of 2019 MANU/KE/0944/2019
[11] 2019-VIL-154-GUJ
[12] WRIT TAX No. – 1660 of 2018
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