M.C. AGARWAL, J.
(1) BY this revision petition, the Commissioner of Sales Tax challenges an order dated 18th august, 1988, passed by the Sales Tax Tribunal, Allahabad Bench I, whereby it quashed a penalty of Rs. 31,351/- levied on the dealer-respondent under Section 10a read with Section 10 (d) of the Central Sales Tax Act.
(2) I have heard Shri K. M. Sahai, learned Standing Counsel for the revisionist, and Sri Bharat Ji agarwal, learned Counsel for the dealer-respondent.
(3) THE dealer-respondent is a manufacturer of 'hosiery cloth' and 'hosiery goods' and is registered under the Central Sales Tax Act. In its application for registration, it mentioned the goods to be manufactured by it as 'manufacture of hosiery'. The same was mentioned in the certificate of registration granted to it and in the column meant for mentioning the goods that the dealer was entitled to purchase under Section 8 of the Central Sales Tax Act, the registration certificate mentioned certain machines.
(4) SAME was the position of the application moved by the dealer for registration. Copies of the application for registration and the registration certificate have been annexed as Annexures'!' and '2' respectively to the revision petition showing that the registration certificate was issued on 20th December, 1973, to be effective from 13th September, 1973. It means that the dealer started its business in September, 1973. Under Section 10 (d) read with Section 10a of the Central Sales tax Act, a dealer is liable to penalty if after purchasing any goods for any of the purposes specified in Clause (b) or Clause (c) or Clause (d) of Sub-section (3) of Section 8, fails without reasonable excuse to make use of the goods for any such purpose. The dealer-respondent had purchased the yarn from outside the State availing the concession under Section 8 of the Act and, inter alia, manufactured 'hosiery cloth' from the goods so imported.
(5) PROCEEDINGS for levy of penalty were initiated for the year under consideration, that is 1976-77 on 7th July, 1983, on the basis of some audit objection. The assessment order was passed as far back as 24th February, 1979. The audit objection was that the dealer was registered for manufacture of hosiery which means articles of hosiery like banyan and underwears etc. and the use of the imported yarn for manufacture of hosiery cloth was in violation of Section 10 (d) of the act. This thinking was adopted by the assessing officer who levied the aforesaid amount of penalty. The dealer's first appeal failed, but, on second appeal, the Tribunal held that the dealer had a reasonable excuse for using the imported yarn for purposes of manufacture of hosiery cloth because he was under the belief that manufacture of hosiery, as mentioned in the registration certificate, permits him to manufacture hosiery cloth which it was doing right from the inception and no objection was raised by the assessing officer, who, even for the year under consideration completed the assessment accepting that there was no violation of the terms of registration and misuse of the goods purchased from outside the State after availing the tax concession.
(6) THE learned Standing Counsel contended that 'hosiery' does not include 'hosiery cloth' and it means only hosiery goods like banyan, underwears and covering for legs and feet like socks and stockings and, therefore, the use of the yarn for manufacture of hosiery cloth was impermissible and the penalty was rightly levied.
(7) 'hosiery' has been described in the Encyclopaedia Britannica, Volume 11, (1949 Ed.) as a covering for the legs and feet. It further states that in Great Britain, the word "hosiery" is used to include all types of knitted fabrics, whereas in the United States, hosiery is restricted to mean socks, stockings, and other coverings for the legs and feet. This description shows that in england, any knitted fabric falls in the description of hosiery and hosiery cloth, as produced by the dealer-respondent, is nothing, but a knitted fabric. According to this description, therefore, the hosiery cloth produced by the dealer-respondent comes in the description of hosiery. There is a detailed discussion of the various processes of manufacture and of machines some of which produce specific items of hosiery while others produce what is described as knitted fabrics. According to this description, therefore, hosiery is a general word that can cover the hosiery fabric as well as hosiery products like banyan, stockings etc. etc.
(8) IN British India Corporation Ltd. v. Commissioner of Sales Tax -1980 UPTC 1078, the question was whether sweaters, cardigans and pullovers come within the definition of hosiery. The dictionary meaning of hosiery, as given in various dictionaries was mentioned and it was held that the word hosiery used in various notifications under the U. P. Sales Tax Act has to be understood in a wider sense in which it applies to all knitted articles instead of confining it to under-clothing. This ruling can lead one to the belief that hosiery cloth also being a knitted article is hosiery.
(9) WHEREVER the Legislatures thought it necessary to distinguish between hosiery cloth and hosiery goods, they have done so. In Jaipur Hosiery Mills Private Ltd. and Ors. v. State of rajasthan and Ors.-19 STC 416, a reference is made to a notification of the Rajasthan government excluding hosiery products from the exemption granted to garments.
(10) IN Sri Ram Hosiery Works v. The State of Bihar - 34 STC 320, the Hon'ble Patna High Court held that hosiery banyan and hosiery cloth are different articles. In this judgment, reference is made to a notification that described the goods at Item No. 27 as 'hosiery cloth sold in length'.
(11) THERE is no doubt that hosiery products and hosiery cloth are different things. In the present case, however, the dealer's application as well as the registration certificate mentioned the item to be manufactured by the dealer as merely 'hosiery'. It did not specify whether it would manufacture hosiery cloth or hosiery goods like banyan and underwears etc. The above description of hosiery shows that the dealer's belief that he is entitled to manufacture hosiery cloth as well cannot be said to be without any basis. His belief was re-inforced by the fact that for about a decade, no one objected to this and the assessing officer was from year to year approving the use of imported yarn from outside the State for the manufacture of hosiery cloth. The dealer is not accused of concealing anything nor is it the case of the department that it never came to its notice that the dealer was manufacturing hosiery cloth also.
(12) COPIES of the application for registration and the registration certificate show that the dealer received very poor quality of service from its tax consultant, if any, and the officers of the department. Though the dealer was to manufacture hosiery, its application did not mention that it would be importing yarn for that purpose although it had been doing so right from the very beginning. The assessing officer also seems to have been under the impression that hosiery includes hosiery cloth and probably that is why it did not require the assessee dealer to clarify whether he would manufacture hosiery cloth or other hosiery goods and year after year, he did not raise any objection till an audit party took a contrary view. The Tribunal has mentioned that the dealer had applied for amendment of the registration certificate to include therein the purchase of yarn of all kinds. That application was made as early as 25th January, 1974, and the assessing officer never disposed of the same and the assessee continued to import yarn of all kind without any objection by the assessing officer.
(13) THE aforesaid facts and circumstances show that the dealer had a reasonable cause for believing that he is authorised to manufacture hosiery cloth from the yarn imported by it from outside the State availing the tax concession under Section 8 of the Act.
(14) AS laid down by the Hon'ble Supreme Court in Hindustan Steels Limited v. State of Orissa 83 itr 26, penalty will not
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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 obligations. As is evident from the circumstances of this case, it is not shown that the dealer knew that it was not authorised to manufacture hosiery cloth from the yarn purchased from outside the State and yet used the same for such purpose thereby violating the provisions of Sections 8 and 10 (d) of the Act. On the other hand, the dealer reasonably believed that he is justified in doing so and his belief was re-inforced by the conduct of the assessing officer in accepting that what he was doing unobjectionable. (15) FOR the above reasons, the Tribunal's order quashing the penalty does not suffer from any illegality. This revision petition, therefore, fails and is hereby dismissed with costs that I assess at Rs. 1,500/ -.