# M/s Ace Manufacturing Systems Limited v. State of UP & Ors

- **Citation:** (2024) 5 ILRA 1598
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2024-05-13
- **Case number:** Writ Tax No. 1348 of 2022
- **Bench:** Shekhar B. Saraf
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-ace-manufacturing-systems-limited-v-state-of-up-ors-51997
- **Pages:** 4

## Headnote

(A) Tax Law - Presence of mens rea for
evasion of tax is a sine qua non for
imposition of penalty - Mens Rea: A
Jurisprudential Principle in Taxation - Mens
rea, or the presence of a guilty mind, is a
5 All. M/s Ace Manufacturing Systems Limited Vs. State of U.P. & Ors.
1599
prerequisite
for
penalty
imposition
-
protects individuals' rights from arbitrary
governmental
authority
-
emphasizes
procedural fairness in taxation - Balances
regulatory enforcement and individual
rights,
promoting
transparency
and
accountability. (Para -9)

Petitioner's Over Dimensional Cargo (ODC) Case
- Cargo declared as ODC - Authorities ruled -
faster travel and quick destination disqualify
vehicle as ODC - penalty(tax) imposed on ODC
goods against the petitioner - aggrieved by
seizure order - penalty order - appellate orders -
hence petition. (Para - 1,2)

HELD:-
Petitioner's
penalty

based
on
assumptions and conjectures, contradicting a
departmental circular that asserts that taxing
ODC goods that traveled at a faster speed is not
a valid basis for imposing such taxes. Writ of
certiorari issued against orders quashed and setaside.
Consequential
reliefs
to
follow.
Respondents directed to return security and
penalty paid within six weeks. (Para - 8,10,11)

Petition allowed. (E-7)

List of Cases cited:

## Text

1598 INDIAN LAW REPORTS ALLAHABAD SERIES
saves time and is intended to deal with local
variations and the power to legislate by
statutory instrument in the form of rules and
regulations is conferred by Parliament. The
main justification for delegated legislation
is that the legislature being overburdened
and the needs of the modern-day society
being complex, it cannot possibly foresee
every administrative difficulty that may
arise after the statute has begun to operate.
Delegated legislation fills those needs. The
regulations made under power conferred by
the statute are supporting legislation and
have the force and effect, if validly made, as
an Act passed by the competent legislature."
(Emphasis added)

In Newspapers Ltd. Vs.
State Industrial Tribunal, U.P. And

Others, 1957 SCC Online
SC 32. In paragraph-19 the Court held:-

"19....The cardinal rule in regard
to promulgation of by-law or making rules is
that they must be legi fidei rationi consona,
and therefore all regulations which are
contrary or repugnant to statutes under
which they are made are ineffective..."
(Emphasis added)

9. The principle of law is well settled
that law should be consonant with principles
of faith and reason, delegated legislation
such as regulations framed under an Act,
cannot be in conflict with its principal
legislation.
Regulations
need
to
be
consistent and harmonious with the statutes
under which they are formulated. The
Electricity Act of 2003 provides the
statutory
framework
within
which
regulations are enacted, and any regulations
promulgated must be aligned with and not
contradict the provisions of the principal
legislation.

10. Counsels for the respondents could
not explain the said conflict between the
regulation and section. Bank rate is variable
and is based upon large number of
considerations. The legislature in its best
wisdom has provided the same to be charged
while adjusting the amount, therefore, the
respondent
no.1
Central
Electricity
Regulatory Commission did not have any
power to provide any different rate of
interest in its regulations for adjustment
which is at variation from the amount
payable under Section 62 of the Act of 2003.

11. Thus, the said Regulation 5A to the
extent of fixation of payable interest for
amounts to be adjusted under Section 62 of
the Act of 2003, being in direct conflict with
Section 62(6) of the Act of 2003 is declared
ultra-vires and is quashed.

12. The writ petition succeeds and is
allowed.
----------
(2024) 5 ILRA 1598
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 13.05.2024

BEFORE

THE HON'BLE SHEKHAR B. SARAF, J.

Writ Tax No. 1348 of 2022

M/s Ace Manufacturing Systems Limited
 ...Petitioner
Versus
State of UP & Ors. ...Respondents

Counsel for the Peitioner:
Atul Gupta, Prakhar Shukla

Counsel for the Respondents:

(A) Tax Law - Presence of mens rea for
evasion of tax is a sine qua non for
imposition of penalty - Mens Rea: A
Jurisprudential Principle in Taxation - Mens
rea, or the presence of a guilty mind, is a
5 All. M/s Ace Manufacturing Systems Limited Vs. State of U.P. & Ors.
1599
prerequisite
for
penalty
imposition
-
protects individuals' rights from arbitrary
governmental
authority
-
emphasizes
procedural fairness in taxation - Balances
regulatory enforcement and individual
rights,
promoting
transparency
and
accountability. (Para -9)

Petitioner's Over Dimensional Cargo (ODC) Case
- Cargo declared as ODC - Authorities ruled -
faster travel and quick destination disqualify
vehicle as ODC - penalty(tax) imposed on ODC
goods against the petitioner - aggrieved by
seizure order - penalty order - appellate orders -
hence petition. (Para - 1,2)

HELD:-
Petitioner's
penalty

based
on
assumptions and conjectures, contradicting a
departmental circular that asserts that taxing
ODC goods that traveled at a faster speed is not
a valid basis for imposing such taxes. Writ of
certiorari issued against orders quashed and setaside.
Consequential
reliefs
to
follow.
Respondents directed to return security and
penalty paid within six weeks. (Para - 8,10,11)

Petition allowed. (E-7)

List of Cases cited:

1. Girish & Co. Vs St. of U.P. & ors., Writ Tax
No.897 of 2019

2. M/s Hindustan Herbal Cosmetics Vs St. of U.P.
& ors., Writ Tax No.1400 of 2019

(Delivered by Hon'ble Shekhar B. Saraf, J.)

1. This is a writ petition under Article
226 of the Constitution of India wherein the
petitioner is aggrieved by the seizure order
dated October 23, 2021, penalty order dated
October 29, 2021 and the appellate orders
dated April 16, 2022 and July 22, 2022.

2. The case of the petitioner herein is
that the cargo being transported had been
declared as Over Dimensional Cargo
(hereinafter referred to as 'the ODC').
However, the authorities in the instant case
concluded that since the goods had travelled
at a faster speed and reached the destination
quickly, the vehicle cannot be categorised as
the ODC.

3. The counsel appearing on behalf of
the petitioner submits that the respondent
authorities did not undertake the task of
calculating the height of the goods which
clearly would have indicated that the goods
would be classified as the ODC since the
same were 13.9 feet above the ground.
Counsel on behalf of the petitioner also
relied on a circular issued by the
Commissioner, State Tax dated January 17,
2024, which states in paragraph 2.4 as
follows:-

"2.4 Li"V gS fd Over Dimensional
Cargo dk fu/kkZj.k mijksDr izko/kkuksa ds n`f"Vxr fd;k
tkuk visf{kr gksxkA Over Dimensional Cargo ls
lacaf/kr okgu gksus ds n'kk esa dsoy bl vk/kkj ij
vfHkxzg.k fd;k tkuk gS fd ,sls fdlh okgu ds fu;e
1381⁄4101⁄2 ds v/khu fofgr vf/kdre nwjh ,oa le; lhek
dh rqyuk esa de le; ls vf/kd nwjh r; dh gS fof/kd
:i ls mfpr ugha gSA vr% mijksDr izdkj ds izdj.kksa
esa eky rFkk okgu dk vfHkxzg.k fd;k tkuk flok; ml
fLFkfr ds tgkWa vkyksP; okgu }kjk mijksDrkuqlkj izkIr
vf/kd le;kof/k dk iz;ksx leku
 izi=ksa ds vk/kkj ij eky ds iquiZfjgou gsrq fd;k tk
jgk gS] mfpr ugha gS"

4. In the above circular, it has also been
pointed out that a vehicle other than a double
decked transport, the vehicle height of
which exceeds 3.8 meters, would be
classified as the ODC.

5. Counsel on behalf of the petitioner
has submitted that 3.8 meters amounts to
12.46 ft whereas in the case of the petitioner
the height of the goods was 13.8 ft.

6. Counsel on behalf of the
respondents submits that the speed at which
1600 INDIAN LAW REPORTS ALLAHABAD SERIES
the goods have travelled clearly indicates
that the vehicle cannot be categorised as
ODC.

7. The above submission of the counsel
on behalf of the respondents cannot be
accepted as the circular issued by the
Commissioner clearly indicates that the
speed of a vehicle is not a criterion to decide
the nature of the Cargo. It is to be further
noted that the other documents in the vehicle
i.e. invoice, e-way bill and bilty were all in
order and matched with the goods in
question. The sole reason for imposing
penalty in the present case is the fact that the
goods had travelled at a fast speed, and
therefore, according to the authorities could
not be categorised as the ODC.

8. In my view, the entire premise on the
basis of which penalty has been imposed against
the petitioner is based on surmises and
conjectures and is also against the departmental
circular that clearly indicates that imposition of
tax on the ODC goods that had travelled at a
faster speed is not a tenable ground.

9. In the present case, the entire
imposition of penalty is based on surmises
and conjectures without there being any
basis or finding with regard to intention to
evade tax. One may rely upon the judgments
of this Court in the case of Girish and
Company vs. State of U.P. and others
(Writ Tax No.897 of 2019, Neutral Citation
No.-2024:AHC:9778) and M/s Hindustan
Herbal Cosmetics vs. State of U.P. and
others (Writ Tax No.1400 of 2019, Neutral
Citation No.-2024:AHC:209) where it has
been held that presence of mens rea for
evasion of tax is a sine qua non for
imposition of penalty.

9. The imposition of penalties on the
petitioner rests on shaky ground, devoid of
any substantive basis or findings indicating
an intention to evade tax. This deficiency in
evidentiary
support
undermines
the
legitimacy of the penalties and raises
questions about the procedural fairness of
the administrative actions taken against the
petitioner. In the absence of concrete
evidence demonstrating wilful misconduct
or deliberate intent to circumvent tax
obligations, the imposition of penalties
appears arbitrary and unjustified.

9. The jurisprudential principle that
mens rea, or the presence of a guilty mind,
is a prerequisite for imposition of penalties
holds immense significance. It serves as a
bulwark against the arbitrary exercise of
governmental authority and safeguards the
rights of individuals against unwarranted
punitive measures. Its application in the
realm
of
taxation
underscores
the
importance of ensuring procedural fairness.
By requiring the establishment of mens rea
as a prerequisite for penalty imposition, the
legal framework strikes a delicate balance
between
regulatory
enforcement
and
individual
rights,
thereby
fostering
transparency and accountability in the
administration of tax laws.

9. The mere fact that the goods in
question were transported at a faster speed
does not constitute sufficient grounds for
penalization, in light of the departmental
circular explicitly excluding transit speed as
a criterion for classification. The reliance on
speculative assumptions and conjectural
reasoning to justify the imposition of
penalties is antithetical to the principles of
fairness and equity that underpin the rule of
law. Moreover, the arbitrary imposition of
penalties without any discernible basis
undermines the credibility and integrity of
the tax administration system. It erodes
public trust in the fairness and impartiality
5 All. Sajid Vs. State of U.P.
1601
of governmental actions and fosters a
perception of arbitrariness and caprice. Such
actions not only prejudice the rights of the
affected parties but also undermine the
legitimacy of the regulatory framework as a
whole, casting doubt on the efficacy and
reliability of tax enforcement mechanisms.

10. The rationale behind the mens rea
requirement is twofold. Firstly, it serves to
preserve the integrity of the legal system by
distinguishing between inadvertent errors
and intentional misconduct. By requiring
evidence of wilful intent, it ensures that
penalties are reserved for those who
deliberately
flout
the
law,
thereby
safeguarding against unjust punishment and
preserving public confidence in the fairness
of the tax regime. Secondly, the mens rea
requirement acts as a deterrent against tax
evasion,
signalling
to
taxpayers
that
deliberate non-compliance will be met with
severe consequences. The prospect of
facing penalties serves as a powerful
disincentive for individuals and entities
tempted to engage in fraudulent or
deceitful conduct, thereby promoting
voluntary compliance with tax laws and
fostering a culture of accountability and
transparency. In the absence of wilful
intent, penalties lose their deterrent effect
and instead become arbitrary exercises of
state power, subjecting innocent taxpayers
to undue hardship and injustice. It is
imperative that penalty imposition be
grounded
in
sound
reasoning
and
substantive
evidence
of
wilful
misconduct.

10. In light of the above, the instant
writ petition is allowed. Accordingly, let
there be a writ of certiorari issued against the
orders dated October 23, 2021, October 29,
2021, April 16, 2022 and July 22, 2022. The
said orders are quashed and set-aside.
Consequential reliefs to follow.

11. The respondents are directed to
return the amount of security and penalty
paid by the petitioner within six weeks from
the date of this order. There shall be no order
as to the costs.
----------
(2024) 5 ILRA 1601
APPELLATE JURISDICTION
CRIMINAL SIDE
DATED: ALLAHABAD 21.05.2024

BEFORE

THE HON'BLE RAHUL CHATURVEDI, J.
THE HON'BLE MOHD. AZHAR HUSAIN
IDRISI, J.

Criminal Appeal No. 1686 of 2019
With
Criminal Misc. Application U/S 372 CR.P.C
(Leave to appeal) No. 106 of 2019

Sajid ...Appellant
Versus
State of U.P. ...Respondent

Counsel for the Appellant:
Satish Kumar Tyagi, Nanhe Lal Tripathi,
Perdeep Kumar Vishnoi, Ramesh Kumar
Pandey, Syed Ahmed Faizan, Zaheer Asghar

Counsel for the Respondent:
G.A., Mohd. Afzal, Satish Kumar Mishra

(A) Criminal Law - The Code of Criminal
Procedure, 1973 - Section 374(2) - Appeal
,Section 372 - No appeal to lie unless
otherwise provided , Indian Penal Code,
1860 - Section 498A, 307/34, 323/34 - The
Dowry prohibition Act, 1961 - Section 4 -
Judicial Propriety and Trial Judge's Pickand-Choose Decision - Judges should
make decisions with an open mind, not
preconceived notions - court must ensure
compatibility with the accused's financial
status. (Para -35,44)