Lenient view in case of bona fide belief or technical lapses :
Supreme Court in Hindustan Steel Ltd. v. State of Orissa AIR 1970 SC 253 = 25 STC 211=83 ITR 26 = (1969) 2 SCC 627 = 2 ELT (J159) (SC), observed as follows : The discretion to impose penalty must be exercised judicially. A penalty will ordinarily be imposed in case where the party acts deliberately in defiance of law, but not in cases where there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable under the Act. – – An order imposing penalty for failure to carry out a statutory obligation is the result of quasi-judicial proceeding. Penalty will not be ordinarily 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 obligation. Penalty will not be imposed merely because it is lawful to do so. – – Even if a minimum penalty is prescribed, the Authority will be justified in refusing to impose penalty, when there is a technical or venial breach of the Act or where breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the Statute – quoted with approval in Shiv Dutt Fateh Chand v. UOI – (1983) 53 STC 289 (SC) = AIR 1984 SC 1194= 148 ITR 664 (SC).
In Bharjatiya Steel Industries v. CST (2008) 11 SCC 617 = 13 VST 514 (SC), it was held that when assessing authority has been conferred with a discretionary jurisdiction to levy penalty, by necessary implication, the authority may not levy penalty. If it has discretion not to levy penalty, existence of mens rea is a relevant factor. [In earlier para of the judgment, it has been held that where adjudicatory authority has no discretion in imposing penalty, existence of mens rea is not relevant].
In Cement Marketing Co. of India v. Asstt. Commissioner of Sales Tax – (1980) 1 SCC 71 = (6) ELT 295 (SC) = 124 ITR 15 = 4 44 = (1980) 45 STC 197 (SC) = AIR 1980 SC 346 also, it was held that even if a minimum penalty is prescribed, the authority will be justified in refusing to impose a penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed in the statute. In this case, it was held that ‘falsely represents’ postulates mens rea in that the representation should be something which in fact and to his knowledge is false, and this element would be excluded if the person acted in bona fide belief that his representation is true.
In D Navinchandra v. UOI – 1987 (29) ELT 492 (SC) = 1987 (3) SCC 66 and B Vijay Kumar v. UOI – AIR 1987 SC 1794 also, it has been held that bona fides must be considered while imposing penalty.
No penalty if party had bona fide belief – If party did not pay tax due to bona fide belief, it cannot be said that it acted deliberately in defiance of law or that its conduct is dishonest or that it had acted in conscious disregard of its obligation. Imposition of penalty in such case is not justified. – EID Parry v. ACCT 2000 AIR SCW 86 = 117 STC 457 = AIR 2000 SC 551.