1. The appellant has preferred this appeal under section 22-A of the J&K Motor Spirit and Diesel Oil (Taxation of Sales) Act, 2005 (1948 A.D.) (hereinafter referred to as `the Act' in short) against the order dated 31-07-2003 passed by the Deputy Commissioner, Sales Tax, Appeals, Jammu (hereinafter referred to as "the Appellate Authority" in short) whereby the appeal filed by the appellant under section 22 of the Act against the order dated 25-07-2001 passed by the Petrol Taxation Officer, Jammu ( hereinafter referred to as "the PTO" in short) has been dismissed. 2. The material facts giving rise to this appeal in brief are that the appellant is a Govt. of India enterprises and deals in refining of crude petroleum and sale of petroleum products. The appellant in the monthly returns for the year 2000-01 filed in Forms P-4 has charged shortages on account of evaporation loss, selling of downgraded HSD as LDO and use for self consumption, but these were disallowed by the PTO in his order dated 25-07-2001 passed under section 5 of the Act. The PTO levied tax and also imposed penalty. The appellant being aggrieved by this order, preferred an appeal before the Appellate Authority which was dismissed on 31-07-2003. Hence this appeal. 3. I have heard the learned counsel for the parties. I have also perused the record on the file. 4. Mr. Subash Dutt, Advocate appearing for the appellant, has contended that the PTO was not justified in enhancing the sale value of the appellant on the basis of rates of other companies and downgrading of HSD to LDO. He has further disputed the rejection of claims of excess shortages and the quantity consumed by the appellant for his own use. He has also argued that the imposition of penalty is not justified. Mr. M.A. Bhat, Advocate, on the other hand, has argued that the order of the Appellate Authority is perfectly valid and is in consonance with law. 5. Before taking up the merits of the case I shall dispose of an application filed by the learned Counsel for the appellant before this Tribunal on 20-09-2007 seeking permission to raise additional ground for the appeal. 5. Before taking up the merits of the case I shall dispose of an application filed by the learned Counsel for the appellant before this Tribunal on 20-09-2007 seeking permission to raise additional ground for the appeal. In its application, it is alleged that the Petrol Taxation Officer has not assessed the appellant monthwise but has raised assessment for the full year 2000-01 which is against the provisions of the Act and this order is not sustainable in law and is liable to be quashed in view of judgment of this Tribunal in file No. 13- MST/2001/Trib dated 10-03-2004 in the case of appellant itself. The respondents contested this application on the ground that the present application is misconceived and the appellant cannot be allowed to take any additional ground for the first time in 2nd appeal because the same has not been agitated before the forums below. The appellant has not given any reasons for not raising such ground before the Authorities below. On 07-12-2007 it was decided by the learned counsel for both the parties that this application be decided alongwith main appeal. 6. It is a settled principle of law that a plea which is legal can be raised by any party before this Tribunal in 2nd appeal for the first time. However, any plea which is based upon law and facts of the case cannot be raised in 2nd appeal for first time. The additional ground which the learned counsel for the appellant wants to raise in this appeal at this stage is purely legal issue and can be raised at this stage in 2nd appeal. 7. From the perusal of the order of the learned PTO it appears that the assessment was made for the 12 months of the year 2000-01 for different depots of the appellant enterprises. This assessment is not a yearly assessment but is assessment of 12 complete separate months collectively. Only the questions which are common in all the months have taken up jointly. This fact is clear by the fact that for Srinagar Depot, Sant Nagar, it has been pointed out that during November, 2000 the appellant/assessee has deposited less tax and not in accordance with return P-4. It is also stated that during this period appellant has claimed excess shortages beyond the prescribed limit. This fact is clear by the fact that for Srinagar Depot, Sant Nagar, it has been pointed out that during November, 2000 the appellant/assessee has deposited less tax and not in accordance with return P-4. It is also stated that during this period appellant has claimed excess shortages beyond the prescribed limit. Similarly, for the Leh Depot the appellant has claimed excess shortages of HSD beyond the prescribed limit during the month of October, 2000. Further in the month of November, 2000 the appellant has shown certain quantity for its own use in return in Form P-4. This clearly shows that the PTO has assessed the appellant monthwise during this period. Thus the additional ground raised by the learned counsel for the appellant through the application dated 20-09-2007 cannot be accepted. 8. Now I will take up the merits of the appeal. The learned counsel for the appellant has contended that PTO was not justified in enhancing the sale value of the appellant on the basis of the rates of other companies and down grading of HSD to LDO. The rates for the sale of Motor Spirit and Diesel Oil are fixed under `Administered Price Mechanism'. All the 4 companies are Government undertakings and the rates for the sale of petroleum products are fixed by the Authorities. The learned PTO and the learned Appellate Authority have compared the rates shown by the appellant in its return forms P-4 with the rates shown by other three petroleum companies in their returns during the period in dispute. The rates shown by the appellant are less than the rates disclosed by other companies. The appellant has not shown any evidence to substantiate his plea that he has shown the rates of sale of the petroleum products for that period correctly. Accordingly, I would hold that enhancement of the sale value of the product proportionately in respect of appellant by the learned PTO was proper and justified. 9. The appellant has also shown that 11128 litres of HSD was down graded and sold as LDO in depot Sant Nagar, Srinagar. No specific reasons has been assigned by the appellant which necessitated him to do the same nor any evidence has been produced in support of this contention. 9. The appellant has also shown that 11128 litres of HSD was down graded and sold as LDO in depot Sant Nagar, Srinagar. No specific reasons has been assigned by the appellant which necessitated him to do the same nor any evidence has been produced in support of this contention. Even the appellant did not inform the department at that time for down grading of HSD and getting stock inspected from the PTO before disposing of the same as a different commodity. In such circumstances, this plea cannot be accepted. 10. For the foregoing reasons, I would hold that the learned PTO was justified in enhancing the sale value of the appellant on the basis of the rates for sale of petroleum products charged by other companies and also for down grading of HSD to LDO. 11. Now the question arises as to whether the excess shortages claimed by the appellant was rightly disallowed by the PTO and whether the quantity consumed by the appellant for its own use, has been properly assessed to tax by the learned PTO. This Tribunal in cases titled Hindustan Petroleum Corporation V/s Appellate Authority Revisions No. 2-MST/01/Trib, 3- MST/01/Trib, 4- MST/01/Trib ,5- MST/01/Trib ,6- MST/01/Trib, 7-MST/01/Trib decied on 07-02-2007 came to the conclusion that shortages of stock of MS & Diesel Oil due to evaporation is not taxable to the extent prescribed by Rule 18-A and in case of more than prescribed limit the assessee has to prove the same to the satisfaction of PTO specifically. If the assessee fails to prove shortage of stock on this account, then it will be presumed that the assessee has consumed this quantity for his own consumption. In such circumstances, such shortages shall be presumed to be a deemed sale and are chargeable to the tax. 12. The learned counsel for the appellant has disputed these findings of this Tribunal on the grounds that this Tribunal has wrongly held that the definition of sale given under section 2(h) of the Act is exhaustive and inclusive definition, and if the assessee fails to prove the shortage of stock on account of evaporation then it will be presumed that the assessee has consumed the same for own consumption and in such circumstances it is chargeable to tax. The learned counsel for the appellant after relying upon cases Krishi Utpadan Mandi Samiti V/s Union of India; (2004) 267 ITR, 460 (Allahabad) and Punjab Land Development and Reclamation Corporation Ltd V/s Presiding Officer Labour Court (1990) 3 SCC 682 , stated that earlier part of the definition of sale is restricted and the later part of the definition of sale is inclusive. It is further stated that the fact that the later part of the definition of sale is inclusive shall not have any affection on the restrictive definition of sale given in the earlier part, because inclusive part of the definition of sale shall not convert the earlier restrictive part to an exhaustive part. 13. In my opinion the merits of the case are not effected if it is held that the definition of the sale is exhaustive and inclusive or definition of the sale is restricted and inclusive. The finding in this respect shall not change the merits of case in anyway. Thus I feel no findings are required on this aspect. 14. Rule 18-A of the Rules framed thereunder the Act allows shortages of stock due to leakage or evaporation to the extent shown therein the Rule. Rule 18-A reads as under:- Rule 18-A: Leakages allowed: -- Unless the dealer proves to the contrary, the Petrol Taxation Officer may not ordinarily allow shortage of stocks attributed to leakage, evaporation or variation in temperature at a proportion higher than that specified below: Place Motor Spirit Diesel Oil 1. Jammu Division excluding Banihal 1% Nil 2. Banihal 2% 0.5% 3. Kashmir 2% 1% This Tribunal has held that Rule 18-A is not mandatory but is directory. This Rule allows the permissible shortages of stock of MS & Diesel Oil for different places. The words `Unless the dealer proves to the contrary" in this Rule allow higher percentage of shortage of stock because of leakage, evaporation or variation in temperature, if assessee proves the same to the satisfaction of PTO. This Rule clearly lays down that the shortage of MS & Diesel Oil in any region stated in the Rule to the extent prescribed by the Rule is permissible without any evidence but in case of more than the prescribed limit the assessee has to prove the same specifically by stating reasons. This Rule clearly lays down that the shortage of MS & Diesel Oil in any region stated in the Rule to the extent prescribed by the Rule is permissible without any evidence but in case of more than the prescribed limit the assessee has to prove the same specifically by stating reasons. The burden lies on the assessee to prove that higher percentage of shortage of stock occurred due to leakage, evaporation or variation in the temperature. There is nothing on the record to show that any extra ordinary reason occurred resulting in shortages in excess of the prescribed limit. The appellant has not produced any evidence to prove such loss and the assessee has shown less stock in its returns P-4. Thus the learned PTO was justified in disallowing the claim of the appellant. 15. Similarly the appellant has also claimed consumption of MS & Diesel Oil for its own use in respect of Leh Depot during the month of Nov, 2000. The definition of sale replies the contention of the learned counsel for the appellant in this respect. The definition of the sale includes the consumption of the MS & Diesel Oil by the dealer for his own use. The petitioner is thus not entitled for exemption on this ground also . Thus the action of the learned PTO levying tax on this account is also justified. 16. The learned counsel for the appellant has also disputed the imposition of penalty upon the appellant on the ground that no notice was served upon the appellant. The learned counsel for the respondent has submitted that no notice is required before imposing penalty in such proceedings because no prescribed show cause notice has been provided under the Act and Rules before imposing penalty. 17. It is a settled law that penalty proceedings in revenue matters are quasi criminal in nature and the Assessing Authority before imposing penalty, has to return a finding that there are grounds which have compelled him to impose penalty. In other words, such order must be a speaking order & penalty for default can be imposed only when the authority comes to the conclusion that default has been committed without a reasonable cause. 18. In case "Hindustan Steel Ltd. Vs The State of Orissa, 25 STC 211". In other words, such order must be a speaking order & penalty for default can be imposed only when the authority comes to the conclusion that default has been committed without a reasonable cause. 18. In case "Hindustan Steel Ltd. Vs The State of Orissa, 25 STC 211". The Hon'ble Supreme Court of India has held:- "An order imposing penalty for failure to carry out a statutorty obligation is the result of a quasi-criminal proceeding, and penalty will not 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 obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minium penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute." 19. The Hon'ble Supreme Court of India has held in number of cases that the penalty proceedings are penal in character. Before a penalty can be imposed the entirety of the circumstances must be taken into account and must point to the conclusion that the assessee has consciously concealed material particulars or deliberately furnished inaccurate particulars. The mere falsity of the explanation given by the assessee is insufficient without there being in addition, cogent material or evidence from which the necessary conclusion attracting a penalty could be drawn. Reliance is placed upon cases, "CST V/s Anwar Ali, 26 STC 696"; Anantharam Veer Singhaish & Co. V/s CIT, (1980) 123 ITR 457 and " Mathura Prasad Aggarwal V/s CIT, (1979) 108 ITR 370. 20. In case East India Hotel V/s State of J&K, Tax Gazette Vol. 12 (1982), it was held by Hon'ble High Court of Jammu & Kashmir:- "14:- In writ petition No. 17 of 1979 the additional point taken before us was that the order regarding the imposition of penalty was unjustified in law. The Assessing Authority has imposed the penalty of Rs. 12 (1982), it was held by Hon'ble High Court of Jammu & Kashmir:- "14:- In writ petition No. 17 of 1979 the additional point taken before us was that the order regarding the imposition of penalty was unjustified in law. The Assessing Authority has imposed the penalty of Rs. 200/- on the petitioner for contravening clause (c) of Section 17 of the Act which empowers the Assessing Authority to impose penalty on the assessee if he has without reasonable cause failed to furnish the return of his turnover or failed to furnish it within the time allowed by law. In this case the Assessing Authority has not indicated in what way the assessee petitioner has committed contravention of his clause. The order imposing the penalty is vague and, if I may say so, non speaking and cannot be sustained in Law. The order of penalty it, therefore, quashed. To this limited extent, the writ petition succeeds and is allowed. The order imposing the penalty or Rs. 200/- on the petitioner is hereby quashed. The assessment order dated 31-03-1979 shall otherwise remain in tact. In view of petitioner's part success we make no order as to costs in this petition." 21. The same view was taken by our own Hon'ble High Court again in case "M/s R.K Shoes Co. V/s State of J&K, W.P 746 of 1995 by holding that penalty could only be imposed after the Assessing Authority comes to the conclusion that default has been committed without a reasonable cause. 22. On Combined reading of the Judicial decisions mentioned above, the following propositions of law reagarding penalty proceedings emerge:- a. that penalty proceedings are penal in character and are thus quasi criminal in nature; b. that the penalty can be imposed only when the authority comes to the conclusion that default has been committed by the assessee without a reasonable cause, c. that the assessee has consciously committed the default or deliberately furnished inaccurate particulars; d. that a reasonable sufficient opportunity is provided to the assessee before imposing penalty; and e. that the order of imposing penalty must be reasonable and speaking. 23. In the instant case it is admitted fact that the learned PTO has not served any notice before imposing penalty. 23. In the instant case it is admitted fact that the learned PTO has not served any notice before imposing penalty. The learned Appellate Authority repelled this contention of the learned counsel for the appellant on the ground that there is no prescribed show cause notice to be issued before the imposition of penalty under section 9 of the Act. The learned PTO has also not given any findings in his order and has only calculated penalty on the basis of the amount of tax alleged to have been evaded by the appellant. 24. As stated above the penalty proceedings are quasi criminal in nature and are penal. Before imposition of penalty the person on whom the penalty is imposed, is required to inform specifically as to on what ground the penalty is being imposed on him and affording him sufficient opportunity to explain his position. In the instant case the penalty order was passed alongwith the assessment order and no notice was served upon the appellant for imposing penalty. He has not been afforded sufficient opportunity to explain his position in the matter and thereby the principles of natural justices have been contravened. Under these circumstances, the order of imposition of penalty is not justified and cannot sustain in as much as the principles of fair trial has been contravened. The penalty order is not a speaking order. Thus the penalty order is bad. Accordingly, the order in respect of imposition of penalty is hereby quashed. Hence the appeal of the appellant is partially allowed in respect of imposition of penalty only and is dismissed on other aspects. The appeal file be consigned to records and the record of lower authorities be sent back forthwith.