High Court of KeralaDivision Bench2014-12-12Writ petitions allowed; impugned notices quashe...

E. O. Lawrence v. Commissioner of Commercial Taxes

Case / Petition Number:WP(C).No. 19561 of 2014 (U)

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: T. R. Ramachandran Nair
P. V. Asha
Judgment Date: 2014-12-12
Court Decision / Holding: Writ petitions allowed; impugned notices quashed. Writ appeals disposed of by closing since no refund is sought. Penalty orders will not survive, but the authorities may proceed afresh, after furnishing the materials and providing an opportunity to defend; to this end, the state authorities are directed to proceed from the stage as indicated, taking into account the amnesty scheme and the material unearthed, with due process.
Final Disposition: Writ petitions allowed; impugned notices quashed; writ appeals closed; penalties to not survive; authorities may proceed afresh with materials furnished and opportunity for defense, in light of amnesty considerations.

Parties to the Case

Appellants / Petitioners

E.O.Lawrence

Respondents

Commissioner of Commercial Taxes, Tax Tower, Karamana, Thiruvananthapuram-695002
Commercial Tax Officer, 1st Circle, Ayyanthole, Thrissur-686004
Intelligence Officer, Squad No. II, Commercial Taxes, Pankaj Building, West Fort, Thrissur-686004
Deputy Commissioner, Commercial Taxes, Ayyanthole, Thrissur-686004
Fast Track Team Thrissur (Inspt. Asst. Commissioner, Int., Commercial Taxes, Pankaj Building, West Fort, Thrissur-686004)
Inspecting Asst. Commissioner (Int), Commercial Taxes, Thrissur-686004

Legal Representation & Advocates

Counsels for Petitioners

• S. Ananthakrishnan

Counsels for Respondents

• Sri. George Meacheril

Case Synopsis & Summary

This is a batch of writ petitions filed in the Kerala High Court challenging penalties and notices issued under the Kerala General Sales Tax Act (KGST Act). The petitioner E.O. Lawrence, represented by S. Ananthakrishnan, challenges penalties arising from assessments proposed by the Commercial Taxes Department following searches and materials unearthed during the course of tax enforcement. The respondents include the Commissioner of Commercial Taxes, the Commercial Tax Officer (1st Circle) at Thrissur, the Intelligence Officer, the Deputy Commissioner, the Fast Track Team, and the Inspecting Asst. Commissioner (Int), Thrissur, all represented by the Special Government Pleader. The petition contends that the department relied on materials gathered by Income Tax authorities to finalise penalties, and invokes the amnesty scheme availed during pendency, arguing that the relief already obtained should reflect in the tax proceedings and that the Tribunal’s or department’s reliance on search materials cannot alone justify assessment or penalty. The court discusses eminent pronouncements by the Apex Court, notably Girdhari Lal Nannelal v. The Sales Tax Commissioner (M.P.) and M/s. P.C. Itty Mathew & Sons v. Deputy Commissioner of Sales Tax (Law), noting conflicting positions and subsequent reaffirmations by higher courts. Ultimately, the court holds that the department must furnish materials unearthed during searches to the assessee and afford a full opportunity to defend the action; the writ petitions are allowed, quashing the impugned notices, and directing authorities to proceed afresh with due process while considering the amnesty implications. The writ appeals are closed since no refund is sought, and penalties do not survive, though rights to re-fix liability remain open with proper procedure.

Provisions of Law Cited

KGST Act, Section 17D

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioners/assessees plead that penalties should not be sustained on the basis of materials seized during searches and the proceedings should be finalised only after allowing full disclosure and furnishing materials obtained by income tax authorities. They rely on established jurisprudence that the tax authorities must demonstrate materials linking funds to taxable transactions; they argue that availed amnesty must reflect in the outcome of assessments and penalties, and that a reopening based solely on IT materials contravenes due process. They contend that the court should follow the principle that information obtained during an inspection or search cannot automatically sustain an assessment without proper corroboration and opportunity to respond.

Contentions of Respondents

The respondents justify the notices and penalties by invoking the materials gathered by income tax authorities during searches and the necessity to assess liabilities. They contend that the legal framework permits reliance on undisclosed materials if sufficient. They argue that the Supreme Court decisions on the evidentiary value of search-derived materials and the weight of amnesty considerations must guide the final action, and that the authorities acted within statutory and procedural bounds when issuing the notices.

Cited Precedents (5)

Case Name	Citation	Treatment	Explanation
Girdhari Lal Nannelal v. The Sales Tax Commissioner, M.P.	(1977) 39 STC 30	Overruled	The judgment notes that the law declared in this case held that it was for tax authorities to show materials linking sums to taxable transactions; the present court states that the apex reversed this view, i.e., this stance was not accepted by the Supreme Court.
M/s. P.C. Itty Mathew & Sons v. Deputy Commissioner of Sales Tax (Law)	(SC) [(2000) 8 KTR 303]	Positive	The apex court affirmed the Tribunal’s order that relied on the earlier decision in Girdhari Lal, aligning with the proposition under consideration and thus supporting the course adopted in the present case.
S.T.R No.117/2012	—	Positive	A Division Bench of this court followed the legal position stated in the S.T.R No.117/2012 decision, indicating alignment with the court’s reasoning in the present matter.
O.P. Nos.28353 & 28182 of 1999	OP Nos. 28353 & 28182 of 1999	Mentioned Only	Cited in the judgment as earlier opinions; no direct treatment on the central issue is stated within the present decision.
W.P. Nos.8625, 8626 and 8627 of 2014	W.P. Nos. 8625-8627 of 2014	Mentioned Only	Mentioned as related judgments; the current decision does not rely on them as controlling precedents.

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Extracted Judgment Text

Exact text extracted from official judgment records.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE T.R.RAMACHANDRAN NAIR & THE HONOURABLE SMT. JUSTICE P.V.ASHA FRIDAY, THE 12TH DAY OF DECEMBER 2014/21ST AGRAHAYANA, 1936 ## WP(C).No. 19561 of 2014 (U) ---------------------------- PETITIONER(S): ----------------------- E.O.LAWRENCE, EDAKALATHUR, WELCOME VILLA, POONKUNNAM, THRISSUR-680 002. ## BY ADV. SRI.S.ANANTHAKRISHNAN RESPONDENT(S): ------------------------- 1. COMMISSIONER OF COMMERCIAL TAXES, TAX TOWER, KARAMANA, THIRUVANANTHAPURAM-695 002. 2. COMMERCIAL TAX OFFICER, 1ST CIRCLE, AYYANTHOLE, THRISSUR-686 004. 3. THE INTELLIGENCE OFFICER, SQUAD NO.II, COMMERCIAL TAXES, PANKAJ BUILDING, WEST FORT, THRISSUR-686 004. 4. THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, AYYANTHOLE, THRISSUR-686 004. 5. FAST TRACK TEAM THRISSUR. REPRESENTED BY THE INSPECTING ASST. COMMISSIONER, COMMERCIAL TAXES, PANKAJ BUILDING, WEST FORT, THRISSUR-686 004. 6. INSPECTING ASST. COMMISSIONER (INT), COMMERCIAL TAXES, THRISSUR-686 004. R1 TO R6 BY SPL. GOVT. PLEADER (TAXES), SRI.GEORGE MEACHERIL THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 12-12-2014, ALONG WITH W.A. NOS.1223, 1226, 1227 & 1231/2010, AND W.P.(C). NOS.17937, 19719, AND 21333/2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: P.T.O. WP(C).No. 19561 of 2014 (N) ---------------------------------------- ## APPENDIX ## PETITIONER(S)' EXHIBITS: ------------------------------------- - P1TRUE COPY OF JUDGMENT IN W.A.NO.2757 OF 1998. - P2TRUE COPY OF THE REQUEST OF THE PETITIONER TO THE 1ST RESPONDENT DT. 30.6.2003. - P3TRUE COPY OF THE REQUEST BY THE PETITIONER TO THE FINANCE MINISTER DT. 8.7.03. - P4TRUE COPY OF REMINDER BY THE PETITIONER TO THE FINANCE MINISTER DT. 7.12.2004. - P5TRUE COPY OF THE COMPLAINT BY THE PETITIONER TO THE FINANCE MINISTER DT. 25.1.2006. - P6TRUE COPY OF THE COMPLAINT BY THE PETITIONER TO THE 1ST RESPONDENT DT. 20.3.2006. - P7TRUE COPY OF THE COMMUNICATION DT. 9.6.2006 BY THE SECRETARY TO GOVERNMENT TO THE PETITIONER. - P8TRUE COPY OF THE TIME EXTENSION ORDERS FROM 31.3.12 TO 31.3.2013 ISSUED BY THE 4TH RESPONDENT. - P9TRUE COPY OF THE LETTER DT. 15.11.2013 ISSUED TO THE PETITIONER BY THE ASST. COMMISSIONER OF INCOME TAX. - P10TRUE COPY OF THE REPLY DT. 27.11.2003 BY THE PETITIONER TO THE ASST. COMMISSIONER OF INCOME TAX. - P11TRUE COPY OF THE LETTER DT. 28.11.2003 BY THE PETITIONER TO THE 3RD RESPONDENT. - P12TRUE COPY OF THE NOTICE DT. NIL BY THE 2ND RESPONDENT TO THE PETITIONER FOR PRODUCTION OF BOOKS AND ACCOUNTS. - P13TRUE COPY OF THE REPLY DT. 06.2.2014 BY THE PETITIONER TO THE 2ND RESPONDENT TO NOTICE DT. 9.1.2014. - P14TRUE COPY OF THE ASSESSMENT NOTICES DT. 20.2.2014 ISSUED TO THE PETITIONER U/S.17D OF KGST ACT BY FAST TRACK TEAM. - P14TRUE COPY OF THE ASSESSMENT NOTICES DT. 21.2.2014 ISSUED TO THE PETITIONER U/S.17D OF KGST ACT BY FAST TRACK TEAM. - P15TRUE COPIES OF THE REPLY BY THE PETITIONER DT. 12.3.2014 TO THE SECTION 17D NOTICES ISSUED BY FAST TRACK TEAM. WP(C).No. 19561 of 2014 :- 2 -: - P16TRUE COPIES OF THE ADDITIONAL REPLY DT. 13.3.2014 BY THE PETITIONER TO THE SECTION 17D NOTICES ISSUED BY FAST TRACK TEAM. - P17TRUE COPY OF THE JUDGMENT DT. 21.3.14 PASSED IN W.P.NO.6666 OF 2014. - P18TRUE COPY OF THE COMMON JUDGMENT DT. 27.3.14 IN W.P.NO'S.8625, 8626 AND 8627 OF 2014. - P19TRUE COPY OF THE LETTER DT. 11.4.2014 SUBMITTED BY THE PETITIONER TO THE 3RD RESPONDENT INTIMATING EXT.P18 JUDGMENT. - P20TRUE COPY OF THE RECORD RETURNED RECEIPT DT. 29.4.14. - P21TRUE COPY OF THE RECORD RETURNED RECEIPT DT. 5.5.14. - P22TRUE COPY OF THE NOTICE DT. 25.6.2014 ISSUED BY THE FAST TRACK TEAM FOR OBJECTION AND HEARING RECEIVED ON 30.6.2014. - P23TRUE COPY OF THE LETTER DT. 1.7.14 BY THE PETITIONER TO THE 3RD RESPONDENT REQUESTING RETURN OF COMPUTERIZED RECORDS. - P24TRUE COPY OF THE REPLY DT. 3.7.2014 BY THE 3RD RESPONDENT TO THE PETITIONER TO EXT.P23. - P25TRUE COPY OF THE REPLY DT. 8.7.2014 BY THE PETITIONER TO THE 2ND RESPONDENT TO EXT.P22 NOTICE. - P26TRUE COPY OF THE HEARING NOTICE DT. 9.7.2014 ISSUED BY THE 2ND RESPONDENT TO THE PETITIONER. - P27TRUE COPY OF THE JUDGMENTS IN O.P.NOS.28353 & 28182 OF 1999. - P28TRUE COPY OF THE LETTER DT.11.2.2013 ISSUED BY THE ASST. COMMISSIONER OF INCOME TAX. - P29TRUE COPY OF THE LETTER DT.24.2.2014 ISSUED BY THE PETITIONER TO THE 3RD RESPONDENT. - P-30 TRUE COPY OF THE ORDERS OF THE SETTLEMENT COMMISSION DT.24.10.2001. - P31TRUE COPY OF THE LETTER DT.27.3.2014 ISSUED BY THE PETITIONER TO THE 3RD RESPONDENT. - P32TRUE COPY OF THE RECEIPT DT.5.5.2014 ISSUED BY THE 3RD RESPONDENT. - P33TRUE COPY OF THE LETTER DT.2.11.1998 WITH ANNEXURES ISSUED TO THE PETITIONER BY DY. DIRECTOR OF INCOME TAX. WP(C).No. 19561 of 2014 :- 3 -: - P34TRUE COPY OF THE AFFIDAVIT DT.19.7.2014 FILED BY THE 5TH RESPONDENT IN W.P.NO.8627 OF 2014. - P35TRUE COPY OF THE LETTER DT.5.7.1999 ISSUED BY THE PETITIONER TO THE COMMISSIONER OF INCOME TAX. - P36TRUE COPY OF THE LETTER DT.29.3.2004 ISSUED BY THE 3RD RESPONDENT TO THE PETITIONER. - P37TRUE COPY OF THE LETTER DT.22.7.1999 ISSUED BY THE PETITIONER TO THE 3RD RESPONDENT. RESPONDENT(S)' EXHIBITS: ---------------------------------------- - ANNEXURE-R5(A)TRUE COPY OF THE LETTER DT.29.01.2009 ISSUED BY THE COMMISSIONER OF COMMERCIAL TAXES. - ANNEXURE-R5(B)TRUE COPY OF THE LETTER DT. 13.05.1999 OF THE DEPUTY DIRECTOR OF INCOME TAX, THRISSUR TO THE INTELLIGENCE OFFICER, SQUAD NO.II, THRISSUR. //TRUE COPY// P.S. TO JUDGE St/- ## **T.R.RAMACHANDRAN NAIR &** ## **P.V.ASHA, JJ.** ------------------------------------------------ **W.P.(C) Nos.19561, 17937, 21333 & 19719 of 2014 and W.A. Nos.1223, 1226, 1227 & 1231 of 2010** ------------------------------------------------ Dated this the 12[th] day of December, 2014 ## **JUDGMENT** ## **Ramachandran Nair, J.** The appellants in the Writ Appeals and the petitioners in the writ petitions are representing the same cause. As far as the writ appeals are concerned, the appellants challenged the impugned orders imposing penalty and the learned Single Judge dismissed the writ petitions, which resulted in filing the Writ Appeals. 2. We heard the learned Senior Counsel for the appellants in the writ appeals as well as for the writ petitioners and the learned Special Government Pleader for Taxes. 3. It is submitted that during the pendency of the writ appeals, the appellants have availed the benefit of amnesty scheme, but subject to the orders to be passed in the writ appeals. 2 W.P.(C)No.19561 of 2014 & con.cases 4. As far as the writ petitions are concerned, they are respectively challenging the notices issued proposing assessment. The learned Senior Counsel for the appellants submitted that in the light of the decision of the Apex court in _**'Girdhari Lal Nannelal v. The Sales Tax Commissioner, M.P.**_ ' [(1977) 39 STC 30] as well as ' _**M/s. P.C. Itty Mathew & Sons v. Deputy Commissioner of Sales Tax (Law)'**_ [(2000) 8 KTR 303 (SC)], which have been followed by a Division Bench of this Court in S.T.R No.117/2012, the appellants and writ petitioners are entitled to succeed. 5. This is a case where the premises of the appellants (writ petitioners) were searched and initially, this court after quashing the orders passed against them directed reassessment after furnishing the details and materials collected during the search (Ext.P1 produced in W.P.(C) No.19561/2014). It is thereafter the penalty proceedings were finalised by relying upon the proceedings issued by the concerned Income Tax Authorities and those materials have been relied upon to pass the impugned proceedings in the writ petitions which are subject matter of the writ appeals. As far W.P.(C)No.19561 of 2014 & con.cases 3 as the notices impugned in the writ petitions also, the same stand is taken by the department. 6. Our attention is invited to the judgment of the Apex Court in ' _**M/s. P.C. Itty Mathew & Sons v. Deputy Commissioner of Sales Tax (Law)**_ [(2000) 8 KTR 303 (SC)] , wherein the Apex Court affirmed the order passed by the Tribunal, which relied upon the decision of the Apex Court in _**'Girdhari Lal Nannelal v. The Sales Tax Commissioner,**_ _**M.P.**_ ' [(1977) 39 STC 30], where the law declared was that it was for the Sales Tax authorities to show the existence of materials to indicate that the acquisition of money by assessee had come from the transactions liable to sales tax and not from other sources. The view taken by this court was not accepted by the Apex Court. 7. The same is the legal position declared in the decision of a Division Bench of this court in S.T.R No.117/2012. 8. The learned Senior Counsel for the appellant submitted that as far as the amounts remitted by availing the amnesty scheme is concerned, the appellants will not seek a re-fund and the appeals can be closed. W.P.(C)No.19561 of 2014 & con.cases 4 9. The learned Special Government Pleader for Taxes submitted that when the assessees appeared before the authorities concerned, except the details available in the orders of the income tax authorities no other explanations were offered, which resulted in issuing the impugned proceedings in the writ appeals. Even then, according to us, in the light of the legal position declared by the Apex Court, in finalising the proceedings, the materials which were disclosed or unearthed in the search will have to be furnished to the assessee and the proceedings of the Income Tax authorities alone may not have impact in finalising the assessment. We are of the view that in the light of the legal position declared by the Apex Court in the matter, there cannot be any doubt that the proceedings of the Income Tax authority cannot ipso facto lead to assessment or imposition of penalty. In that view of the matter, the writ petitions are allowed and the impugned notices are quashed. 10. As far as writ appeals are concerned, we are of the view that since the appellants are not seeking a re-fund, the writ appeals are accordingly closed. But since the writ petitions are allowed, quashing the impugned notices, in the 5 W.P.(C)No.19561 of 2014 & con.cases 5 light of the judgment of this court, which is produced as Ext.P1 in the writ petitions, the appropriate authorities will proceed from that state after furnishing the materials and all opportunity will be given to the petitioners to defend the action also. All the other legal issues are left open. We make it clear that in the light of the view we have taken, the penalty orders will not survive but as far as the question of re-fund is concerned, these amounts need not be refunded in the light of the submission made by the learned Senior Counsel for the appellant. Sd/- **T.R.RAMACHANDRAN NAIR JUDGE** Sd/- **P.V.ASHA JUDGE** //true copy// P.S. To Judge St/