HAL INTERNATIONAL v. STATE OF KERALA

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** ## **&** **THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI** **TUESDAY, THE 02ND DAY OF JULY 2019 / 11TH ASHADHA, 1941** ## **OT.Rev.No.3 of 2019** **AGAINST THE ORDER IN TA(VAT) NO. 267/2016 of THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL ADDITIONAL BENCH,KOZHIKODE DATED 27-09-2018** ## **REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE :** **M/S.HAL INTERNATIONAL NO.III/319, HIDAYATH NAGAR, UPPALA, KASARAGOD** **BY ADV. SRI.RAJESH NAMBIAR** ## **RESPONDENT/RESPONDENT:** **THE STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT, DEPARTMENT OF COMMERCIAL TAXES, SECRETARIAT, THIRUVANANTHAPURAM. PIN - 695001.** **BY SR.GOVERNMENT PLEADER V.K. SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 02.07.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **OT.Rev.No.3 of 2019** **2** ## **C.K. ABDUL REHIM &** ## **R. NARAYANA PISHARADI, JJ.** **-------------------------------------------O.T. Rev. No. 3 of 2019 -----------------------------------------------** _Dated this the 2[nd] day of July, 2019_ ## **JUDGMENT** ## **Abdul Rehim,J** The above revision petition is filed against an order of the Kerala Value Added Tax Appellate Tribunal, Additional Bench, Kozhikode, in T.A (VAT) No. 267/2016, dated 27.09.2018. Through the impugned order, the Tribunal had confirmed an order imposing penalty issued against the petitioner under Section 47(6) of the Kerala Value Added Tax Act, 2003 ('KVAT Act' for short). 2. The Intelligence Inspector, Squad No.VI, Commercial Taxes, Ernakulam intercepted a vehicle in which goods consigned by the revision petitioner was transported, on 06.02.2014. The goods transported were 'Induction Cookers' covered under invoice No.424, dated 06.02.2014 issued by the revision petitioner in the name of a dealer at Kundannur, Kochi. The said invoice and the 'bill of entry' evidencing that the goods were imported from China, were available **OT.Rev.No.3 of 2019** **3** with the transport. The Intelligence Inspector recorded statement of the driver of the vehicle, who deposed that the consignment in question was loaded at the container freight station at Petta, Kochi. The Intelligence Inspector detained the transport demanding payment of security under Section 47(2) of the KVAT Act on noticing the following irregularities:- _“The vehicle with the consignment is intercepted and checked in Maradu – Kundannur road, while plying towards Kundannur. On verification of the document it is seen that the consignor is transporting the goods from Kasaragod to Kundannur. The deposition of the driver of the vehicle reveals that the consignment is loaded from Container Freight Station, Petta. No 8FA/8F declaration as per Section 46(3)(e) of the KVAT Act, 2003 read with Rule 66(6)(ba) of the KVAT Rules, 2005, is seen appended with the bill of entry produced even though the consignment is imported from China on 04.02.2014 and de-stuffed in the Container Freight Station, Petta as per the deposition of the driver of the vehicle revealed. Further the vehicle cannot be run and reach at Kundannur-Maradu Road covering more than 400 k.m., from Uppala-Kasaragod at the time of detention.”_ **OT.Rev.No.3 of 2019** **4** 3. The notice of detention was challenged by the revision petitioner before this Court. This court permitted release of the vehicle along with the goods on the revision petitioner depositing 50% of the security demanded and on furnishing bond for the balance amount. The interception was followed by an enquiry as contemplated under Section 47(6) of the KVAT Act. The Intelligence Officer, Squad No. VI, Commercial Taxes, Kasargode conducted the enquiry, in which opportunity was afforded to the revision petitioner. The revision petitioner produced documents like, bill of entry, purchase order copy, letter from the consignee, duty paid receipt, bank statement to show the transaction with respect to the supplier etc. The revision petitioner submitted before the Enquiry Officer that the goods detained is part of 2200 pieces of 'Induction Cookers' imported by them from China through Cochin Port. After clearance of the goods at the Container Freight Station, the entire goods were sold to the consignee and it was transported in three lorries by drawing three separate invoices. It is stated that the sale was effected at Ernakulam, in order to save unnecessary expenses of transportation of the goods from Ernakulam to Kasargode and back to Ernakulam. It is pointed out that the goods were cleared from Cochin Port on **OT.Rev.No.3 of 2019** **5** production of all requisite documents and information was furnished to the Customs Department with respect to the TIN number etc. It is pointed out that the bill of entry shows the details of such import, including the TIN number of the revision petitioner. Therefore it was contended that there existed no attempt for evasion of payment of tax. 4. The Enquiry Officer verified the books of accounts. It was found that there occurred failure on part of the revision petitioner in making declaration under Rule 66(6) in Form 8FA, despite import of the goods to the State, through coastal cargo. Therefore it is evident that the revision petitioner has not declared the transaction covered under the import. The Enquiry Officer found that the effect of subsequent accounting of the transaction in the books of accounts and inclusion of such transaction in the monthly returns filed are only intended to escape from the liability. Further it was observed that, the dealer was well aware about the requirement of furnishing Form 8FA declaration because he had previous experience of importing such goods and making such declarations. Hence it was concluded that there existed purposeful attempt at evasion of payment of tax and therefore penalty was imposed to the tune of Rs.2,61,080/-. 5. In the appeal filed by the revision petitioner before the **OT.Rev.No.3 of 2019** **6** Assistant Commissioner Appeals, Commercial Tax, Kozhikode, it was contended that the documents produced before the Enquiry Officer would reveal that the revision petitioner was keeping true and complete accounts and that the order impugned was passed without verification of those records. It was also pointed out that the Enquiry Officer had never demanded production of any further documents to prove that there was no attempt at evasion of payment of tax. According to the revision petitioner, the statement of the driver, recorded by the Intelligence Officer, would clearly prove genuineness of the transaction and there had no occasion to draw any adverse inference in such circumstances. But the Appellate Authority found that the declaration required at the time import of the goods is mandatory and that the transport should have been accompanied with the online copy of the declaration made in Form-8FA. The requirement that the transport should accompany such declaration form, cannot be dispensed with. Since the revision petitioner had violated the mandatory provision, it creates a suspicion that there is an attempt to evade payment of tax, is the finding. Therefore the first appeal was dismissed. 6. In the order in the second appeal before the Tribunal, it was reiterated that, accompanying of Form-8FA declaration along with **OT.Rev.No.3 of 2019** **7** the consignment is mandatory, which the revision petitioner had failed to comply. The Tribunal also found that the revision petitioner had generated such declaration with respect to the goods covered under another invoice, which was also transported to the same dealer, simultaneously. Hence the inference was that, the revision petitioner was aware of generating Form 8FA declaration, before starting the transport of goods. Hence it was found that there occurred purposeful avoidance of declaration of the goods, with an intention to evade payment of tax, with respect to the consignment intercepted. Hence it was held that the enquiring authority was right in imposing penalty and that the first Appellate Authority was justified in confirming the said order. 7. In this revision it was mainly contended that, none of the three consignments including the another one intercepted, was not accompanied with Form 8FA declaration and the finding of the Tribunal to the contrary was a mistake on the facts. In support of such a contention, the learned counsel had produced for our perusal a copy of the notice issued under Section 47(2) with respect to the other consignment, which was intercepted. Secondly it was argued that the mandate under Rule 66(6)(ba) will be applicable only with respect to goods imported through air, or through the railways, on the **OT.Rev.No.3 of 2019** **8** basis of the provisions contained under Section 46(3)(e) of the KVAT Act. It was contended that the word “coastal cargo” contained in the section does not include goods imported through ship cargo. Learned counsel had placed reliance on the definition of the term “coastal goods” contained in the Customs Act. We are of the considered opinion that such a definition has no correlation with respect to the term “coastal cargo” used in Section 46(3)(e) of the KVAT Act. The wording used in Section 46(3)(e) that, “where goods are imported into the State through coastal cargo, through air and through the railways” indicate clearly that the reference is with respect to the mode of transport. It can only be interpreted that the word “coastal cargo” used therein indicate the mode of import through ship, which is nothing but an import through ship cargo. 8. Further contention raised is that, the sale made by the revision petitioner was properly accounted and that the sale was effected through the invoice drawn, which accompanied the transport. Therefore it is contended that, even though there occurred a mistake or omission in declaring the goods under Rule 66(6)(ba) of the KVAT Rules or in obtaining Form 8FA declaration and accompanying the same along with the transport, it cannot be presumed that there existed any attempt at evasion of payment of tax. It is argued that **OT.Rev.No.3 of 2019** **9** the intent and purport of the enquiry contemplated under sub-section (6) of Section 47 is to ascertain whether there was any attempt to evade payment of tax due under the Act, at the time of the transport. Therefore a mere omission with respect to declaration of the goods under Section 46(3)(e) and Rule 66 (6)(ba), itself cannot be taken as a reason to arrive at a finding that there was an attempt at evasion of payment of tax. 9. Per contra, learned Government Pleader appearing for the respondent contended that the failure on the part of the revision petitioner in generating Form 8FA declaration and to accompany such declaration along with the transport, itself will give rise to a presumption that there existed attempt at evasion of payment of tax. In support of such a contention the learned Government Pleader placed reliance on a Division Bench judgment of this court in O.T(Rev) No.72/2014, dated 08.06.2018 **(Mil Control Limited v. State of Kerala).** It is held therein that, without making a declaration as required, the department would not be aware about the import made. The mere fact that the bill of entry will prove the import of the goods, cannot be relied upon to exonerate the dealer from the liability for penalty. There is always a possibility of the suppression being not detected, because the existence of bill of entry would not be noticed **OT.Rev.No.3 of 2019** **10** by the Commercial Tax Department. The mandate to file declaration before the Commercial Tax Officer having jurisdiction at the place of import is specifically made to ensure that the department has knowledge of the import. The court observed that, in the VAT regime there occurs value addition by selling of manufactured goods. Therefore there is a possibility of evasion in so far as the assessee selling the manufactured goods without the value of the component imported. It is specifically held that the presumption with respect to the evasion of payment of tax cannot be dispelled on mere surmises and conjectures and the burden to prove that there is no attempt to evade tax is squarely on the assessee. 10. Learned Government Pleader also placed the reliance on another decision of this court reported in **State of Kerala v. TMK Traders [(2018) 52 GSTR 417 (Kerala)].** It is a case were the transport was not accompanied by the requisite delivery note. Contention raised was that the transaction was included in the accounts and it had suffered tax. This court refused to absolve the assessee from liability to penalty under Section 47. The Government Pleader also placed reliance on another ruling of this court in **Anchor Electricals (P) Ltd. v. State of Kerala [(2014) 22 KTR 65 (Kerala)].** It is held therein that the declaration of goods transported **OT.Rev.No.3 of 2019** **11** at the check post is an important safeguard which the law contemplates against evasion of tax. When goods are declared, it will be an assured safeguard that the assessee will return and pay the correct tax due in time. Therefore, when such declaration was not made, there would be an inference that there is an attempt to evade tax. 11. While considering the rival contentions, we take note of the fact that, there occurred failure on the part of the revision petitioner in making the declaration with respect to goods imported, as amended under Section 46(3)(e) read with Rule 66(6)(ba). Consequently, there was a failure to accompany the transport with Form 8FA declaration. Going through Section 47(2) of the Act, such an irregularity is sufficient enough to create a suspicion in the mind of the intercepting authority with respect to attempt at evasion of payment of tax. But, while taking the enquiry under sub-section (6) of Section 47, the authority is bound to make a probe in order to arrive at a finding that there existed an attempt for evasion for payment of tax, at the time when the transport was made. The failure to accompany the transport with Form 8FA declaration will definitely create a presumption, with respect to the attempt at evasion of payment of tax. The burden to rebut such a presumption **OT.Rev.No.3 of 2019** **12** lies upon exclusively and absolutely on the dealer/consignor. The mere production of the books of accounts, which will reflect the transaction being properly entered, by itself cannot be taken as a proof to rebut such a presumption. This is because of the fact that the dealer can very well enter the transaction in the books of accounts, even after the interception. But at the same time, if the nonproduction of Form 8FA declaration can also be due to an omission or an inadvertence on the side of those who are dealing with the matter. But, the burden to prove that it was only due to an omission or due to an inadvertence, solely lies on the dealer. The fact that transaction in question was truly entered in the books of accounts kept at the relevant time, before the transport was commenced, is a matter which need to be proved before the enquiring authority. 11. In the case at hand, the original authority who passed the penalty order had verified the documents produced. But the finding rendered by him is only to the effect that there occurred failure to declare the goods and in furnishing Form 8FA declaration and that the furnishing of the bill of entry will not ensure accountability of the transaction. It was observed that, subsequent accounting of the transaction in the books of accounts or in the monthly return can be by way of after thought to escape from the liability. The ultimate **OT.Rev.No.3 of 2019** **13** finding is that the non-declaration was with a purposeful intention to evade payment of tax. As we have already observed, the question as to whether the non-declaration was purposeful or not, is a matter which require detailed enquiry. If the dealer could able to prove that the transaction in question was recorded in the regular books of accounts, even before commencement of the transport, and there was no intention to evade payment of tax at that time, it has to be accepted that the presumption regarding attempt at evasion of payment of tax will be rebutted. Learned counsel for the revision petitioner contended that if the enquiring authority is prepared to have an indepth verification of all relevant records, he could be able to rebut the presumption and to prove that there was no attempt at evasion of payment of tax at the time when the transport was made. 12. Under such circumstances, we are of the opinion that the matter requires a reconsideration at the hands of the Enquiring Authority, dehors the conclusion arrived by the Appellate Authority. 13. Hence the revision petition is hereby allowed to the extent of setting aside the impugned order passed by the Tribunal and the original order imposing penalty. The matter is remitted to the Intelligence Officer. Squad No.II, Commercial Tax, Kasaragode or to any other competent officer concerned, for passing fresh order in the **OT.Rev.No.3 of 2019** **14** light of the observations contained herein above, after affording a reasonable opportunity to the revision petitioner. Orders in this regard shall be passed at the earliest, at any rate, within a period of two months from the date of receipt of a copy of this judgment. **Sd/-C.K. ABDUL REHIM, JUDGE** . **Sd/-R. NARAYANA PISHARADI, JUDGE** . lsn **OT.Rev.No.3 of 2019** **15** ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **ANNEXURE A TRUE COPY OF THE PENALTY ORDER NO: OR 178/2014-15 DATED 28/03/2014.** **ANNEXURE B TRUE COPY OF THE PENALTY ORDER NO. OR NO:VI/965/2013-14 DATED 28/02/2015.** **ANNEXURE C TRUE COPY OF THE APPELLATE ORDER DATED 10/06/2016 IN RESPECT OF ANNEXURE B PENALTY ORDER.** **ANNEXURE D TRUE COPY OF THE APPELLATE ORDER DATED 13/06/2016 IN RESPECT OF ANNEXURE A PENALTY ORDER.** **ANNEXURE E TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 27/09/2018 IN RESPECT OF ANNEXURE D APPELLATE ORDER.** **REPONDENTS EXHIBITS: NIL** **TRUE COPY** **P.A TO JUDGE** ## **LSN**