K. Moosa Proprietor, M.M.Electronics, Kadayil House, Vattamkulam, Malappuram - 679 578 v. State of Kerala represented by the Chief Secretary, Secretariat, Thiruvananthapuram - 695001; Senior Government Pleader Mohammed Rafiq

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **WEDNESDAY, THE 03RD DAY OF JUNE 2020 / 13TH JYAISHTA, 1942** **OT.Rev.No.3 OF 2016** **AGAINST THE ORDER IN TA (VAT)No.39/2015 DATED 24-08-2015 OF VALUE ADDED TAX APPELLATE TRIBUNAL,PALAKKAD** ## **REVISION PETITIONER/APPELLANT:** **K. MOOSA PROPRIETOR, M.M.ELECTRONICS, KADAYIL HOUSE, VATTAMKULAM, MALAPPURAM - 679 578.** **BY ADVS. SRI.K.J.ABRAHAM SRI.KABEER KARIYAT SRI.NIKHIL JOHN** ## **RESPONDENT/RESPONDENT:** **STATE OF KERALA REPRESENTED BY THE CHIEF SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM - 695 001.** **SENIOR GOVERNMENT SRI.MOHAMMED RAFIQ** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 03.06.2020, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** O.T.REV.No.3/2016 -2- **“CR”** ## **ORDER** ## **T.R.RAVI, J.** The petitioner was a dealer engaged in the business of trading in electronic goods and allied articles. For the assessment year 2011-12, the petitioner had filed monthly returns only for the months of April and May, declaring a taxable turnover of Rs.1,47,945/-. A shop inspection conducted by the Intelligence Officer, Squad No.II, Tirur, on 18.11.2011, revealed that another person named Basheer was running a business in aluminium fabrication work in the business premises of the petitioner. It was found that there was no physical stock of goods. As per Annexure-C proceedings, the Intelligence Officer found that there ought to have been stock worth Rs.47,62,925/-. He assessed the value of unaccounted sales to be Rs.48,82,048/- and found that an amount of Rs.4,46,673/would be the tax due on the estimated unaccounted sale. On the basis of the above findings, he issued orders in exercise of the powers conferred under Section 74(1)(a) of the KVAT Act and O.T.REV.No.3/2016 -3- compounded the offence on payment of compounding fee of Rs.4,55,000/-. The Intelligence Officer confirmed the payment and directed the petitioner to remit the tax dues with interest through e-payment. 2. Even though Annexure-C order was issued on 29.11.2012, the petitioner approached the Assessing Officer only on 04.06.2014 by filing Form 21H seeking to pay the tax, cess and interest amounting to Rs.5,62,810/- in instalments. By Annexure-D order dated 05.06.2014, the petitioner was permitted to pay the above said amount in five equal instalments. Thereafter, the Assessing Officer issued notice to the petitioner proposing to assess the petitioner under Section 25(1) of the KVAT Act, 2003 by adding an amount equal to the suppression noted by the Intelligence Wing. The above proceedings culminated in Annexure-E order dated 30.09.2014, by which the petitioner was assessed for an amount of Rs.8,84,502/- and corresponding cess. An appeal filed against Annexure-E order was dismissed by the Assistant Commissioner (Appeals) by Annexure-F order. Annexure-F order was confirmed O.T.REV.No.3/2016 -4- in appeal by the Appellate Tribunal, Palakkad as per Annexure-G order dated 24.08.2015. The petitioner has approached this Court challenging Annexures E, F and G orders. 3. The petitioner has raised the following questions of law in the revision petition. (i) Whether on the facts and in the circumstances of the case, the Appellate Tribunal has erred in law in confirming the addition made by the assessing authority when the said authority has no case that the petitioner has made any unaccounted sales and did not establish with any evidence, the escaped turnover? (ii) Whether on the facts and in the circumstances of the case, the addition sustained by the Appellate Authority is correct and has any nexus with the actual sales? (iii) Since the assessing authority permitted the payment of tax and interest in five equal installments as per Annexure D order, whether in the facts and circumstances of the case the assessing authority has power to complete the assessment U/s. 25(1) of the Kerala Value Added Tax Act, 2003? O.T.REV.No.3/2016 -5- 4. Heard the counsel for the petitioner and the Senior Government Pleader. The contention of the petitioner is that once an order under Section 74 has been issued and tax paid in accordance with the order, the authorities could not have proceeded to assess the petitioner to tax again, by making any additions to the turnover. According to the petitioner, Section 22, sub-section (10) prohibits such an assessment. It is further contended that an assessment under Section 25 can be made only if the conditions set forth in the said Section is available on the facts of the case and in the case of the petitioner there could not have been assessment under Section 25, since the entire suppressed turnover, prior to the closure of the business, has already been reckoned while computing the tax payable as per Annexure-D order. At the time of assessment, by virtue of the revised return, there is no escaped turnover, the learned Counsel asserts. It is further contended that the proviso to sub-section (10) of Section 22 cannot be relied since there is no pattern of suppression in the case of the petitioner. 5. The Senior Government Pleader on the other hand O.T.REV.No.3/2016 -6- submits that the pattern of suppression is evident since the entire stock admittedly existing even on 18.11.2011 are physically not available, justifying the conclusion that there has been unaccounted sale during the entire period. It is also admitted that the stoppage of business was intimated only on 02.02.2012. There was also no revised returns filed within the time provided for in Section 22. After hearing the parties, we deem it appropriate to raise the following additional question of law in the revision petition. “Whether Section 22(10) of the Kerala Value Added Tax Act, 2003 prohibits an assessment of escaped turnover under Section 25 of the Act, in cases where the assessee has compounded the offence and paid tax in accordance with an order issued under Section 74 of the Act ?” 6. Having regard to the questions raised, it would be advantageous to extract the relevant portions of Section 22 and Section 25. ## “ **22. Assessment in case of non-filing of return** O.T.REV.No.3/2016 -7- ## **and filing of defective return** .- xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx (9) Notwithstanding anything contained in this Act, where an offence has been detected under the Act in respect of a return filed by a dealer or otherwise and proceedings initiated under this Act, the dealer shall not be permitted to revise the return till such proceedings are finalised. (10) Where the proceedings referred to in the above sub-section are finalised under Section 74 on payment of tax due along with the compounding fee, the dealer may thereafter file a revised return incorporating such turnover covered in such proceedings within a period of three months from the finalisation of such proceedings and on the receipt of such return by the Assessing Authority, the assessment for the return period or periods shall, subject to the provisions of sections 24 and 25, be deemed to have been completed. Provided that where a pattern of suppression is detected the Assessing Authority shall proceed with best judgment assessment in accordance with the provisions of Sections 24 and 25, as the case may be. xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx O.T.REV.No.3/2016 -8- - 25. **Assessment of escaped turnover.** (1) Where for any reason the whole or any part of the turnover of business of a dealer **has escaped assessment to tax in any year (or return period)** or has been underassessed or has been assessed at a rate lower than the rate at which it is assessable or any deduction has been wrongly made therefrom, or where any (input tax or special rebate) credit has been wrongly availed of, the Assessing Authority may, at any time within five years from the last date of the year to which the return relates, proceed to determine, to the best of its judgment, the turnover which has escaped assessment to tax or has been underassessed or has been assessed at a rate lower than the rate at which it is assessable or the deduction in respect of which has been wrongly made or (input tax or special rebate) credit that has been wrongly availed of and assess the tax payable on such turnover or disallow the (input tax or special rebate) credit wrongly availed of, after issuing a notice on the dealer and after making such enquiry as it may consider necessary. xxxxxxxx xxxxxxxx xxxxxxxx” 7. A reading of the main part of Section 22(10) clearly shows that the deemed completion of the assessment under the said O.T.REV.No.3/2016 -9- provision is made subject to the provisions of Sections 24 and 25. The proviso to Section 22(10) makes it further clear that in cases where a pattern of suppression is detected, the assessing authority **shall** proceed with best judgment assessment in accordance with the provisions of Sections 24 and 25 as the case may be. In the case on hand, the petitioner has admitted that he has not kept regular books of accounts. He has also admitted the quantum of stock that ought to have been available having regard to the purchases made and the sales turnover returned. As such the finding of the authorities that by effecting sales without issuing invoices continuously, a pattern of suppression was made out and that estimation of probable omissions cannot be considered as unjustified and cannot be faulted in any manner. It is also pointed out by the Senior Government Pleader that even though the section contemplates filing of a revised return incorporating the escaped turnover within three months, no such revised return was filed by the petitioner. The contention of the petitioner based on Section 22(10) is not legally sustainable. Section 22(10) does not prohibit an assessment of escaped turnover under Section 25 even in cases where the proceedings under Section 74 have culminated by the assessee paying the compounding fee and tax on O.T.REV.No.3/2016 -10- the suppressed turnover and filed a revised return within the time prescribed by the statute. The deeming provision is subject to Sections 24 and 25 and the proviso mandates that when a pattern of suppression is detected, the assessing authority shall proceed with best judgment assessment under Section 24 and 25 as the case may be. 8. The petitioner also has a contention that the proviso cannot regulate the main body of the Section. In support of the contention he relies on the judgment of the Hon'ble Supreme Court in **I.T.Commissioner v. I.M.Bank Ltd.** reported in **AIR 1959 SC 713** . The judgment is relied on for the proposition that the territory of a proviso is to carve out an exception to the main enactment and exclude something which otherwise would have been within the section. The Hon'ble Supreme Court has further held in the above decision that a proviso has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect (See Paragraph 10 of the decision). The petitioner also relies on the judgment of the Hon'ble O.T.REV.No.3/2016 -11- Supreme Court in **Tribhovandas Haribhai Tamboli v. Gujarat Revenue Tribunal and others** reported in **1991(3) SCC 442** for the very same proposition. The above proposition will not in any way support the contention of the petitioner. 9. A reading of Section 22 (10) with the proviso does not commend us to accept the contention of the assessee. The proposition of law laid down in the decisions referred above are no doubt unassailable. Sub-section (10) of Section 22, only provides for deeming the assessment to be completed on the revised return being filed, which under the value added regime is in the nature of a selfassessment, at the time of filing of returns. Sections 24 and 25 provide for reopening of assessments in the event of the contingencies provided therein. Section 25 is specifically worded so as to enable assessment of escaped turnover. The proviso to Section 22(10) is in the form of a mandate on the Assessing Officer to proceed with best judgment assessment in the event of detection of a pattern of suppression. 10. The petitioner also relies on a judgment of this Court in **O.T.Rev.No. 35 of 2012 (K.P.Varghese v. State of Kerala)** , in support of his contention that in view of Section 22(10), assessment O.T.REV.No.3/2016 -12- cannot be completed under Section 25. On a perusal of the judgment of this Court in the above case, we find that even though such a contention was taken by the petitioner, this Court on facts noticed that the petitioner therein had not filed a revised return incorporating the suppressed turnover within the period stipulated in the section and held that the dealer cannot take refuge under Section 22(10) to resist a proceedings under Section 25. The above said judgment cannot in any way support the contention of the petitioner. 11. The assessee's contention that there is no pattern disclosed, for reason only of one inspection having taken place in the year of assessment is only to be noticed to be rejected. The pattern is not necessarily to be discerned from the periodicity of inspections but from the nature of the offence detected too. In the present case the discrepancy detected was the availability of stock in its entirety despite regular purchases having been made by the assessee. The goods dealt with by the assessee are also said to be electronic goods. The assessee took conflicting contentions of the business having been closed down and the goods having been destroyed. The only presumption in the wake of these facts and the offence detected is of unaccounted sales having been made by the assesee. There exists a O.T.REV.No.3/2016 -13- clear pattern of suppression in the assessment year till the inspection was conducted. 12. The second contention of the petitioner that the assessing authority could not have proceeded to assess the petitioner to the best of his judgment under Section 25, for the reason that the conditions specified under the said section are not satisfied, also cannot be countenanced. All that is necessary for proceeding under Section 25 is the fact that a portion of the turnover has escaped assessment. In the case on hand, admittedly, the petitioner had submitted returns only during the months of April and May, 2011. He has reported closure of the business only in February, 2012. Even assuming he had closed his business much before, the fact remains that he had admitted stock of more than Rs 47 lakhs, which was not physically available at the time of inspection. This is also on the basis of the purchases made by him, the details of which were available with the department and not refuted by the assesee. The conclusion of the assessing authority that the said stock had been exhausted by the petitioner by making unaccounted sale cannot be held to be unjustified. The corollary is that there is escaped assessment, warranting assessment under Section 25. O.T.REV.No.3/2016 -14- 13. We do not find any reason to interfere with the orders passed by the statutory authorities. The questions of law raised in the revision petition by the revision petitioner and the additional question formulated by this Court are answered against the revision petitioner. The revision petition is dismissed, however, without any order as to costs. Sd/- ## **K. VINOD CHANDRAN JUDGE** Sd/- **T.R. RAVI JUDGE** dsn ## O.T.REV.No.3/2016 -15- ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **ANNEXURE A** **TRUE COPY OF THE SHOP INSPECTION REPORT CTK NO.186211 DATED 18.11.2011 PASSED BY THE INTELLIGENCNE OFFICER, TIRUR** - **ANNEXURE B TRUE COPY OF THE COMPOUNDING APPLICATION DATED 29.11.2012 FILED BY THE PETITIONER** - **ANNEXURE C TRUE COPY OF THE ORDER OF THE INTELLIGENCE OFFICER, TIRUR NO.TRL-07/11-12 DATED 29.11.2012** - **ANNEXURE D TRUE COPY OF THE ORDER NO.32100808285/2011-12 DATED 05.06.2014 PASSED BY THE COMMERCIAL TAX OFFICER, PONNANI** - **ANNEXURE E TRUE COPY OF THE ORDER NO.32100808258/2011-12 DATED 30.09.2014 PASSED BY THE COMMERCIAL TAX OFFICER, PONNANI** **ANNEXURE F TRUE COPY OF THE APPELLATE ORDER NO.KVATA721/14 DATED 27.02.2015** **ANNEXURE G ORIGINAL ORDER IN TA(VAT)NO.39/2015 DATED 24.08.2015 PASSED BY THE TRIBUNAL**