Metro Aggregates and Sand (I) Private Limited v. State of Kerala (OT Rev Nos. 114/2017 & 116/2017; WA No. 1750/2018)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR** ## **&** **THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH** **WEDNESDAY, THE 20[TH] DAY OF MARCH 2024 / 30TH PHALGUNA, 1945** **OT.REV NO. 114 OF 2017** **AGAINST THE ORDER OF THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM DATED 07.02.2017 IN RI/244/2016/CT** ## **REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE:** **M/S.METRO AGGREGATES AND SAND (I) PVT. LTD. PONNURUNNI, VYTTILA, ERNAKULAM,REPRESENTED BY ITS DIRECTOR JOSHY P.MATHEW.** **BY ADVS. SRI.HARISANKAR V. MENON SMT.MEERA V.MENON** ## **RESPONDENT/RESPONDENT/RESPONDENT/REVENUE:** **STATE OF KERALA REPRESENTED BY ITS SECRETARY,TAXES DEPARTMENT, GOVT. SECRETARIAT,THIRUVANANTHAPURAM.** **BY SR. GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN.** **THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 20.03.2024, ALONG WITH OT.Rev.116/2017, WA NO.1750/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** :2: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR** **&** **THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH** **WEDNESDAY, THE 20[TH] DAY OF MARCH 2024 / 30TH PHALGUNA, 1945** **OT.REV NO. 116 OF 2017** **AGAINST THE ORDER OF THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM DATED 07.02.2017 IN RI/244/2016/CT** ## **REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE:** **M/S. METRO AGGREGATES AND SAND [I] PRIVATE LIMITED PONNURUNNI, VYTTILA, ERNAKULAM, REPRESENTED BY ITS DIRECTOR JOSHY P. MATHEW** **BY ADV SRI.HARISANKAR V. MENON** ## **RESPONDENT/RESPONDENT/RESPONDENT/REVENUE:** **STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT,THIRUVANANTHAPURAM** **BY ADVS.SR. GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN.** **THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 20.03.2024, ALONG WITH OT.Rev.114/2017 AND WA NO.1750/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** :3: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR** **&** **THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH** **WEDNESDAY, THE 20[TH] DAY OF MARCH 2024 / 30TH PHALGUNA, 1945** **WA NO. 1750 OF 2018** **AGAINST THE JUDGMENT DATED 08.06.2018 IN WP(C) NO.40400 OF 2017 OF HIGH COURT OF KERALA** ## **APPELLANTS/RESPONDENTS:** - **1 THE INTELLIGENCE OFFICER, SQUAD NO. V, COMMERCIAL TAXES, MATTANCHERY AT PERUMBAVOOR 683542** - **2 THE ASSISTANT COMMISSIONER (ASSMT), SPECIAL CIRCLE, PERUMBAVOOR- 683542.** - **3 THE INSPECTING ASSISTANT COMMISSIONER, MUVATTUPUZHA- 686661.** ## **BY SR. GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN.** ## **RESPONDENT/PETITIONER:** **M/S.OZONE GRANITES (P) LTD., MANKUZHY, WEST VENGOLA, PERUMBAVOOR, REPRESENTED BY ITS MANAGING DIRECTOR, SHRI. P.M. ASHRAF** **BY ADVS.SRI.A.KUMAR** **SMT.MINI G** **BY ADVS.SR. GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN.** **THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 20.03.2024, ALONG WITH OT.Rev.114/2017 AND OT.Rev.116/2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** :4: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 ## **O R D E R** ## **Dr. A.K.Jayasankaran Nambiar, J.** As all these cases involve a common issue, they are taken up for consideration together and disposed by this common judgment. 2. In the O.T Revision Petitions, the petitioner is essentially aggrieved by the imposition of penalty under the Kerala Value Added Tax Act (hereinafter referred to as “the KVAT Act”) for the assessment years 2014-2015 and 2015-2016, respectively. The Investigation Branch of the Commercial Taxes Department had conducted an inspection at the premises of the petitioner, who was a dealer in granite metal/M sand and who had opted to pay tax at the compounded rates in accordance with Section 8(b) of the KVAT Act. As per the Scheme of the Act, a dealer producing granite metals and/or manufactured sand with the aid of mechanized machines may, at his option, instead of paying tax in accordance with the provisions of Section 6, pay tax at the following rates, namely:- :5: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 ________________________________________________________________________________ Machine description Compounded tax ________________________________________________________________________________ (1) (2) ________________________________________________________________________________ - (i) for each crushing machine of jaw size not exceeding 30.48 cm. x 22.86 cm. - (ii) for each crushing machine of jaw size exceeding 30.48 cm. x 22.86 cm. but not exceeding 40.64 cm. x 25.40 cm. Rs.80,000 per annum Rs.3.20 lakhs per annum - (iii) for each crushing machine of jaw size exceeding 40.64 cm. x 25.40 cm. - (iv) for each cone crusher Rs.6.40 lakhs per annum Rs.36 lakhs per annum - (v) for each Vertical/Horizontal shaft Impactor machines with output production capacity up to 25 metric tonne per hour Rs.6.25 lakhs per annum - (vi) for each Vertical/Horizontal shaft Impactor machines or similar machines with output production capacity of above 25 metric toone up to 50 metric tonne per hour Rs.12.50 lakhs per annum - (vii) for each Vertical/Horizontal shaft Impactor Rs.22.50 lakhs machines or similar machines with output per annum production capacity of above 50 metric tonne up to 100 metric tonne per hour Rs.22.50 lakhs :6: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 - (viii) for each Vertical/Horizontal shaft Impactor Rs.32.50 lakhs machines or similar machines with output per annum production capacity of above 100 metric tonne up to 150 metric tonne per hour Rs.32.50 lakhs - (ix) for each Vertical/Horizontal shaft Impactor Rs.45 lakhs machines or similar machines with output per annum production capacity of above 150 metric tonne up to 200 metric tonne per hour Rs.45 lakhs - (x) for each Vertical/Horizontal Shaft Impactor Rs.60 lakhs machines or similar machines with output per annum production capacity of above 200 metric tonne per hour Rs.60 lakhs 3. In the case of the petitioner, it was found that while at the time of exercising the option to pay tax at the compounded rate, he had declared the capacity of the vertical and horizontal shaft impactor machines installed in his premises as 25 to 50 M.T per hour and nil M.T per hour respectively, the Intelligence wing on, a perusal of the declaration by the manufacturer of the machine on the Website of the manufacturer as also, on a perusal of the consent received by the petitioner from the Pollution Control Board, found that the production capacity of the vertical shaft impactor was above 200 M.T per hour and that of the horizontal shaft impactor was between 100 to 150 M.T per hour. The compounded tax payable for the vertical and horizontal shaft :7: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 impactor machines of the stated capacity was 60% of Rs.45 lakhs per annum and 60% of Rs.32.5 lakhs per annum respectively. As against this, the petitioner had paid tax at a lower rate as applicable to machines of lesser production capacity. The Intelligence Officer, therefore, found that the petitioner was liable to a penalty for the misdeclaration of the maximum capacity of the vertical/horizontal shaft impactors and consequential evasion of tax, and proceeded to impose a penalty of twice the tax sought to be evaded by the petitioner for both the assessment years aforementioned. 4. In the case of the respondent in W.A.No.1750 of 2018, preferred by the State, the Writ Petition was filed by him impugning the penalty order passed by the Intelligence Officer for mis-declaration of the production capacity of the vertical shaft impactor installed in his premises during the assessment year 2014-2015. As against the production capacity declared by the respondent, which was 50 to 100 M.T per hour, the information furnished by the manufacturer of the machine on the latter's website showed the production capacity to be between 120 and 200 M.T per hour. The Intelligence Officer, therefore, imposed a penalty of twice the tax sought to be evaded by the respondent. The Writ Petition was allowed by a learned Single Judge by the judgment dated 08.06.2018, wherein the learned Single Judge by :8: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 relying on the decision of a Division Bench of this Court in **U.K.Monu Timbers v. State of Kerala [2012 (3) KHC 311],** found that it was not open to the Intelligence Officer to resort to an exercise of estimating the tax payable by the assessee who had chosen to pay tax on compounded basis, and hence the imposition of penalty was vitiated for the reasons stated in the aforesaid decision of the Division Bench. As already noticed, it is the State that is in appeal against this judgment of the learned Single Judge in the Writ Appeal. 5. We have heard Sri.Harisankar V. Menon, the learned counsel for the petitioner in OT. Revision No.114 of 2017 and OT. Revision No.116 of 2017 and Sri.V.K.Shamsudheen, the learned Senior Government Pleader appearing for the State, which is the respondent in the O.T. Revision Petitions and the appellant in the Writ Appeal. We also heard the learned Senior counsel Sri.A Kumar duly assisted by Smt.Mini appearing for the respondent in WA No.1750 of 2018. 6. On a consideration of the rival submissions, we find that the reasons informing the imposition of penalty in the orders impugned in the O.T.Revision Petitions, and in the Writ Petition that led to the Writ Appeal, cannot be found fault with. As per the Scheme of the KVAT Act, and in particular, Section 8(b) thereof, a dealer producing granite :9: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 metals and or manufactured sand with the aid of mechanized machines has an option either to opt for payment of tax on the regular basis contemplated in Section 6 of the KVAT Act or to pay tax on compounded basis in terms of Section 8(b) of the Act. In the latter event, the determination of tax liability is based on a formula, which envisages the payment of a fixed amount per annum based on the production capacity of the machine used in the factory of the assessee. A proviso to the said Section makes it clear that where the vertical/horizontal shaft impactor machines are used along with other machines in the factory of the assessee dealer, the payment of compounded tax will only be in an amount equivalent to 60% of the rate of compounded tax for the vertical/horizontal shaft impactor machines, in addition to the tax on the crushing machines available in the factory. In the instant case, we find that the dealers in question had mis-declared the production capacity of the machines and declared a lower production capacity based on their experience of having been able to produce only a lesser amount of goods using the machines in question. In other words, they had declared only the actual production capacity of the machine based on the use of the machine in their factories, and not the production capacity of the machine as declared by the manufacturer of the machine. In our view, the said action of the dealers was wholly illegal in that the scheme of the Act makes it clear that it is only the production :10: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 capacity of the machine, as declared by the manufacturer of the machine, that is relevant for the purposes of determining the tax liability in respect of those machines. If it was the case of the dealers that the actual production capacity was less than the total production capacity declared by the manufacturer, it was open to them to resort to the normal assessment procedure contemplated under Section 6 of the KVAT Act. This not having been done, and the dealers in question having opted for payment of tax on compounded basis, it was not open to them to take a stand contrary to the express provisions of the statute while determining their tax liability. We see no reason to interfere with the orders impugned in the OT Revision Petitions/Writ Petition for the said orders have correctly interpreted the statutory provision. 7. We might, in this context, add that the reliance placed by the learned Single Judge, in the judgment impugned in W.A.No1750 of 2018, on the decision of a Division Bench of this Court in **U.K.Monu Timbers v. State of Kerala [2012 (3) KHC 311]** is also, in our view, misplaced. The said decision deals with a situation where an Intelligence Officer, while imposing a penalty on an assessee, resorted to an estimation of the turnover of the assessee-dealer and arrived at a figure showing tax evasion. It was held in the said case that the estimation of turnover and consequent determination of tax evaded was :11: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 an exercise that could have been done only by an Assessing Officer and not by an Intelligence Officer while imposing a penalty. In other words, it was held that an officer imposing a penalty could not resort to an estimation of the turnover of an assessee, and had to go only by the turnover that was found to have been mis-declared or not declared by the assessee. In the instant case, and particularly in the context of Section 8(b) of the KVAT Act, there was no occasion for the Intelligence Officer to estimate the turnover of the dealer. As already noticed, the dealer had opted to pay tax on compounded basis in accordance with the formula under the Act. The allegations against the dealer, while proposing a penalty against him, were only that he had mis-declared the production capacity of the machine, which formed an integral aspect of the formula to be applied for determination of tax liability. The estimation of turnover in the instant cases, based on the production capacity of the machines, was one that was envisaged by the statute itself. We therefore do not see how the decision of the Division Bench in **U.K.Monu Timbers v. State of Kerala [2012 (3) KHC 311]** could have any relevance to the issue that arises for our consideration. 8. On the aspect of the quantum of penalty imposed on the petitioners in the OT Revision Petitions and the respondent in the Writ appeal, we find that notwithstanding that there was a mis-declaration of :12: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 the production capacity of the machines in question, the assessees had reasonably believed that it was the actual production capacity of the machines that had to be taken for the purposes of payment of compounded tax. In our view, the genuine belief of the assessee in this regard did not justify the imposition of the maximum penalty of twice the tax sought to be evaded by the assessee. We, therefore, reduce the penalty imposed on the petitioners/respondent in these cases to the actual amount of compounded tax, that was found to have been evaded and not twice the said amount. The Intelligence Officer shall pass a revised order of penalty in respect of these assesees showing the reduced amount of penalty, for the record. The O.T. Revision Petitions and Writ Appeal are disposed as above. Sd/- ## **DR. A.K.JAYASANKARAN NAMBIAR JUDGE** Sd/- ## **DR. KAUSER EDAPPAGATH JUDGE** mns :13: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 ## **APPENDIX OF OT.REV 114/2017** ## **PETITIONER ANNEXURES** ## **ANNEXURE A** **COPY OF ORDER ISSUED BY THE INTELLIGENCE OFFICER (IB) II, THIRUVANANTHAPURAM DATED 30.10.2015.** **ANNEXURE B COPY OF APPELLATE ORDER ISSUED BY THE DEPUTY COMMISSIONER, ERNAKULAM DATED 16.4.2016.** **ANNEXURE C COPY OF REVISION PETITION FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM DATED 27.7.2016.** **ANNEXURE D COPY OF ORDER ISSUED BY THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM DATED 7.2.2017.** :14: OT. Revision No.114/2017 OT. Revision No.116/2017 & WA No.1750/2018 ## **APPENDIX OF OT.REV 116/2017** ## **PETITIONER ANNEXURES** ## **ANNEXURE A** **COPY OF ORDER ISSUED BY THE INTELLIGENCE OFFICER (IB) II, THIRUVANANTHAPURAM DATED 31/12/2015.** **ANNEXURE B COPY OF APPELLATE ORDER ISSUED BY THE DEPUTY COMMISSIONER, ERNAKULAM DATED 16/04/2016.** **ANNEXURE C COPY OF REVISION PETITION FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM DATED 27/07/2016.** **ANNEXURE D COPY OF ORDER ISSUED BY THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM DATED 07/02/2017**