M/S Archana Industries Ancheril Commercial Complex v. Intelligence Officer (IB), Commercial Taxes, Kottayam; Commercial Tax Officer - IInd Circle, Commercial Taxes, Kottayam; Deputy Commissioner, Commercial Taxes, Kottayam; Commissioner of Commercial Taxes, Kerala; Inspecting Assistant Commissioner, Commercial Taxes, Kottayam; State of Kerala represented by the Secretary to Government, Taxes Department, Trivandrum

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN FRIDAY, THE 19TH DAY OF AUGUST 2016/28TH SRAVANA, 1938 WA.No. 732 of 2015 IN WP(C).10385/2010 ------------------------------------------- AGAINST THE JUDGMENT IN WP(C) 10385/2010 DATED 29-11-2011 APPELLANT/PETITIONER: -------------------- M/S.ARCHANA INDUSTRIES ANCHERIL COMMERCIAL COMPLEX, LBS ROD, KOTTAYAM,, A PARTNERSHIP FIRM REPRESENTED BY ITS PARTNER, SRI.G.DINESH. BY ADVS.SRI.E.P.GOVINDAN SMT.G.DEEPA RESPONDENTS/RESPONDENTS: ----------------------- 1. THE INTELLIGENCE OFFICER (IB) COMMERCIAL TAXES, KOTTAYAM.686 001. 2. THE COMMERCIAL TAX OFFICER - IIND CIRCLE, COMMERCIAL TAXES, KOTTAYAM. 686 001. 3. THE DEPUTY COMMISSIONER COMMERCIAL TAXES, KOTTAYAM. 686 001. 4. THE COMMISSIONER OF COMMERCIAL TAXES KERALA, PUBLIC BUILDINGS, VIKAS BHAVAN.P.O., TRIVANDRUM. 695 001. 5. THE INSPECTING ASSISTANT COMMISSIONER COMMERCIAL TAXES, KOTTAYAM. 686 001. 6.THE STATE OF KERALA REPRESENTED BY THE SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, TRIVANDRUM. 695 001. R1-R6 BY ADV. GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 1-08-2016, THE COURT ON 19.08.2016 DELIVERED THE FOLLOWING: ## **ANTONY DOMINIC,J.& ANU SIVARAMAN, J.** = = = = = = = = = = = = = = = = = = = = = = = = = = ## **Writ Appeal No.732 of 2015** = = = = = = = = == = = = = = = = = = = = = = = = = Dated this the 19th day of August, 2016 ## JUDGMENT ## **Anu Sivaraman,J.** - 1.The appeal is filed against the judgment of the learned single Judge dismissing the writ petition. The claim of the appellant/writ petitioner was with regard to the legality of Exhibits P1 to P5 penalty orders imposed under Section 45A - (1) of the Kerala General Sales Tax Act, 1963. Exhibit P9 order of the Deputy Commissioner as well as P12 order issued by the Commissioner of Commercial Taxes in revision were also under challenge. - 2.The appellant is a registered partnership firm which is a dealer in Diesel Generator sets. It is the contention of the appellant that it had filed returns under the KGST Act for the assessment year 1998-1999 to 2002-2003 claiming exemption for a portion of the turnover being sale in transit. The appellant claims to have purchased goods from outside the State against 'E1' Form declarations and the said goods were sold to registered dealers WA No.732/15 2 within the State during transit. It is contended that 'C' Form declarations from the purchasers and E1 form declarations from the original sellers as well as copy of lorry receipts endorsed in favour of the buyer in transit had been submitted by the appellant. The assessment for the years 1998-1999 and 1999-2000 were completed allowing the claim for exemption and the returns in respect of 2000-2001 to 2002-2003 were pending assessment. However, on 05.01.2004 notice was issued to the appellant alleging evasion of tax in the guise of E1 sales and they were directed to show cause against imposition of penalty under Section 45A and Section 46 of the KGST Act. It was alleged that the appellant had obtained orders for supply of generators on the specific condition that the goods would be delivered and installed at the site of the respective customers. Statements were collected from some of the purchasers admitting that the goods were actually delivered on site by the appellant. It was, therefore, contended by the Revenue that the sales were local sales and E1 and 'C' forms had been misused to evade tax, since there was no sale in transit. In the above circumstances, Exhibits P1 to P5 orders were passed WA No.732/15 3 imposing penalty of twice the amount of tax sought to be evaded. 3.The penalty orders were challenged by the appellant before this Court by filing W.P.(C).Nos.30766 and 30773 of 2004. By judgment dated 16.8.2005, a learned single Judge of this Court directed the appellant to file revisions before the Deputy Commissioner of Commercial Taxes under Section 45A(3) of the Act. The Deputy Commissioner was directed to consider all aspects of the matter and pass orders with regard to the liability to Entry Tax and penalty. It was further directed that penalty should not be levied in an arbitrary manner, but at the same time, the interest of the Revenue should be protected by collecting appropriate tax and interest both under the KGST Act and the Entry Tax Act. Thereafter, Exhibit P9 order was issued by the Deputy Commissioner. By that time, the Kerala Tax on Entry of Goods into Local Areas Act had been held to be invalid. Under the KGST Act, the Deputy Commissioner found that there was evasion of tax in specified cases and upheld the WA No.732/15 4 imposition of penalty to the extent of half of the tax sought to be evaded in respect of each year. This was further taken in revision before the Commissioner by the appellant and by Exhibit P12 order, the revisions were dismissed. These orders were under challenge before learned single Judge, who after considering the entire aspects of the matter, dismissed the writ petition. - 4.Heard the learned counsel for the appellant and the learned Senior Government Pleader appearing on behalf of the respondents. - 5.The contention of the appellant is to the effect that going by the provisions of Section 45A of the KGST Act, no penalty proceedings could have been initiated against the appellants since there was no suppression of income or attempt to evade tax. It is contended that the entire transactions were shown in the books of accounts of the appellant. It had sought only exemption of 'in transit sales'. The question being only from whom the tax is to be collected, and the WA No.732/15 5 sales being supported by 'C' Form declarations as well, it is contended that no attempt at evasion of tax existed in the instant case and therefore no penalty could have been imposed. The learned counsel for the appellant places reliance on the decisions reported in **Sree Krishna Electricals v. State of Tamil Nadu and another** [(2009) 23 VST 249 (SC), **Reckitt Benckiser (India) Ltd. v. Commissioner,Commercial Taxes, Thiruvananthapuram** [(2007) 6 VST 390 (Ker.), **M/s.Nilkamal Plastics Ltd. v.The Asst.Commissioner-1, Commercial Taxes** [201505-VIL-KER], **Chakkiath Brothers v. Assistant Commissioner, Commercial Taxes, Ernakulam and others** [2014 (3) KHC 55] and **M/s.Hindustan Steel Ltd. v. The State of Orissa** ] 1970 (25) STC 211. **P.D.Sudhi v.Intelligence Officer and others** [85 STC 337] in support of his contention. 6. It is further contended that the statement recorded from purchasers in transit had been relied on by the assessing authority as well as the two revisional authorities to come to WA No.732/15 6 the conclusion that the appellant had sought to evade tax. However, in spite of requests, no opportunity had been given to the appellant to cross-examine those dealers whose statements were relied upon to come to the conclusion. It is contended that such action of the assessing authority as well as the revisional authorities amounts to violation of the principles of natural justice and the orders are bad on that short ground. The learned counsel for the appellant places reliance on a decision of the Apex Court in **State of Kerala v. K.T.Shaduli Yusuff** [39 STC 478 (SC)] and the Bench decisions of this Court in **M/s.Suzion Infrastructure Service Ltd. v. Commercial Tax Officer** [(2010) 35 VST 451 (Ker)], and **M.S.Jewellery v. Asst. Commissioner and another** [1987 STC 455] in support of this contention. - 7.The learned Government Pleader, on the other hand, contended that though the transactions were reflected in the books of accounts of the appellant, the claiming of certain sales as in-transit sales was done with the mala fide intention of defrauding the Revenue and evading tax. It is WA No.732/15 7 stated that the agreement entered into by the appellant with the purchasers of generator sets would show that the appellant was to supply the goods at site and install the generators at their premises. It is therefore contended that sale would be completed only after installation of the goods and the issuance of 'C' Forms, E1 forms and lorry receipts would be irrelevant since what was effected was local sale by the appellant after taking delivery of the goods. The characterisation of the sale as “in transit” was a clear and conscious attempt to evade tax and would clearly fall within the mischief of Section 45A. 8. With regard to the contention that no opportunity was given to cross-examine the persons whose statements were relied upon by the assessing authority, it is contended that permission had been granted for perusal of the records on 06.03.2004. However, the appellant did not respond to the said notice or avail the opportunity granted to peruse the records and take extracts. Even thereafter, no objections were filed and the appellant did not avail the opportunity of WA No.732/15 8 personal hearing. In the above circumstances, the contention that the appellant should have been permitted to cross examine the persons whose statements were relied upon is only an objection raised for the purpose of defence in the instant case. 9. We have considered the rival contentions and have perused the materials on record. We have also given our anxious consideration to the decisions relied upon by the learned counsel for the appellant. 10.The learned single Judge has clearly found that Exhibit P1 to P5 orders imposing penalty themselves record that the appellant had been given an opportunity to peruse records and to take extracts as required. The appellant did not avail such opportunity. They had challenged the notices issued proposing the imposition of penalty before this Court and by Exhibit P6 judgment, appellant was enabled to file objections before the assessing authority. However, no objections were so filed. Even thereafter, requests were made for opportunity to cross-examine the purchasing dealers but the WA No.732/15 9 appellant did not file objections or seek or avail the opportunity for personal hearing. In the above circumstances, it was found that the appellant could not contend that the lack of opportunity to cross-examine the end purchasers who had stated that the sales effected were local sales vitiated the proceedings. Since no meaningful steps had been taken by the appellant for availing the opportunities provided for perusing and taking extracts of the statements and contradicting the same before the appropriate authority, it is not open to the appellant to contend that a proper opportunity of defence was denied to them. After considering the pleadings and the materials on record, we are of the opinion that the finding of the learned single Judge on the point is well justified in the facts and circumstances of the instant case. Apart from seeking an opportunity of cross examination, no steps were taken by the appellant to avail the opportunities provided to them by the authorities in the instant case. 11.With regard to the contention that no order of penalty could be imposed in a case where the entire transactions formed a WA No.732/15 10 part of the books of accounts of the dealer, the learned counsel for the appellant took us through the decisions of the Apex Court as well as this Court on the subject. In **Sreekrishna Electrical** (supra), it was found that where the sales were disclosed and exemption claimed and the claim for exemption is rejected, the dealer can be assessed to tax in respect of those sales as well. But no penalty could be imposed, since there was no attempt for evasion of tax. In **Reckitt Benckiser** (supra), it was held that to attract a penalty under Section 67 of the KVAT Act, the filing of the untrue or incorrect return should be actuated with an element of deliberateness. In **Nilkamal Plastics** (supra) as well, it was found that where the entire turnover was declared and an exemption claimed for a part thereof as second sales within the State, on negating such claim, no penalty could be imposed under Section 45A. In **Chakkiath Brothers** (supra) also the learned single Judge of this Court held, construing Section 67 of the KVAT Act that where the assessee disclosed turnover but claimed exemption based on classification, imposition of penalty is unsustainable. WA No.732/15 11 12.The decisions of the Apex Court in **Hindusthan steel Ltd.** **v. State of Orissa** (supra) and of this Court in **P.D.Sudhi v. Intelligence Officer and others** (supra) also laid down a similar proposition. 13.In the instant case, the finding of the assessing authority is to the effect that there was, as a matter of fact, no 'in transit sale' as claimed by the assessee. The claim of the assessee to the contrary was found to be factually erroneous on the basis of the materials including the agreement entered into by the assessee itself with the end customers which was corroborated by statements of the purchasing dealers. This Court by Exhibit P8 judgment had directed the consideration of specific instances of such local sales and the levy of tax and penalty only in such specific instances. This direction has been complied by the first revisional authority in Exhibit P9 order. In all cases where there was no allegation of local sale, the levy of tax was given up by the 1[st] revisional authority. This resulted in considerable reduction of the tax liability. Thereafter, the revisional WA No.732/15 12 authority went on to consider the question of fixing the quantum of penalty. The fact that the sales were revealed in the books of accounts of the assessee was taken into consideration and the amount of penalty was reduced from the maximum to one half of the tax sought to be evaded. As such, all the requirements of Section 45A are established. Therefore, we are of the opinion that the entire aspects have been adverted to by the first revisional authority and orders passed accordingly. In the above view of the matter, the finding of the learned single Judge that the order of the second revisional authority upholding Exhibit P9 does not suffer from any illegality or lack of jurisdiction cannot be faulted. We find no reason to interfere with the judgment under appeal. This writ appeal therefore fails and accordingly dismissed. No costs. sd/- **Antony Dominic,** sd/- **Anu Sivaraman, Judge** sj P.A. to Judge /True Copy/