M/S Archana Industries v. Intelligence Officer (IB), Commercial Taxes, Kottayam & others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT :** **THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM** **TUESDAY, THE 29TH NOVEMBER 2011 / 8TH AGRAHAYANA 1933** **WP(C).No. 10385 of 2010(W)** **--------------------------** ## **PETITIONERS :** - **---------------** **M/S ARCHANA INDUSTRIES, ANOHERIL COMMERCIAL COMPLEX, LBS ROAD, KOTTAYAM, A PARTNERSHIP FIRM REPRESENTED BY ITS PARTNER SRI.G.DINESH.** **BY ADVS SRI.E.P.GOVINDAN SMT.G.DEEPA** ## **RESPONDENT(S):** - **------------------** **1. THE INTELLIGENCE OFFICER (IB), COMMERCIAL TAXES, KOTTAYAM.** **2. THE COMMERCIAL TAX OFFICER, IIND CIRCLE, KOTTAYAM.** **3. THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, KOTTAYAM.** **4. THE COMMISSIONER OF COMMERCIAL TAXES, KERALA, PUBLIC BUILDINGS, VIKAS BHAVAN P.O., TRIVANDRUM.** **5. THE INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, KOTTAYAM.** **6. THE STATE OF KERALA REPRESENTED BY THE SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, TRIVANDRUM.** **R1 TO 6 BY GOVERNMENT PLEADER SRI.MANOJ P. KUNJACHAN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 29.11.2011 , THE COURT ON 29/11/2011 DELIVERED THE FOLLOWING:** **vk** ## **WP(C).No. 10385 of 2010(W) ----------------------------------** ## **APPENDIX** **-----------** ## **PETITIONER'S EXHIBITS ---------------------------** **EXT.P1. COPY OF THE PENALTY ORDER PASSED BY THE FIRST RESPONDENT FOR THE YEARS 1998-99.** **EXT.P2. COPY OF THE PENALTY ORDER FOR THE YEARS 1999-2000** **EXT.P3. COPY OF THE PENALTY ORDER FOR THE YEARS 2000-01.** **EXT.P4. COPY OF THE PENALTY ORDER for the YERS 2001-02.** **EXT.P5. COPY OF THE PENALTY ORDER FOR THE YEARS 2002-03.** **EXT.P6. COPY OF THE JUDGMENT DT. 12.3.2004 IN WPC 7168/04 AND 7775/04 OF THIS HON'BLE COURT.** **EXT.P7. COPY OF THE REPLY DT. 19.4.2004 FILED BY THE PETITIONER BEFORE THE FIRST RESPONDENT.** **EXT.P7(A). COPY OF THE POSTAL RECEIPT.** **EXT.P7(B). COPY OF THE ACKNOWLEDGEMENT CARD.** **EXT.P8. COPY OF THE JUDGMENT DT. 16.8.2005 IN WPC 30773/04 AND 30766/04 OF THIS HON'BLE COURT.** **EXT.P9. COPY OF THE ORDER DT. 21.7.2007 PASSED BY THE THIRD RESPONDENT.** **EXT.P10. COPY OF THE REVISION PETITION FILED BEFORE THE 4TH RESPONDENT.** **EXT.P11. COPY OF THE ARGUMENT NOTE DT. 16.1.2010 FILED BEFORE THE FOURTH RESPONDENT.** **EXT.P12. COPY F THE ORDER DT. 7.2.2010 IN R2/43401/07 TO 43405/07 PASSED BY THE 4TH RESPONDENT.** **EXT.P13. COPY OF THE C FORM DECLARTIONS.** ## **EXT.P14. COPY OF THE EI FORM DECLARATIONS.** **VK** ## **WP(C).No. 10385 of 2010(W)** ## **---------------------------------** **EXT.P15. COPY OF THE REPORT FILED IN WPC. 30773/04 BY THE THIRD RESPONDENT.** ## **EXT.P16. COPY OF THE STATEMENT SHOWING THE PAYMENTS.** **EXT.P17. COPY OF THE NOTICE DT. 1.3.2010 ISSUED BY THE 5TH RESPONDENT FOR THE YEARS 1998-99.** **EXT.P17(A). COPY OF THE NOTICE DT. 1.3.2010 ISSUED BY THE 5TH RESPONDENT FOR THE YEARS 1999-00.** **EXT.P17(B). COPY OF THE NOTICE DT. 1.3.2010 ISSUED BY THE 5TH RESPONDENT FOR THE YEARS 2000-01** **EXT.17(C). COPY OF THE NOTICE DT. 1.3.2010 ISSUED BY THE 5TH RESPONDENT FOR THE YEARS 2001-02** **EXT.17(D). COPY OF THE NOTICE DT. 1.3.2010 ISSUED BY THE 5TH RESPONDENT FOR THE YEARS 2002-03** ## **RESPONDENT'S EXHIBITS : NIL** **----------------------------** **/ TRUE COPY /** ## **P.A. TO JUDGE** ## **VK** ## C.K.ABDUL REHIM,J. ------------------------------WP(C).NO.10385 of 2010 --------------------------------Dated this the 29th day of November, 2011 ## JUDGMENT Exts.P1 to P5 orders imposing penalty against the petitioner under section 45A of the Kerala General Sales Tax Act 1963 (KGST Act), which is modified by the first revisional authority in Ext.P9 and further confirmed by the 2[nd] revisional authority under Ext.P12, are subjected to challenge in this writ petition. 2. Petitioner filed returns for the years 1998-99 to 2002-03 claiming exemption on a portion of the turn over, being sale in transit effected under section 6(2) of the Central Sales Tax (CST) Act. According to the petitioner, the claim was submitted supported by certificates as required under section 6(2) of the CST Act read with Rule 12(1) and (4) of the Central Sales Tax (Registration and Turn over) Rules 1957 and under Rule 11 (2c) of the Central Sales Tax (Kerala)Rules 1957. Details of the transaction for which the exemption was claimed is on the basis WP(C).10385/2010 2 that the petitioner purchased Generator Sets from dealers in other States and while in transit it was sold to various dealers within the State of Kerala. The petitioner had produced C-Form Declarations from the purchasing dealers as well as E1 Certificate from the dealer outside the State from whom the goods were purchased. Photocopies of lorry receipts were also produced in accordance with the mandate of Rule 11(8) of the CST (Kerala) Rules. It is stated that the Assessing Authority had finalised the assessment with respect to the years 1998-99 and 1999-2000 allowing such exemption. It is pointed out that tax due under the Kerala Tax on Entry of Goods into Local Areas Tax Act was levied from the petitioner with respect to the goods in question along with imposition of penalty under section 15 of the said Act. But the first respondent initiated proceedings under section 45A of the KGST Act on the basis of an allegation that the petitioner had filed incorrect and incomplete returns for the periods in question and evaded payment of sales tax by claiming exemption under the guise of transit sale. On the basis of enquiry conducted by the 1[st] respondent with the purchasing dealers WP(C).10385/2010 3 revealed that agreements were executed by the petitioner with the purchasing dealers by virtue of which the value of the goods included sales tax, entry tax, freight charges , insulation charges etc. As part of the enquiry the 1[st] respondent had collected statements from the dealers who had purchased the Generator Sets from the petitioner, during various assessment years. In most of the cases such dealers have given statement to the effect that the petitioner had directly unloaded the Generator Sets at their premises and installed it at their own risk. According to them most of the Generator Sets were locally purchased from the petitioner and the purchase orders issued by most of the customers revealed that there was an undertaking for delivery of the goods at site at the rate quoted were inclusive of all taxes, transporting charges, unloading charges, insulation charges etc. On the basis of such statements the authority found that the lorry receipt produced in support of the claim of transit sale was not genuine and the claim itself was contrary to the terms and conditions of the supply and the delivery of goods were undertaken by the petitioner based on specific agreements. WP(C).10385/2010 4 Hence it is observed that the subsequent production of certificates from the dealer outside the State as well as C-Form Declarations from the ultimate purchaser was only with an intention to evade payment of tax willfully by making claim for exemption on the basis of transit sale. 3. It is evident that, before imposing penalty under section 45A the 1[st] respondent had issued proposal notices to the petitioner. The petitioner had challenged those proposal notices before this court in WP(C).No.7168/2004. The said writ petition was disposed of along with other cases through Ext.P6 judgment. This court observed that it is open to the petitioner to raise all contentions in the form of objection against the proposal notices before the 1[st] respondent. This court found that, having regard to the disputed factual aspects involved it will not be proper on the part of this court to adjudicate the question. It is evident that Ext.P6 judgment was pronounced on 12.3.2004. But thereafter the petitioner submitted Ext.P7 reply before the 1[st] respondent requesting to furnish copies of the records relied on for initiating the penalty proceedings. In the said letter request WP(C).10385/2010 5 was made to afford opportunity to cross examine persons whose statements were relied on. The petitioner requested to grant time for filing detailed objections, after complying with such request. But the 1[st] respondent had finalised the proceedings and passed Exts.P1 to P5 orders observing that the petitioner had failed to raise any objections to the proposal notices. It was specifically observed that opportunity was given to the dealer to peruse the records and to take extracts of the above statements which they required. It is specifically stated that in this regard a letter dated 26.2.2004 was issued to the petitioner permitting such perusal of records and also permitting taking copies of the extracts, on 6.3.2004. But inspite of receipt of such letter on 27.2.2004, the petitioner had not availed any such opportunity. It is also mentioned that, inspite of specific directions issued in EXt.P6 judgment, the petitioner had failed to file any objections to the proposal notice. Instead, they again repeated the same request through letter dated 15.4.2004. Hence the 1[st] respondent had imposed penalty through Ext.P1 to P5 orders to the extent of twice the amount of tax in relation to turn over on WP(C).10385/2010 6 which exemption was claimed by the petitioner. 4. When the petitioner challenged Exts.P1 to P5 in a writ petition before this court, in Ext.P8 judgment this court observed that the petitioner should invoke revisional power of the 3[rd] respondent, under Section 45A (3). The revisional authority was directed to dispose of the revision to be filed within the time stipulated. With respect to the assessment for the years 199899 and 1999-2000 which was also under challenge, this court observed that the Deputy Commissioner has got powers of suo motu revision as contemplated under section 35. 5. Ext.P9 is the order passed by the 3[rd] respondent, the 1[st] revisional authority. Considerable modification on the imposition of penalty was allowed. The 3[rd] respondent found that the petitioner could not prove that sale was effected while in transit. But it is proved that the sale was effected only after the petitioner took possession of the goods. Hence it should be treated as a subsequent sale conducted locally within the State. In such cases, even the certificates or C-forms were filed, the claim should not be accepted. The 1[st] revisional authority found WP(C).10385/2010 7 that with respect to all the 5 years only in very few of the deals the petitioner had taken delivery of possession of the goods purchased interstate. Therefore imposition of penalty was confirmed only to that extent of turn over covered by those transactions, wherein it was proved that the petitioner had taken delivery of the goods. Further the first revisional authority had taken a lenient view in reducing the penalty to the tune of 50% of the turn over so determined. In further revision before the 4[th] respondent under section 45(5), Ext.P12 order was passed. The 4[th] respondent observed that there was clear failure on the part of the petitioner to file objections, inspite of reasonable opportunity afforded. Therefore the contention that there was denial of ample opportunity was discarded. A further contention raised by the petitioner regarding jurisdiction of the 1[st] respondent to initiate penal action based on the return submitted before the assessing authority, was also discarded observing that the 1[st] respondent has got co-extensive powers as that of the assessing authority. Further it was observed that the 1[st] revisional authority had meticulously examined the issue and WP(C).10385/2010 8 given maximum relief to the possible extent . Therefore interference was declined by the 4[th] respondent. 6. Heard Sri.E.P.Govindan, learned counsel for the petitioner and Sri.Manoj P.Kunjachan, learned Government Pleader appearing on behalf of the respondents. Sri.Govindan raised vehement contention on the aspect of denial of sufficient opportunity in the proceedings . He has drawn my attention to Ext.P7 letter wherein a specific request was made for furnishing copies of the statement recorded and also for affording opportunity to cross examine those persons who had given such statements. In that request the 1[st] respondent was requested to afford time for filing detailed objections after furnishing such copies. Contention of the counsel is that without supplying copies of the statement the 1[st] respondent had proceeded with imposition of penalty. But it is evident from Exts.P1 to P2 orders that notices proposing penalty dated 5.1.2004 was served on the petitioner and on receipt of such notices the petitioner had submitted a request for the copies of the statements. But it is evident that the Intelligence Officer had issued a letter permitting WP(C).10385/2010 9 perusal of the records and taking copies of the extracts on 6.3.2004. The said letter was received by the petitioner on 27.2.2004. But he had failed to avail any such opportunity. According to the petitioner at the time when the said letter was received he was prosecuting the matter before this court and therefore he had not availed opportunity to peruse the records and to take copies of the extracts. But it is pertinent to note that no contention regarding non issuance of the copies of the statement was seen raised before this court in Ext.P6 writ petition. On the other hand this court while disposing the writ petition had directed the petitioner to raise all the contentions in the form of an objections to Exts.P1 to P5 before the 1[st] respondent. Even after Ext.P6 judgment the petitioner had only repeated the same request as evidenced from Ext.P7. But he has not chosen to file objections to the proposal notices. It is also evident from Ext.P2 that even after receipt of Ext.P7 request yet another notice was issued to the petitioner dated 15.4.2004 directing to file objections if any to the proposal notice. Therefore, I am of the view that there was continued laches on WP(C).10385/2010 10 the part of the petitioner in not filing objections to the proposal notice. 7. Contention of Sri.Govindan is to the effect that, without getting copies of the statement petitioner was not in a position to file any effective objection. But I notice that proposal notice contained extracts of all the relevant notices, which were recorded from the ultimate purchasers and which were relied upon by the 1[st] respondent for imposition of penalty. If the petitioner was keen in pursuing the matter before the 1[st] respondent, they could have filed objection and sought for cross examination of the persons who had given such statement, after obtaining copies of the statement given by each of them. 8. Learned counsel had cited the decision of the Hon'ble Supreme Court in **State of Kerala vs. K.T.Shaduli Yusuff (1977 (39) STC 478)** in order to contend that the principles of natural justice and rule of audi alteram partem is an absolute requirement in all matters of quasi judicial nature and administrative enquiries. It is observed that adherence to Rule of natural justice is intended to secure justice and to put it WP(C).10385/2010 11 negatively to prevent miscarriage of justice and the authorities could not dispense with such adherence in all judicial or quasi judicial or administrative functions. But considering the facts and circumstances in the case at hand, as narrated above, I could not find fault with the 1[st] respondent in denying any reasonable opportunity to the petitioner in the matter of finalising the penalty. But there was continuous default from the side of the petitioner, even in filing objections to the pre assessment notices. 9. Another contention raised by the learned counsel for the petitioner is that without denying the exemption claimed with respect to a part of the turn over on the basis of 4 transit sale, penalty should not have been issued under section 45A. At the most the assessing authority should have declined the exemption and imposed tax, is the contention. He relied on a decision of the Hon'ble Apex court in **Sree Krishna Electricals vs. State of Tamil Nadu and another (2009 (23 VST) 249)** . It is noticed that on the facts of the said case there was only a misclassification of certain items which were revealed from the accounts of the dealer himself and hence denial of exemption and WP(C).10385/2010 12 imposition of tax was upheld. In that case with respect to the penalty it was observed that the items which were not included in the turn over were found incorporated in the dealers account book and when such items were not seen included in the turn over as disclosed, the assessing authority ought to have included only those items in the dealers turn over disallowing exemption claimed. Under such circumstances the Hon'ble Apex Court had set aside the penalty levied. I do not find any legal dictum contained in the above said decision. On the other hand, the facts and circumstances of that case, the Hon'ble Apex court found that since the claim for exemption was disallowed by the assessing authority imposition of penalty was not warranted. So also learned counsel had drawn my attention to a Division bench decision of this court in **Sunitha Diesel Sales and Services vs. State of Kerala 1996 (102 STC 448)** . While evaluating correctness of the action taken under section 29A, this court observed that if the goods are moved from the destination of the dealer to another place within the State on the basis of sale in transit which is evident from the records accompanied with such WP(C).10385/2010 13 transport, the detention and imposition of penalty under section 29A was not justified. But on the facts of this case penalty under section 49A alleging filing of untrue and incorrect return could not be equated with such a situation and it is not a penalty imposed on any allegation of transport of goods without support of the requisite documents accompanied. 10. Contention was also raised to the effect that there was failure on the part of the 1[st] respondent in verifying the lorry receipts produced, which will prove that the goods were transported directly to the place of the end purchaser. But it is evident that the first revisional authority, after examining the entire contentions and the statement recorded by various purchasers, found that those cases in which there is evidence that the petitioner had taken delivery of the goods alone the penalty will be sustainable. It is the consistent case of the authorities that in such case mere production of C form document or lorry receipts could not be considered for allowing the claim for exemption, because the prime ingredients for allowing such exemption is that the sale should have been effected by the WP(C).10385/2010 14 transfer of documents of title to such goods, during the movements from one State to another. When there was a specific agreement entered into by the petitioner with the ultimate purchasers that the goods will be supplied and the value included sales tax, entry tax, freight charges insulation charges etc, such contentions could not be accepted. 11. Lastly the petitioner contended that there was no element of mens rea and even assuming that there is unsustainable claim of exemption made, imposition of penalty was not warranted, and at the most the claim for exemption could have been rejected and tax could have been imposed. In support of the above contention the petitioner had relied on **Hindustan Steel Ltd.vs. State of Orissa 1970(25 STC 211), P.D.Sudhi vs. Intelligence Officer and others (85 STC 337) and a latest decision of the Honourable Apex Court in Commissioner of Sales tax, U.P. vs. Sanjeev Fabrics and another (2011 (19) KTR 1) (SC).** In this regard it will be useful to have an appraisal of provisions contained in section 45 A it is evident that penalty can be imposed if the authority is WP(C).10385/2010 15 satisfied that any person had failed to submit any return as required by the provisions of the Act or Rules made thereunder or has submitted an untrue or incorrect return or has acted in contravention of any of the provisions of the Act or any Rules made thereunder for the contravention of which no express provision for payment of penalty or for punishment is made by the Act. It is evident that the authority had arrived at a conclusion that the petitioner had filed statement in an untrue and incorrect manner claiming exemption from payment of tax with respect to certain turn over upon which he had raised an unsustainable claim of transit sale. It is a clear case of filing of untrue and incorrect return which was established through sufficient evidence collected from the ultimate purchasers. Therefore I do not find that the contention regarding lack of 'mens rea' can be taken note of for exonerating from the liability for payment of penalty. 12. However I notice that the first revisional authority had given considerable reduction in the amount of penalty by confining the turn over in cases where there were statements WP(C).10385/2010 16 obtained from the ultimate purchasers with respect to goods taken delivery by the petitioner. It is also pertinent to note that the extent of penalty has been reduced to 50% of the tax involved, whereas the maximum penalty imposed under section 45A is to the extent of twice the amount of tax sought to be evaded. Under such circumstances this court do do not find any reason warranting interference with the orders impugned in exercise of jurisdiction vested on this court under Article 226 of the constitution of India. No material illegality, irregularity or impropriety could be pointed out with respect to the orders impugned. 13. Accordingly the writ petition deserves no merit and the same is hereby dismissed. 14. It is made clear that the amounts paid by the petitioner in compliance of the interim order issued by this court shall be given due credit on the respective dates of remittance. It is further made clear that the petitioner will be at liberty to seek remedy under the Amnesty scheme WP(C).10385/2010 17 formulated under section 23 of the KGST Act if available under law. C.K.ABDUL REHIM,JUDGE pmn/ WP(C).10385/2010 18 WP(C).10385/2010 19 WP(C).10385/2010 20 WP(C).10385/2010 21