M/S Classic Agencies 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** **MONDAY, THE 03RD DAY OF JUNE 2019 / 13TH JYAISHTA, 1941** **OT.Rev.No. 66 of 2018** **AGAINST THE ORDER IN TAVAT 273/2017 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM DATED 02-04-2018** ## **REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE:** **M/S. CLASSIC AGENCIES MURINGOOR P.O., KINFRAPARK - 680 309,REPRESENTED BY ITS MANAGING PARTNERJUSTIN K. THEKKAN.** **BY ADV. SRI.JOHN VARGHESE** ## **RESPONDENT/RESPONDENT/RESPONDENT/REVENUE:** **STATE OF KERALA REPRESENTED BY THE INTELLIGENCE OFFICER, SQUAD NO.III COMMERCIAL TAXES, THRISSUR.** **SR.GP-SRI.MOHAMMED RAFIQ** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 03.06.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **OT.Rev.No. 66 of 2018** **2** ## **C.K. ABDUL REHIM &** **R. NARAYANA PISHARADI, JJ. --------------------------------------------** O.T (Rev) No. 66 of 2018 **-----------------------------------------------** _Dated this the 03[rd] day of June, 2019_ ## **O R D E R** ## **Abdul Rehim,J** In the above revision petition filed under Section 63 of the Kerala Value Added Tax Act, 2003 ('the KVAT Act' for short), the challenge is against an order passed by the Kerala Value Added Tax Appellate Tribunal, Ernakulam in T.A (Vat) No. 273/2017, dated 02.04.2018. By the impugned order, a second appeal filed by the revision petitioner against an appellate order of the Appellate Assistant Commissioner, Department of Commercial Taxes, Thrissur was confirmed, thereby the penalty imposed under Section 47(6) of the KVAT Act against the revision petitioner was confirmed. 2. Brief facts involved are as follows:- The Intelligence Inspector, Commercial Taxes, Mattancherry at Aluva had intercepted a vehicle bearing Registration No.KL-45G/851 carrying certain goods consigned by the revision petitioner to three distinct dealers at **OT.Rev.No. 66 of 2018** **3** Kothamangalam, Muvattupuzha and Thodupuzha. The interception was at 15:45 hours (3:45 p.m) on 24.07.2012. The Intelligence Inspector issued a notice under Section 47(2) of the KVAT Act, demanding furnishing of security to the tune of Rs.67,500/- for release of the consignment, by raising the following allegations; _“The vehicle with goods was intercepted and checked at Kuruppampady. On verification the following defects were noticed:_ ( _1) The invoices accompanied was dated on 23.07.2012 but no date of delivery or despatch was affixed on the invoices. Hence multiple transaction of the goods using the same invoices is suspected._ _(2) The invoices were not raised as per Rule 58(II) of the KVAT Act,2003.”_ 3. The vehicle was released on furnishing security as demanded. Before the Intelligence Officer, at the time of the enquiry, the revision petitioner had produced copies of the 'Sale Invoice Register' with respect to the month concerned, trading account and balance sheet of the year concerned, and copies of the relevant pages of Stock Register etc. On verification of the books of accounts produced, the Intelligence Officer was convinced with the fact that the transactions were duly reflected in the books of accounts. It was **OT.Rev.No. 66 of 2018** **4** specifically noticed that drawal of the Bank Guarantee for furnishing security is also incorporated in the books of accounts. But the Intelligence Officer observed that, _“however no evidence to prove that the vehicle was laid down due to breakdown and subsequent repair which may have done at any workshop”_ . The Intelligence Officer further observed that, if the consignment was not intercepted by the Intelligence Squad, the entire transaction would not have entered in the books of accounts of the dealer. Therefore it is found that the contention of the dealer cannot be accepted. The specific finding of the Intelligence Officer is that “ _findings of the Intelligence Inspector, Squad No.-I, Mattanchery is justifiable_ ”. Therefore the security deposit of Rs.67,500/- was directed to be converted into penalty under Section 47(6) of the KVAT Act. 4. Before the first Appellate Authority, the revision petitioner contended that, the goods were loaded in a hired vehicle and the vehicle broke down mid-way and was held up in a workshop for a day and therefore the journey could be proceeded only on the next day. The revision petitioner produced a copy of a Certificate issued by one Basil P.A, who is the owner of the goods carrier bearing No.KL-45G/851, to the effect that, on 23.07.2012 the vehicle was hired by the revision petitioner for transporting goods to **OT.Rev.No. 66 of 2018** **5** Kothamangalam, Muvattupuzha and Thodupuzha and that all the goods were accompanied by bills. It is stated in the Certificate that the vehicle broke down on the way and he got it repaired only by noon on 24.07.2012. According to him, the repair charges was borne by him only. The first Appellate Authority found that, no documents regarding workshop bill, replacement of parts were produced and that the revision petitioner had not adduced any reason for the time lag occurred. Referring to a decision of the tribunal in **SRS Industries v. State of Kerala in T.A No.204/2011** dated 29.07.2011, it was found that the time lag in the actual transport is sufficient ground to impose penalty under Section 47(6) of the KVAT Act. Therefore the order of the Intelligence Officer was confirmed. 5. In the second appeal, the tribunal found that, the Intelligence Officer was justified in detaining the goods and in demanding security on the basis of a presumption that there was attempt at evasion of payment of tax. The tribunal found that, the certificate produced by the revision petitioner is not sufficient to prove the fact that the delay occurred due to mechanical defect of the vehicle. Finding that the date of delivery and despatch is not mentioned in the invoices, there can be sufficient inference that there was an attempt to evade payment of tax by using the invoices for **OT.Rev.No. 66 of 2018** **6** multiple transport, is the conclusion arrived. Therefore the orders impugned were upheld. However, the quantum of penalty was limited to equal the amount of suppression sought to be evaded. 6. Main ground on which the impugned orders are assailed is that, the Intelligence Officer has not conducted any proper enquiry as contemplated under Section 47(5) of the KVAT Act. It is pointed out that, the production of entire books of account of the business ought to have been accepted, as a proper discharge of the burden on the revision petitioner inorder to displace the suspicion of attempt at evasion of payment of tax. The Intelligence Officer had converted the security into penalty without arriving at any conclusion that there was actual attempt at evasion of payment of tax. The jurisdiction vested on the Intelligence Officer was not exercised in a legal and proper manner, is the contention. On the other hand, learned Government Pleader contended that, the revision petitioner had failed to offer any proper explanation with respect to the time lag between the date of the invoices and the date of the interception. The imposition of penalty is justified because the attempt at evasion of payment of tax can be inferred, is the contention. 7. While evaluating the rival contentions, we take note of the difference in the wordings of sub-sections (2) and (6) of Section 47 of **OT.Rev.No. 66 of 2018** **7** the KVAT Act. Under sub-section (2), a detention is permissible if the Officer has reason to suspect that the person transporting the goods is attempting to evade payment of tax due under the Act. But under sub-section (6), the authorised officer after conducting an enquiry by giving the party an opportunity of being heard should find that, there has been an attempt to evade the tax due under this Act, (emphasis supplied). In the case at hand, the Officer detaining the goods suspected chances for multiple transaction of the goods by using the same invoices. For maintaining such a suspicion, two reasons are stated in the notice issued under Section 47(2). One is that, the invoice is dated 27.3.2012, but the interception was at 3:45 p.m on 24.07.2012. Secondly, the date of delivery or the date of despatch were not affixed in the invoices. It is pertinent to note that, the address of the consignor is at Muringoor in Thrissur District. The interception is on the next day of the date of the invoices, at a place named at Kuruppampady in Ernakulam District. Question to be examined was, whether the revision petitioner could substantiate before the Enquiry Officer that, there was infact no attempt at evasion of payment of tax due on the goods. If the time of despatch of the consignment was noted in the invoices, the suspecion about multiple transport using the same invoices could have averted. The revision **OT.Rev.No. 66 of 2018** **8** petitioner had produced all the books of accounts before the Enquiry Officer, which include the trade, profit and loss account, balance sheet, stock register, sales invoice register etc. We had occasion to peruse the records which forms part of the records produced by the learned Government Pleader. On going through the 'Sale Invoice Register, it is evident that more than fifty invoices were drawn on the crucial date of 23.07.2012. After the entries made therein with respect to the five invoices accompanying the transport, three other invoices were also seen drawn by the revision petitioner on the same day itself, on 23.07.2012. On the next day, on 24.07.2012, also six other invoices are seen drawn. The Intelligence Officer has not made any verification with respect to the entries contained in the said Register. Nor he had a case that the entries with respect to the five crucial invoices were made at any subsequent point of time. All entries corresponding to the invoices are discernible from other Registers and Books kept in the course of the business. The authority cannot allege that the invoices which accompanied the transport are one created without making necessary entries in the books of account or that the invoices which accompanied the transport were created without making necessary entries in the books of accounts. Under such circumstances, multiple transport using the same invoices can be attributed only if there is any **OT.Rev.No. 66 of 2018** **9** evidence to infer that the transport which was intercepted was a second transport using the same invoices. The Officer conducting the enquiry has not made any verification as to whether it is a subsequent transport made on the next day using the very same invoices based on which a transport of the goods were already affected on the previous day. Such a verification could have been done by comparing the books of accounts of the consignees in the invoices. The mere allegation that there might have been an attempt of effecting multiple transports using the same invoices, was not established in any manner during the enquiry. It is pertinent to note that, the revision petitioner is not in a position to adduce any negative evidence to discredit such a suspension raised. Therefore it cannot be said that the Officer who conduct the enquiry as contemplated under sub-section (5) of Section 47 has arrived at any clear finding based on any materials that there has been an attempt to evade payment of tax due under the Act. Therefore the question remains whether the imposition of penalty was legal or justified. 6. Learned Government Pleader had placed reliance on a judgment rendered by a Division Bench of this Court in O.T (Rev) No.153/2015, dated 22.06.2018. Proposition canvassed is that, a mere finding that the consignment in question has been duly **OT.Rev.No. 66 of 2018** **10** accounted by the assessee as well as by the purchasers and therefore there is no evidence to prove the attempt of evasion as alleged, cannot be sustained. On the facts of the said case we noticed that, the goods were intercepted on 31.10.2008 when it was accompanied with an invoice dated 30.09.2008, which is clearly one month predated. In the said case, the tribunal exonerated them from the liability of penalty by merely holding that the transaction was seen entered in the books of accounts. This Court had reversed the finding by analysing other circumstances such as placing of the purchase orders and a subsequent letter issued by the purchaser intimating shortage of space etc., on the basis that they are not genuine. We cannot deduce any legal proposition from the said judgment that, whenever there occurr a time gap in the transport, attempt at evasion of payment of tax can be inferred as established. 7. On the facts analysed as above, we find that the Enquiry Officer had failed to conduct a proper enquiry in the matter and the findings arrived by him that there has been an attempt to evade payment of tax, is based on no legal and acceptable materials. Consequently, confirmation of the order imposing penalty, by the Appellate Authorities, are also not sustainable. Therefore the above revision is liable to be allowed. **OT.Rev.No. 66 of 2018** **11** In the result, the above revision petition is hereby allowed. Proceedings of the Intelligence Officer, Squad No.III, Commercial Tax, Thrissur No.BCR-III/426/12-13 dated 05.09.2016, imposing penalty on the revision petitioner under Section 47(6) of the KVAT Act, is hereby set aside. The amount of penalty if any realised from the revision petitioner shall be refunded, forthwith. **Sd/-C.K.ABDUL REHIM** ## **JUDGE** **Sd/-R. NARAYANA PISHARADI JUDGE** lsn **OT.Rev.No. 66 of 2018** **12** ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** - **ANNEXURE A1** **TRUE COPY OF THE ORDER NO.OR 231/12-13 ISSUED BY THE INTELLIGENCE OFFICER, COMMERCIAL TAXES, MATTANCHERRY AT ALUVA** **ANNEXURE A2 TRUE COPY OF THE NOTICE ISSUED BY THE RESPONDENT TO THE PETITIONER** - **ANNEXURE A3 TRUE COPY OF THEORDER NO.VCR III/426/12-13 ISSUED BY THE RESPONDENT TO THE PETITIONER** - **ANNEXURE A4 TRUE COPY OF THE CERTIFICATE ISSUED BY THE OWNER OF THE VEHICLE HIRED BY THE PETITIONER** - **ANNEXURE A5 TRUE COPY OF THE ORDER ISSUED BY THE APPELLANT ASSISTANT COMMISSIONER, COMMERCIAL TAXES, THRISSUR** - **ANNEXURE A6 TRUE COPY OF THE ORDER IN T.A. (VAT)NO.273/2017 OF THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM** - **RESPONDENTS EXHIBITS: NIL** **TRUE COPY** **P.A TO JUDGE** ## **LSN**