M/S. NAIR COAL SERVICES LTD. v. STATE OF KERALA

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU WEDNESDAY, THE 10TH DAY OF AUGUST 2016/19TH SRAVANA, 1938 OT.Rev.No. 155 of 2015 () -------------------------- AGAINST THE ORDER/JUDGMENT IN TAVAT 1099/2013 of VALUE ADDED TAX ADDITIONAL APPELLATE TRIBUNAL,PALAKKAD DATED 11-05-2015 ## REVISION PETITIONER(S)/APPELLANT/ASSESSEE: ------------------------------------------------------- M/S.NAIR COAL SERVICES LTD., MUNICIPAL SHOPPING COMPLEX, COURT ROAD, PALAKKAD, REPRESENTED BY ITS SENIOR MANAGER, U. KALADHARAN. ## BY ADV. SRI.N.MURALEEDHARAN NAIR RESPONDENT(S)/RESPONDENT/REVENUE: ----------------------------------------------- STATE OF KERALA. R BY MOHAMMED RAFIQ, GOVERNMENT PLEADER THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 10-08-2016, ALONG WITH OTRV. 156, 157 & 158 OF 2015, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: OT.Rev.No. 155 of 2015 () : 2 : ## **APPENDIX** ## PETITIONER'S ANNEXURES: ANNEXURE A : TRUE COPY OF THE PENALTY ORDER NO.IPD.23/IV/08-09 (06-07) DATED 22.03.2011. ANNEXURE B : TRUE COPY OF THE COMMON APPELLATE ORDER PASSED BY THE DEPUTY COMMISSIONER (APPEALS), COMMERCIAL TAXES, KOTTAYAM, (ON DEPUTATION AS DEPUTY COMMISSIONER (APPEALS), ERNAKULAM DATED 29.10.2011. ANNEXURE C : TRUE COPY OF THE COMMON ORDER PASSED BY THE KERALA VALUE ADDED TAX ADDITIONAL APPELLATE TRIBUNAL, PALAKKAD IN T.A. VAT NOS. 1099/2013, 1505/2013, 1100/2013 AND 1506/2013 DATED 11.05.2015. ANNEXURE D : TRUE COPY OF THE REPLY FILED BY THE PETITIONER DATED 02.11.2015. ANNEXURE E : TRUE COPY OF THE CHEQUE NO.005825 DATED 02.11.2015. ANNEXURE F : TRUE COPY OF THE NOTICE ISSUED BY THE INTELLIGENCE OFFICER, PALAKKAD, DATED 02.11.2015. ANNEXURE G : TRUE COPY OF THE INTERIM ORDER DATED 21.11.2015. ANNEXURE H : TRUE COPY of THE SECURITY BOND IN FORM NO.6 DATED 05.02.2016. - ANNEXURE I : TRUE COPY OF THE LETTER ISSUED BY THE INTELLIGENCE OFFICER, SQUAD NO.IV, PALAKKAD, DATED 11.02.2016. ## RESPONDENTS' ANNEXURES: NIL //TRUE COPY// P.A. TO JUDGE. rv ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. ------------------------------------------O.T. Rev. Nos. 155, 156, 157 & 158 of 2015 -----------------------------------------Dated this the 10[th] day of August, 2016. ## JUDGMENT ## Antony Dominic,J. These revisions are filed by the assessee challenging the common order passed by the Kerala Value Added Tax Additional Appellate Tribunal, Palakkad in TA (VAT) Nos. 1099, 1505, 1100 and 1506 of 2013. By the impugned common order, the Tribunal allowed the appeals filed by the Revenue and dismissed the appeals filed by the assessee and thus restored the order of penalty passed by the Intelligence Officer in exercise of his powers under Section 67 of the KVAT Act. 2. The assessee is a dealer engaged in the supply of coal to Messrs. Malabar Cements Ltd., a Government of Kerala undertaking. In conclusion of the proceedings under Section 67 of the KVAT Act, by order dated 31.01.2009, penalty of `24,80,494 and `1,25,57,370 was levied on the assessee for the assessment years 2006-2007 and 2007-2008 respectively. The orders were confirmed by the first appellate authority and further appeals were O.T. REV. No.155/2015 & batch -2- filed before the Tribunal. Since the penalty proceedings were initiated on the basis of the nil returns filed by the assessee, taking note of the revised returns that were subsequently filed by the assessee, the Tribunal passed order dated 11.11.2010 setting aside the impugned orders and remitting the matters to the Intelligence Officer with the following directions: “The appellant shall produce the books of accounts for both the years, all the relevant documents in original and copies of the invoices before the Intelligence Officer within two months from the date of receipt of this Order. Based on the above records produced by the appellant, the Intelligence Officer shall examine the issue afresh and re-fix the quantum of penalty as provided in Section 67(1) of the Act. The Intelligence Officer shall ascertain whether the appellant is legally entitled to avail input tax credit on purchases effected from M/s. Illiyaash Mines and Minerals Pvt. Ltd., Palakkad. The appellant shall prove with the relevant records that it is the coal purchased from Illiyash Mines and Minerals Pvt. Ltd., Palakkad that have been supplied to MCL. The appellant shall also establish with the documents that the appellant is entitled to avail input tax credit. We make it clear that if the appellant fail to produce the documents as stated above within the time limit of two months fixed by us and does not co-operate with the Intelligence Officer in finalizing the proceedings, then the present penalty orders will stand restored.” 3. Accordingly, summons were issued to the assessee and after hearing its authorised representative and perusing the documents that are produced by the assessee, the Intelligence Officer passed Annexure A orders levying penalty of `16,23,620 for the assessment year 2006-2007 and `1,25,99,702/- for the year 2007-2008, both being double the amount of tax evaded. The assessee filed appeals O.T. REV. No.155/2015 & batch -3- against the penalty orders before the first appellate authority. The appeals were heard together and were disposed of by Annexure B orders. As per this order, penalty for the assessment years 20062007 and 2007-2008 was reduced to `4,59,446 and `66,60,222 respectively. 4. Impugning the first appellate authority's order to the extent it is against the assessee, it filed T.A. (VAT) Nos. 1099 and 1100 of 2013 and the Revenue also challenged the orders to the extent it is against it in T.A. (VAT) Nos. 1505 and 1506 of 2013 . By Annexure C order, the Tribunal allowed the appeals filed by the Revenue and dismissed the appeals filed by the assessee and thus restored the orders passed by the Intelligence Officer. It in these circumstances the assessee has filed these revision petitions. 5. Before we enter into the merits of the rival contentions, we may, at the outset, state that from the concluding part of the order passed by the Tribunal in KVATA Nos. 1517 and 1518 of 2009 remitting the matter to the Intelligence Officer for passing fresh orders, it is clear that the Tribunal has carefully outlined the scope of enquiry by the Intelligence Officer. This is evident from the Tribunal's O.T. REV. No.155/2015 & batch -4- order requiring the assessee to establish with all relevant documents its entitlement to avail of input tax credit. This necessarily means that the assessee ought to have produced the documents which are specified in Sections 11(5)(m) and 11(9) and 11(12) of the KVAT Act and the Rules framed thereunder. 6. The fact that the assessee has failed in complying with the direction of the Tribunal is also evident from the Tribunal's order.The findings of the Tribunal contained in paragraphs 6, 7 and 8 read thus: “6. Coming to the question of entitlement for input credit, we are of the view that First Appellate Authority had committed an error in allowing the claim on the basis of certified duplicate copies of same. Section 11(9) of the Act is quite clear and also the inhibitions under Section 11(5)(m). Original invoices are to be necessarily produced for claiming input credit. Division Bench of Hon'ble High Court of Kerala has observed thus in **Mohammed Haji vs. State of Kerala** (ILR 2012(4) Ker. 87): 'The principle of strict construction would equally be applicable in the case of input tax credit and the procedural mandate in the provisions of S.11 has to be necessarily satisfied. The tax sufferance proved by invoice, the quantum determinable from the books of accounts etc., are the essence of the claim for the benefit conferred by the Section in availing input tax credit. Input tax credit is in the nature of set-off of tax suffered thus ensuring the liability of the subsequent dealers only on the quantum of value addition. No dealer has a right to claim input tax credit independent of the provisions of S.11. The set off so provided is in the nature of concession. It is a benefit conferred on the assessee quite in harmony with the scheme of multi point levy of tax but confined to the value addition at each stage. The determination of the quantum of such credit from the books of accounts postulates proof of tax-sufferance in the purchase, the levy and collection of tax on the value addition at the subsequent sale and ensures such levy and O.T. REV. No.155/2015 & batch -5- collection at the point of any subsequent sale too. It constitutes a chain and any break would result in chaos. Hence the stipulations that the claim should be made with reference to the return period and the quantum should be determinable from the books of accounts should be strictly complied with.' 7. It is mentioned in the enquiry orders that computer prints purported to be accounts of appellant were produced for enquiry and that too after seeking adjournment for a fortnight. Observations of the Enquiry Officer with regard to computer printouts of accounts were to the effect that those appeared to him as cooked up documents prepared after a lapse of two years from the date of the transactions in question. It is pertinent to note that proviso to Section 40 which permitted maintenance of electronic accounts was introduced vide amendment brought by Act 21 of 2008 only with effect from 01/04/2008. Appellant was bound to maintain written accounts as per Section 40 & Rule 58 of Rules until then. It is obvious that no accounts were being maintained as per law or if being so maintained not produced before the authorities. What were produced were computer prints of purported accounts which obviously did not have to satisfy the stringent conditions laid down in Circular 23/2008 dated 16.05.2008 for their acceptance as the circular was after the amendment. Hence those were rightly looked upon with distrust and discarded by the Enquiry Officer. Any changes could be made and manipulations done as the computer was with the appellant without any in buit check measures. Computer prints produced cannot be considered as accounts duly maintained under Section 40. Non maintenance of accounts in accordance with provisions coupled with filing of incorrect returns leads to a presumption that accounts are not truly and correctly maintained. In the absence of reliable evidence to prove the transactions recorded in the documents produced or in order to cloak the records with reliability to reduce the infraction to a technical lapse in the least, further proof was required which was not adduced. Claim for input is not supported by proper accounts either. Therefore, regardless of the fact that debit notes were belatedly raised, appellant cannot be given input credit as per proviso to Section 11(5). It is pertinent to note that a dealer claiming IPT under the proviso is not exempt from the liability to submit original bills under Section 11(9). First part of Sub-section 5(m) of Section 11 only envisages a situation where a tax invoice in the prescribed form is not with the dealer and not where tax is not separately changed in invoice or where no original is submitted along with claim. Since proper accounts are not there correctness of claim cannot be determined. Therefore, claim for input credit cannot be allowed. First Appellate Authority went wrong in placing reliance upon certified copies of invoices to allow input. O.T. REV. No.155/2015 & batch -6- 8. Rule 37(5) is with regard to production of duplicate bills in place of originals irrecoverably lost, is in the course and for the purpose of audit inspections. However for claiming input credit original invoice is necessary as doctrine of strict compliance is envisaged under Section 11. The fact that appellant had claimed input credit after declaring nil returns in the former year proves that claim was bogus. Contention that dealer was ignorant of provisions of KVAT Act as he was operating from Nagpur cannot be taken at face value as the dealer had enough knowledge of the provisions to make a claim for input, though he would feign ignorance of the necessity to declare his turnover correctly. Besides ignorance of law cannot be taken as a reason to condone procedural latches. Appellant had opened his office in Palakkad and taken registration as a dealer with the intention to do a business which he knew would involve turnover running into crores. It is difficult to believe that he would entrust his business to a half-baked employee who does not know even know the fundamentals of accounting. These contentions are not at all sustainable and are only to be repelled.” The requirement of mandatorily complying with the specifications of the aforesaid statutory provisions has been highlighted by this Court in the judgment in Mohammed Haji M. v. State of Kerala[1] . From the aforesaid findings, it is obvious that the assessee has not produced documents as directed by the Tribunal and has failed to prove its entitlement for input tax credit. Having regard to the limited scope of the enquiry after remand, in the light of the aforesaid findings of the Tribunal, the case should have ended there. 7. Be that as it may, insofar as the assessment year 2006-2007 is concerned, the first issue that was raised before us was with respect to the levy of penalty on the quantity variation of 3370MT of 1 2012 KHC 442 O.T. REV. No.155/2015 & batch -7- coal. In Annexure A order, it has been found that the quantity of 3770 MT of coal has been accounted by the assessee in April, 2007, and that there is no entry of the said quantity of 3770MT in the books of accounts of the dealer for the year 2007-2008. It is also stated that the books of accounts of Malabar Cements Ltd. shows that the first arrival of coal in April was on 18.04.2007, and that there is a delay of 18 days for the consignment to reach Valayar from Olavakkode. According to the Intelligence Officer, the delay showed that the item purchased by the assessee from its supplier on 31.03.2007 has been sold to some other party, and that the dealer has failed to establish that it was the coal that was purchased from its supplier, which was sold to Malabar Cements Ltd. The first appellate authority considered this issue and in Annexure E order, it is held that the assessee has proved that there is no difference in the quantity of coal supplied as alleged by the Intelligence Officer. On that basis, the first appellate authority held the penalty levied on the assessee to be unsustainable. It is seen that this issue was considered by the Tribunal and in paragraph 10 of its order, the Tribunal has concluded that on facts it was clear that the assessee had obtained the coal from O.T. REV. No.155/2015 & batch -8- undisclosed sources and supplied it to Malabar Cements Limited and subsequently the bills and accounts were cooked up to mask the sale to avoid tax liability. The Tribunal also found that in the absence of materials to prove movement of goods from the supplier to the assessee, copy of the bill generated by the supplier in the name of the assessee is not a sufficient proof of the sale evidenced by it and that there was no evidence to prove movement of goods from the assessee to the Malabar Cements Ltd. It is also found that the Railway receipts and the report of Finance Manager of the Malabar Cements Ltd. would negative the possibility of any supply of coal purportedly purchased by the assessee from its supplier. According to the Tribunal, in the absence of proper accounts and invoices, it could not accept the contention of the assessee. 8. Despite the fact that these findings by the Assessing Officer, the first appellate authority and the Tribunal are findings of facts and are liable to be upheld, we also take note of another factual contention raised by the counsel for the assessee before us that the coal in question was imported by its supplier from South Africa at the Chennai Port and that the same was transported in 52 wagons from O.T. REV. No.155/2015 & batch -9- Chennai to the premises of Malabar Cements Ltd. He made reference to railway receipts and invoices issued by the Malabar Cements Ltd. to substantiate his contention. According to him, though the Malabar Cements had received the consignment on 01.04.2007, bill was raised only on 18.04.2007. This, according to the learned counsel, cannot be construed as a case of suppression as found by the Tribunal. Having considered the contention now urged by the learned counsel, we confess our inability to accept the same primarily for the reason that the contention now urged before us is contrary to the contentions raised by the assessee themselves before the first appellate authority. 9. From Annexure B order of the first appellate authority, we find that it has recorded the submission of the authorised representative of the assessee that the coal in question was imported at Cochin Port. If that be so, the contention now raised that the coal was imported at Chennai is a contradictory claim. Apart from that, even in the RR receipt now relied on by the learned counsel, we find that the assessee's name does not figure anywhere. Therefore, we cannot place reliance entirely on the RR receipt or invoices allegedly O.T. REV. No.155/2015 & batch -10- issued by the Malabar Cements Ltd. and upset the findings of fact arrived at by the Tribunal. We, therefore, confirm the findings of the Tribunal with respect to the penalty levied on the quantity variation of 3770 MT. 10. The second contention urged is with respect to the penalty on the sale of 1147MT of coal. A reading of Annexure A order passed by the Intelligence Officer shows that the defence put forward by the assessee was that the dealer from whom the coal was purchased was ignorant of law. This has been considered by the Intelligence Officer as an admission of non-compliance of the statutory provisions. The Intelligence Officer has also taken note of the fact that the assessee has its Headquarters at Nagpur and the accounts are maintained and monthly returns filed by professionals and that the authorised representative who represented them before the Court were also aware of the provisions of law. Therefore, the Intelligence Officer rejected the theory of ignorance of law put forward by the assessee. This contention was considered by the first appellate authority and the Tribunal, and both have confirmed the orders levying penalty. Nothing has been placed on record before us to conclude that these O.T. REV. No.155/2015 & batch -11- reasoning are illegal for this Court to interfere with the said findings. Therefore, the order passed by the Tribunal pertaining to the assessment year 2006-2007 is only to be confirmed. 11. Turning to the proceedings for the assessment year 20072008, we find that the penalty has been levied on the assessee on the basis that the purchases and sales have no correlation with the quantity and date. It is also held that input tax is seen illegally claimed and that the accounts produced were the cooked up computer printouts drawn after four years since the dealings occurred. Insofar as the absence of correlation is concerned, the order shows that the invoice number and the date do not correlate with the invoices raised by the assessee in respect of Malabar Cements Ltd. This question was considered by the first appellate authority and has concluded in Annexure B order thus: “The next issue for my consideration is whether the appellant suppressed the 14467.237MT of coal which was purchased from IMMPL for the year 2007-08. According to the Intelligence Officer, the total sales made by the appellant to Malabar Cements Ltd. Is 21568MT for the year 2007-08 whereas the appellant had not accounted the 14467.237 MT purchased from IMMPL for the year 2007-08. The findings of the Intelligence Officer is totally incorrect for the following reasons. The authorised Representative appearing for the appellant has produced the copies of the duplicate certified bills and accounts, invoices for both the years. |O.T. REV. No.155/2015 & batch|-12-|| |---|---|---| |Total quantity of coal sold to MCL||: 3770.000MT| |As per invoice 12/18.04.2007||| |Add the quantity of goods||| |as per invoice 4 to 7||: 14467.237| |||-----------| |Total||18237.237 MT| |Add the inter-state sale by Head office||: 3705.000 MT| |||---------| |Total||21942.237 MT| |Less transit loss claimed as per records:||374.180 MT| |||----------------| |Balance as per accounts||: 21568.060 MT| From the above analysis it is evident that the appellant had not suppressed any purchase as alleged by the Intelligence Officer. From the above analysis it is evident that the goods purchased from IMMPL as per invoice Nos. 4 to 7 (14467.327 MT) included in the total quantity accounted. The sales bills are prepared after the quality test and weighment of coal by the MCL. Copies of the weighment statement and the analysis report are produced for verification. The Intelligence Officer has not considered the documents furnished by the appellant in support of their purchase account. For the reasons stated above, there is no irregularity in the quantity of goods accounted by the appellant for 2007-08. As discussed above, I am of the view that the penalty imposed on the estimated turnover of Rs.7,42,43,558/- (for 14467.237 MT) of coal is unsustainable.” It was aggrieved by this order that the Revenue has filed T.A. (VAT) No. 1506 of 2013 before the Tribunal. 12. In Annexure C common order, the Tribunal has restored the penalty levied by the Assessing Officer. However, the order does not show that the Tribunal has assigned any reasons for upsetting the findings of the first appellate authority in favour of the assessee. In O.T. REV. No.155/2015 & batch -13- other words, the Tribunal has restored the penalty levied on the assessee in Annexure A order produced in O.T. Rev. No. 158 of 2015 without any application of mind. For that reason, the order passed by the Tribunal allowing T.A. (VAT) No. 1506 of 2013, which is the subject matter of O.T. Rev. No. 158 of 2013 is to be set aside. TA (VAT) No. 1506 of 2013 will stand restored to the file of the Tribunal and the Tribunal shall re-consider the matter with notice to both sides and pass appropriate orders in the matter. In all other respects, the Tribunal's order will stand confirmed. These revisions are disposed of as indicated above. ANTONY DOMINIC, JUDGE. DAMA SESHADRI NAIDU, JUDGE. _Rv_ O.T. REV. No.155/2015 & batch -14-