M/S Neerakkal Latex (P) Ltd. v. Intelligence Officer, Squad No.1, Department of Commercial Taxes, Kottayam; Deputy Commissioner of Commercial Taxes, Kottayam; Commissioner of Commercial Taxes, Thiruvananthapuram

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE ANTONY DOMINIC** ## **FRIDAY, THE 23RD DAY OF NOVEMBER 2012/2ND AGRAHAYANA 1934** ## **WP(C).No. 25635 of 2009 (Y)** ## **---------------------------** ## **PETITIONER(S):** **------------M/S.NEERAKKAL LATEX(P) LTD., MUTTUCHIRA P.O., KADUTHURUTHY, KOTTAYAM DISTRICT, REPRESENTED BY N.J.JAMES, M ANAGING DIRECTOR.** **BY ADVS.SRI.HARISANKAR V. MENON SMT.MEERA V.MENON** **RESPONDENT(S): -------------1. INTELLIGENCE OFFICER, SQUAD NO.1, DEPARTMENT OF COMMERCIAL TAXES, KOTTAYAM.** **2. DEPUTY COMMISSIONER OF COMMERCIAL TAXES, KOTTAYAM. 3. COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM.** **BY SR. GOVERNMENT PLEADER SRI.S.SUDHEESH KUMAR** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 23-11-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **MNS** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXT.P1: COPY OF THE AGREEMENT EXECUTED BY PETITIONER WITH M/S.NIJAVALLI LATEX** **EXT.P2: COPY OF THE NOTICE ISSUED BY THE 1ST RESPONDENT** **EXT.P3: COPY OF THE ORDER ISSUED BY THE 1ST RESPONDENT** **EXT.P4: COPY OF THE REVISION PETITION FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT** **EXT.P5: COPY OF THE ARGUMENT NOTE FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT.** **EXT.P6: COPY OF THE ORDER ISSUED BY THE 2ND RESPONDENT.** **EXT.P7: COPY OF THE REVISION PETITION FILED BY THE PETITIONER BEFORE THE 3RD RESPONDENT** **EXT.P8: COPY OF THE NOTICE ISSUED BY THE 3RD RESPONDENT** **EXT.P9: COPY OF THE ARGUMENT NOTE FILED BY THE PETITIONER BEFORE THE 3RD RESPONDENT.** **EXT.P10: COPY OF THE ORDER ISSUED BY THE 3RD RESPONDENT** **EXT.P11: COPY OF THE PURCHASE REGISTER MAINTAINED BY THE PETITIONER.** **RESPONDENTS' EXHIBITS: NIL** **//TRUE COPY//** **P A TO JUDGE** ## **ANTONY DOMINIC, J** ........................................ W.P.(C).25635/2009 .............................................. Dated this the 23[rd ] day of November, 2012 ## **JUDGMENT** Petitioner was an assessee under the KGST Act (in short 'the Act'). They are engaged in the processing of centrifuged latex. 2. On 24.7.2004, there was an inspection in their business premises and a Shop Inspection Report was prepared. On the basis of the inspection and the report, Ext.P2 show cause notice under Section 45A of the Act was issued. Petitioner filed its reply and after hearing them, Ext.P3 order was passed laying them penalty of Rs.33,00,000/-. Against that order, they filed Ext.P4 revision under Section 45A(3) of the Act, before the 2[nd] respondent, the first revisional authority. They also filed Ext.P5 argument notes. The revision was disposed of by Ext.P6 order and the penalty was reduced to Rs.3,20,000/-. **W.P.(C).25635/09** 2 3. Petitioner filed Ext.P7 revision to the 3[rd] respondent invoking its power under Section 45A (5). Revisional authority exercised its _suo motu_ power of revision also and issued Ext.P8 notice. Before the 3[rd] respondent, petitioner filed Ext.P9 common argument notes. 3[rd] respondent heard the petitioner and finally passed Ext.P10 order by which, he restored Ext.P3 order passed by the 1[st] respondent. It is this order which is under challenge in this writ petition. 4. At the outset itself, I shall deal with a preliminary objection raised by the learned Government Pleader. According to the learned Government Pleader, Ext.P10 order has been passed exercising the power of revision under Section 37 of the Act. Such an order is appealable under Section 40 of the Act. For that reason, according to him, the writ petition is not maintainable. **W.P.(C).25635/09** 3 5. However, a reading of Ext.P2 notice and Ext.P3 order shows that the power exercised is the power to levy penalty as provided under Section 45A(1) of the Act. It was that order which was modified in Ext.P6 order passed under Section 45A(3) of the Act. Aggrieved by Ext.P6 order, petitioner filed Ext.P7 revision invoking power under Section 45A(5) before the 3[rd] respondent. As per Section 45A(5), revisional power has been conferred on the Commissioner of Commercial Taxes and sub-section (6) thereof, provides that the order passed under Section 45A (5) shall be final. 6. In other words, revisional power of the Commissioner against an order passed under Section 45A(1) or (3) can only be under Section 45A(5) and the fact that Section 37 has been mentioned in Ext.P10 order does not mean that such a power is available to the Commissioner. Therefore, I am not inclined to accept the case **W.P.(C).25635/09** 4 of the learned Government Pleader that the order is appealable under Section 40 of the Act. This view I have taken is fully supported by the principle laid down by the Division Bench of this Court in **Bhima & Brother Jewellers and Diamond Merchants v. State of Kerala (138 STC 343)** . 7. That apart, this writ petition was admitted on 10.9.2009, and respondents also have filed their counter affidavit dealing with the contentions raised. Extensive arguments were also made by both sides. Therefore, I am not persuaded to reject the writ petition at this distance of time on the ground of availability of alternate statutory remedy. For these reasons, the preliminary objection raised by the learned Government Pleader is rejected. 8. Ext.P3 order shows that penalty has been levied mainly on four grounds and I shall deal with them separately. **W.P.(C).25635/09** 5 9. First item is that the petitioner had suppressed the actual sales of Normal Latex. It is stated that 880 barrels of latex were purchased by the petitioner which were not accounted. Out of this quantity, according to the petitioner, 835 barrels were purchased from Neerakkal Latex, Muttuchira, a sister concern and which were not accounted for want of the DRC content. It was also their case that the remaining 45 barrels were purchased by them on 5.4.2004 and that the Officer has taken it wrongly as purchased on 6.4.2004. It is on that basis, according to the petitioner, the quantity has been arrived at 880 barrels. 10. However, in Ext.P3, order passed by the 1[st] respondent, both these explanations were rejected and penalty was levied on the petitioner. A reading of Ext.P6 shows that the first revisional authority has dealt with this aspect in great detail. Insofar as 835 barrels **W.P.(C).25635/09** 6 are concerned, reference has been made by the first revisional authority to Ext.P11, stock register and it has been found that 835 barrels represent the cumulative collection from Neerakkal Latex as on 30.6.2004. Such a conclusion has been arrived at referring to pages 67 and 68 of Ext.P11. Insofar as the 45 barrels are concerned also, according to the first revisional authority, the purchase register at page 63, shows that 53 barrels were purchased by the petitioner on 5.4.2004 and that the 1[st] respondent took that quantity also along with the purchase on 6.4.2004 to arrive at the quantity of 144 barrels which includes the 45 barrels also. 11. However the 3[rd] respondent rejected these contentions in Ext.P10 in the following manner :- _“The inspection was conducted on 24.7.2004 and the intelligence Officer had verified the stock register and_ **W.P.(C).25635/09** 7 _find that out of the total purchase of 144 barrels purchased on 6.4.2004 the dealer had accounted only 88 barrels on the same day in the manual stock register. But the 1[st] revisional authority has erroneously entered a finding that on the previous date the assessee had effected 53 barrels ie, on 6.4.2004. But, actually the total number of barrels purchased was shown as 144 barrels. If the said contention was accepted the actual figure would be 91 barrels only (144 -53 =91). But this aspect was not considered by the 1[st] revisional authority. The physical stock of latex and cenex was recorded in the SIR in the presence of the dealers representative. Similarly the same was ascertained as actual counting measurement and weighment.”_ 12. Thus, the correctness of the conclusions arrived at by the first revisional authority which has been interfered by the 3[rd] respondent in Ext.P10 will depend upon an appreciation of entries in Ext.P11. As already stated, 835 barrels, according to the first revisional authority, is the cumulative purchase made by the petitioner as on 30.6.2004. This conclusion has been arrived at with reference to pages 67 and 68 of that document. Having gone through **W.P.(C).25635/09** 8 Ext.P10, it is noticed that pages 67 and 68 of the document does not mention the name of Neerakkal Latex as inferred by the 2[nd] respondent. On the other hand, the entire purchase is seen to have been made from farmers and 'WH' which is stated to mean 'Ware House'. Therefore, it was despite this factual position that the first revisional authority has wrongly interfered with Ext.P3 and that erroneous conclusion of the revisional authority has been rightly interfered by the 3[rd] respondent in Ext.P10. 13. Insofar as the 45 barrels are concerned, that again, according to the first revisional authority, is a part of 144 barrels which includes a purchase of 53 barrels purchased on 5.4.2004. On a reading of the date '5.4.2004' relied on by the learned counsel for the petitioner and also by the first revisional authority as contained in Ext.P11 Stock Register shows that there is an overwriting. Similarly **W.P.(C).25635/09** 9 in the quantity 53 barrels also there is an overwriting. Further, the manner in which the figure '5' has been written varies substantially with '5' written elsewhere in Ext.P11. Therefore, the dependability of this entry in Ext.P11 is open to doubt. In such a case, I cannot approve the order of the 3[rd] respondent in placing reliance on such an entry in the register nor can I disapprove the contrary conclusion arrived at by the 3[rd] respondent in Ext.P10. Therefore, the finding in Ext.P10 to the extent it concerns the allegation of sales of normal field latex has to be confirmed and I do so. 14. The second issue on which the penalty has been levied on the petitioner is the shortage of centrifuged latex. According to the 1[st] respondent, there was shortage of Rs.1,50,960/Kgms of DRC. In Ext.P6, the 2[nd] respondent accepted the case of the petitioner that the Officer has not taken into account the opening **W.P.(C).25635/09** 10 stock of 353 barrels and the centrifuged latex in various tanks of 147 barrels. In other words, according to the first revisional authority, the Officer has omitted to take note of the stock contained in 147 barrels which led to the finding that there was a variation in the stock of centrifuged latex. 15. Ext.P10 order shows that this finding has been reversed by the first revisional authority in the following manner:- _“As the physical stock was verified in the presence of representative of the dealer, the contention raised by the dealer before the revisional authority that in addition to 353 barrels cenex in various tanks 147 barrels were not considered by the Intelligence Officer and opening stock of 353 barrels of cenex as on 1.4.04 was not included with the same tank were not accepted by th inspecting authority. It is an accepted fact that the physical stock was recorded as actual counting, weighment and measurement. If there was any such claim on the part of the dealer regarding the stock of 147 barrels that would have been brought to the notice of the Intelligence Officer when they filed letter on_ **W.P.(C).25635/09** 11 _28.7.04. So the said contention is only an after thought so as to escape from the penal action. If there were stock of centrifuged latex available in the tank and in barrels at the time of inspection and the same recorded separately in the SIR there was no wilful correction in the SIR. So the findings of the first revisional authority is only to mislead from the main irregularities committed by the dealer. As such the findings of the first revisional authority in favour of the dealer is against the interest of revenue.”_ 16. Having considered Exts.P3 and P10 referred to above, I am inclined to think that there was absolutely no material for the first revisional authority to have concluded the issue in the manner as done in Ext.P6 and therefore, for the reasons stated in Ext.P10 extracted above, I uphold the findings in Ext.P10. 17. The third item on which the penalty has been levied on the petitioner is that there was an unaccounted sales of Cenex. On the basis of the delivery notes mentioned in Ext.P3 order, it has been found by the 1[st] respondent that there was **W.P.(C).25635/09** 12 unaccounted sales of 588 barrels and 504 barrels which has a total tax effect of Rs.11,19,117/-. Case of the petitioner which has been accepted by the first revisional authority in Ext.P6 order is that based on Ext.P1 agreement between them and M/s Njavallil Latex (P) Ltd., field latex was entrusted to them for converting it as cenex. To substantiate this contention, petitioner says in Ext.P9 argument notes that they also produced their books of account, in addition to Form 25 that was issued by M/s Njavallil Latex. Further, in Ext.P9 argument notes petitioner also placed reliance on the judgment of this Court in **M/s.Kurian Abraham Pvt. Ltd. And Another v. State of Kerala and Others (2004 (12) KTR, 235)** to contend that there was no tax liability on such a transaction. Although the first revisional authority has accepted the case in Ext.P6, the 3[rd] respondent rejected the entire contentions and restored Ext.P3 order and the reasons stated by the 3[rd] respondent reads thus:- **W.P.(C).25635/09** 13 _“Another contention raised by the dealer before the first revisional authority is that they had an agreement with M/s Njavally Latex, Edayar and out of total 2390 barrels of centrifuged latex produced 1084 barrels represent own goods and 1306 barrels relate to Njavally latex. But the first revisional authority has failed to appreciate the following facts before accepting the claim of the dealer._ _(1). There was a clear mention in the SIR that no goods of any other person kept in the dealers business place according to any kind of trade practice and the goods available are own goods._ _(2). The intelligence Officer has verified the production and signed the SIR and stock register and convinced himself that the stock of third parties has not been included. Similarly no dealer can be permitted to include the stock of third parties in their stock register and it is against the accounting principle._ _(3). As the centrifuged latex is the finished product of the dealer the question of shortage will not arise and if at all any shortage found then it will be in the raw materials ie, normal latex. The first revisional authority has failed to appreciate this fact while reducing the quantum of penalty. Hence the order of the first revisional authority cannot be justified._ _The next contention is regarding_ **W.P.(C).25635/09** 14 _the transportation of centrifuged latex to M/s.Njavally latex, Edayar. The first revisional authority has wrongly entered a find that the intelligence Officer has not cross checked the total purchases from the dealer by M/s.Njavally latex. As per the books of accounts produced there is no sale of centrifuged latex. Moreover the dealer had not produced the Form 25 declaration before the Intelligence Officer for verification at any stage for cross verification as directed by the first revisional authority. Hence the deletion of addition under this head by the first revisional authority cannot be justified.”_ 18. Reading of the above extracted part of Ext.P10 order shows that at any rate, the 3[rd] respondent has not considered the case of the petitioner in the light of the principles laid down by this Court in the judgment referred to above, which was confirmed by the Apex Court in **State of Kerala and Others v. Kurian Abraham Pvt. Ltd. And Another (2008 (13) VST, 1 [SC])** . Therefore, finding of the 3[rd] respondent on the issue of unaccounted sales of cenex by the petitioner to Njavallil Latex **W.P.(C).25635/09** 15 cannot be confirmed and requires reconsideration. 19. The fourth issue on which penalty has been levied on the petitioner is based on the unaccounted transactions detected from a notebook, outward register and an inward register. Reading of Ext.P3 order passed by the 1[st] respondent shows that based on the entries in the aforesaid documents, the total suppression found is of Rs.3,60,625/-, Rs.1,21,522/- and Rs.27,90,548/-. In Ext.P6 order passed by the 2[nd] respondent, findings of suppression insofar as it relates to Rs.3,60,625/- and Rs.1,21,522/were confirmed. Insofar as the suppression in relation to Rs.27,90,548/- is concerned, first revisional authority has concluded that it was only a duplication of purchase already entered in the accounts and on that basis, it was ordered to be excluded. This finding of the first revisional authority is reversed by the 3[rd] respondent in Ext.P10 order by stating thus:- **W.P.(C).25635/09** 16 _“In the stock register of normal latex mainained by the dealer it is clearly recorded that the arrivals of normal latex represents purchases effected from various farmers and dealers and does not incude purchases from Neerackal latex the sister concern. Therefore, the first revisional authority has gone wrong in finding that the dealer had effected purchase of total 655 barrerls of normal latex from M/s.Neerackal latex as per the recovered receipts in the month of April and May respectively. The first revisional authority has not meticulously analyzed the documents and has not entered a correct finding. The Deputy Commissioner, Kottayam might not to have allowed such claim put forth by the dealer. He has not passed any order judiciously and (the order passed by him is prejudicial to the interest of revenue. There is no merit in the contention raised by the dealer. Therefore, the suo motu proposal is confirmed and the revision petition filed by the petitioner is dismissed.”_ 20. A reading of the reasons assigned by the 3[rd] respondent itself show that the reasons assigned by the 3[rd] respondent are unassailable **W.P.(C).25635/09** 17 and therefore, findings contained in Ext.P6 could not have been sustained. Therefore, the levy of penalty on the 4[th] ground also has to be sustained. In the result, Writ Petition is disposed of sustaining Ext.P10 except on the finding of unaccounted sales of cenex which should be reconsidered by the 3[rd] respondent, with notice to the petitioner. ## **Sd/- ANTONY DOMINIC, JUDGE** ## mrcs /true copy/ sd/- P.A. To Judge