M/S. Parvathy Fashion Jewellers v. State of Kerala

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **& THE HONOURABLE MR. JUSTICE ASHOK MENON** **THURSDAY, THE 12TH DAY OF JULY 2018 / 21ST ASHADHA, 1940** **O.T.Rev.No. 45 of 2018** **AGAINST THE ORDER IN TA[VA] NO.258/2011 OF THE KERALA VALUE ADDED AGRICULTURAL INCOME TAX & SALES TAX APPELLATE TRIBUNAL, ERNAKULAM DATED 18.08.2015** ## **REVISION PETITIONER:** **M/S. PARVATHY FASHION JEWELLERS** **A REGISTERED PARTNERSHIP FIRM HAVING ITS REGISTERED OFFICE AT CENTRAL JUNCTION, PATHANAMTHITTA - 689 645 REPRESENTED BY ITS MANAGING PARTNER R. AYYAPPAN.** **BY ADVS.SRI.ASWIN GOPAKUMAR SRI.ANWIN GOPAKUMAR SMT.KALA G.NAMBIAR SRI.K.AMAL NATH NAIK SRI.ARJUN SANTHOSH SRI.RENOY VINCENT SMT.HEBA SARA ABRAHAM SRI.NIRANJAN SUDHIR** **RESPONDENT:** **STATE OF KERALA REPRESENTED BY ITS COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM.** **BY SENIOR GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ** **THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 12-07-2018, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **O.T.Rev.No. 45 of 2018** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** |**ANNEXURE A1**|**-**|**COPY OF THE SHOP INSPECTION REPORT**| |---|---|---| |||**DATED 17.01.2009.**| |**ANNEXURE A2**|**-**|**COPY OF THE QUANTITY WISE DETAILS OF SALE AND**| |||**PURCHASE UP TO 12.01.2009.**| |**ANNEXURE A3**|**-**|**COPY OF THE NOTICE ISSUED UNDER SECTION 67(1) OF**| |||**THE KVAT ACT, 2003 BEARING NO.CR 17/08-09/PIS**| |||**DATED 12.06.2009.**| |**ANNEXURE A4**|**-**|**COPY OF THE ORDER DATED 06.10.2010 PASSED BY THE**| |||**DEPUTY COMMISSIONER [APPEALS]-II IN KVATA**| |||**NO.999/2009.**| |**ANNEXURE A5**|**-**|**COPY OF ORDER DATED 14.10.2011 PASSED BY THE**| |||**KERALA VALUE ADDED TAX APPELLATE TRIBUNAL,**| |||**ERNAKULAM IN INT.P. NO.38/11 IN TA[VAT]**| |||**NO.258/2011.**| |**ANNEXURE A6**|**-**|**COPY OF THE ORDER NO.TA[VAT] NO.258/2011**| |||**DATED 18.08.2015.**| |**ANNEXURE A7**|**-**|**COPY OF THE STOCK REGISTER ATTESTED BY THE**| |||**INSPECTING OFFICER.**| |**ANNEXURE A8**|**-**|**ANNEXURE A7 STOCK REGISTER AND CERTIFICATE DATED**| |||**04.10.2017 ISSUED BY THE SALES TAX OFFICER.**| |**ANNEXURE A9**|**-**|**COPIES OF MEDICAL RECORDS INCLUDING MEDICAL**| |||**CERTIFICATE, DISCHARGE SUMMARY AND REPORTS THAT**| |||**ARE READILY AVAILABLE.**| |**ANNEXURE A10**|**-**|**COPY OF THE JUDGMENT DATED 26.05.2017 PASSED BY**| |||**A LEARNED SINGLE JUDGE OF THIS COURT.**| ## **RESPONDENT'S EXHIBITS: NIL** **//TRUE COPY//** **P.A. TO JUDGE** **sp** ## **K. VINOD CHANDRAN & ASHOK MENON, JJ.** **---------------------------------O.T. [Rev.] No.45 of 2018 ---------------------------------Dated this the 12[th] day of July, 2018** ## **O R D E R** ## K. Vinod Chandran, J. The assessee, concerned with the shop inspection, the defects detected and consequential penalty imposed in the assessment year 2008-09, is before us with a belated revision. The revision itself was filed with more than 900 days delay which was condoned on terms. Since the assessment year is of the year 2008-09, we admitted the matter and requested both sides to get ready for final hearing. 2. We elaborately heard the learned Counsel for the revision petitioner and the learned Senior Government Pleader appearing for the State. At the **O.T. [Rev.]. No.45 of 2018** **2** outset, it has to be stated that on a reading of the order of the Tribunal we do not see any question of law arising and not a single question has been raised in the memorandum of revision too. Even then we took into account the questions of law as argued by the learned Counsel for the petitioner. The questions of law raised on arguments by the learned Counsel for the petitioner are: _“(1)Whether the penalty imposed taking 50% of the stock revealed in the shop at the time of inspection as unaccounted is proper or not?_ _(2)Whether the proceedings, inter alia, initiated for violation of maintenance of Form 14A could be sustained since Rule 58 (12) and (13) of Kerala Value Added Tax Rules, 2005 mandate a manufacturing account to be maintained only by a manufacturer, which the dealer is not?_ _(3) Whether considering the fact that there was maintenance of stock register till 5 days back and in the light of the explanation offered, of the accountant being absent for last five days, was there a warrant for imposition of the maximum penalty on the unaccounted stock alleged? (4)Whether there is any mens rea proved in the aforesaid case?”_ **O.T. [Rev.]. No.45 of 2018** **3** 3. The revision petitioner is a jeweler carrying on its business as a partnership firm constituted in the year 1988. The petitioner admittedly carries on retail sale of gold and silver ornaments in about 600 sq.ft. spread over two floors of a building in the Central Junction at Pathanamthitta Town. On 17.01.2009 a shop inspection was conducted by the Intelligence Officer of the Commercial Taxes Department, along with Intelligence Officer of the Intelligence Wing, Kottayam. The petitioner alleges that the participation of the Intelligence Wing at Kottayam is strange, since it is not normally done. The learned Senior Government Pleader immediately countered that the Officers of the Intelligence Wing have state-wide jurisdiction. We are also not convinced that there is anything to be categorised as strange, since the inspection, as per the **O.T. [Rev.]. No.45 of 2018** **4** records, was carried out on information received of regular practice of evasion. 4. It is submitted by the learned Counsel for the petitioner that the allegation in the notice was only that there was no item wise stock shown in the stock register and that it was written up, only up to 12.01.2009. Ext.P1 is the Shop Inspection Report (SIR) which also showed a recovery of five number of business slips and a letter pad with two pages written and others left blank. On this minimal material a notice was issued under Section 67 proposing imposition of penalty determining the unaccounted stock as the entire stock available at the time of inspection in the jewelry. The entire stock was valued at Rs.2,12,00,000/- and a penalty was proposed at maximum of tax sought to be evaded. In first appeal there was a modification made, modifying the unaccounted stock to 50% of that **O.T. [Rev.]. No.45 of 2018** **5** found in shop inspection. The Tribunal upheld the penalty imposed at maximum of the modification made, by the First Appellate Authority, of the unaccounted stock. 5. The learned Counsel for the petitioner would argue that the stock register was not maintained for the last five days, only on account of the leave of the Accountant. There was also no test purchase made as alleged which was disputed by the assessee at the first instance itself. It is pointed out that in Annexure A1, the issue of test purchase has been interpolated which is evident from the manner in which the recital is seen in a different hand and a smaller font. The stock inventory was taken and without any reason, the entire stock was treated as un-accounted. A notice was issued as per Annexure A3 alleging that the materials recovered point to a clear evasion of tax **O.T. [Rev.]. No.45 of 2018** **6** and that there was absence of cash books/day books and manufacturing account. The previous sales carried on by the petitioner was also alleged to be far below the actual sale again, without any warrant for such allegation. There are no earlier inspections carried out in the premises and the petitioner cannot be said to have practiced any pattern of suppression. The petitioner had at the outset disputed the test purchase alleged to have been made and the petitioner was not offered an opportunity to cross-examine the person who made the test purchase. The petitioner has also placed reliance of **E.I.D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes [(2000) 117 STC 457 (SC)]** to contend that when stock register was maintained up to five days prior, there was no question of any suppression or evasion. Reliance was also placed on **Hindustan Steels Ltd., v. State** **O.T. [Rev.]. No.45 of 2018** **7** **of Orissa [(1970) 25 STC 211(SC)]** and **Jiten & Company v. The Sales Tax Officer [(1977) 39 STC 308 (SC)]** to assail the penalty imposed and the quantum based on the gravity of offense. **St.Michaels Oil Mills v. State o Kerala [(1987) (2) KLT 610], Paisons v. Intelligence Officer and others [(1992) 1 KTR 143 (Ker)** and **Rams v. Sales Tax Officer (Enquiry) and others [(1993) 1 KTR 563 (Ker)** were also relied on. 6. Learned Senior Government Pleader however, would seek to sustain the penalty pointing out the various discrepancies as has been stated in the notice. He specifically points out that the original order of penalty has not been produced along with the revision. It is argued that the petitioner having not maintained stock register, the only presumption is that regular sales and purchase have not been reflected in the books of **O.T. [Rev.]. No.45 of 2018** **8** accounts and the ornaments sold were regularly replaced with new manufactured ornaments. This was the specific reason why stock register was not up to date which as per Rule 58(1)(vi) has to be maintained by a dealer on a day to day basis. The stock found in the shop at the time of inspection was taken as the unaccounted stock rightly by the Intelligence Officer. On the question of manufacture, it is argued that the jewelry like that of the petitioner is also a manufacturer for reason of job works being carried out on a regular basis through Artisans which supply of gold and sliver and receipt of ornaments manufactured has to be specifically entered in the stock register in Form 14A. The dealer has also not maintained a cash book or day book which again advances his intention to suppress actual sales carried on in the Jewelry. The appellate authority has made **O.T. [Rev.]. No.45 of 2018** **9** substantial modification insofar as treating the unaccounted stock to be 50% of that available in the shop at the time of inspection. There is no warrant for interference in the Tribunal's order and with respect to the test purchase, the Tribunal has remanded the matter merely for examination of the person who made the purchase which could only result in reduction of that quantum which is minimal insofar as the huge suppression detected. There is definitely a pattern of suppression as seen from the absence of books and registers and there could be no interference again for reason of there being no substantial question of law arising from the order of the Tribunal. 7. A brief look at the shop inspection report produced as Annexure-A would indicate that the shop inspection was carried on between 12.00 p.m and 15.45 pm on 17.01.2009. For the moment, we would **O.T. [Rev.]. No.45 of 2018** **10** ignore the test purchase and the allegation of no invoice having been issued for the said purchase since the Tribunal has remanded the said issue for fresh consideration to the Intelligence Officer after affording an opportunity for cross-examination. SIR indicates that a stock register alone was produced which was written up to 12.01.2009, five days prior to the date of inspection. Hence, there was no opening stock on the day the inspection was conducted and it was in that context the entire stock was taken as unaccounted. The stock recorded items were gold ornaments as on 12.01.2009 and there were no imitation items shown recorded in the inspection. Silver ornaments were found, revealed on verification to be 3725 grams; while the stock recorded of silver was that of 01.04.2008. An item wise stock register is not kept and what was seen **O.T. [Rev.]. No.45 of 2018** **11** in the stock register written up to 12.01.2009 was only the total quantity of gold kept in the shop. The ornaments displayed in the shop were gold and silver ornaments. The specific description of the gold ornaments are seen from the SIR which as such was not recorded in the stock register. In the inventory the total stock of gold and silver ornaments were recorded with their description and notice issued under Section 67(1)/71 of the KVAT Act as is seen from Annexure A3. 8. We do not have the benefit of looking at the order passed pursuant to Annexure 3 nor the objection filed to Annexure A3 for reason of the petitioner having failed to produce the same. Annexure A3 indicates that there was a purchase made of a gold ring weighing 3.230 grams valued at Rs. 4,520/- which is the test purchase referred to which we will not dwell upon, for reason of the **O.T. [Rev.]. No.45 of 2018** **12** remand made by the Tribunal. Other than test purchase, the inspection team had recovered five numbers of business slips along with a small letter pad with entries in two sheets and others kept blank. These were alleged to be with respect to the sales conducted as also purchase of old gold. The assessee had a contention as we see from the order of the Tribunal that these were mere estimates. The Tribunal had found that the First Appellate Authority had met such contention reasonably on the premise that normally no estimation would be prepared for such small purchase of old gold and such an estimate would be practically done only if there is a large quantity as in the case of a purchase for a wedding. If the allegation of estimate prepared and maintained without destruction is to be accepted then it can only be a self defeating practice engaged in by the assessee. **O.T. [Rev.]. No.45 of 2018** **13** An estimate made for small quantities and casually kept would only raise a presumption of attempt to evade tax without issuance of invoice. The slips could only be the sales effected without issuance of vouchers; for the purpose only of maintenance of a parallel books of accounts. 9. Annexure A3 also spoke about the absence of a manufacturing account in Form 14, stock register in Form 14A and other books of accounts like cash book, day book etc., which would reflect the daily transaction in a jewelry. One other significant finding was that on most of the days in the year 2008-2009 there was only one solitary bill issued, of sale. The inspection was also in the 10[th] month of the assessment year. On the aforesaid materials the Intelligence Officer rejected the books of accounts and on a stock analysis determined the unaccounted stock as the total stock available in **O.T. [Rev.]. No.45 of 2018** **14** the shop at the time of inspection. In addition, the purchase of old gold was found to have been not accounted during the year 2008-2009. The recovered documents were found to show purchase of old gold and also silver and it was in this context that the non-maintenance of a manufacturing account was taken against the assessee/dealer. There was also stock variation found in the silver ornaments, which stood unexplained for reason of there being no sale or purchase effected in the year. 10. The First Appellate Authority modified the unaccounted stock to 50% of the total stock found on stock inspection. The Tribunal affirmed the order of the First Appellate Authority. We see from the order of the Tribunal that the Tribunal has elaborately considered each of the submissions of the petitioner. We will also briefly touch upon the decision cited to negative the penalty in toto. **EID** **O.T. [Rev.]. No.45 of 2018** **15** **Parry [I] Ltd.** [supra] on facts found the planting and transport subsidies granted to the sugarcane growers to be part of the sale consideration; which the puchasers had not included in their turn over. However due to earlier orders of the Tax Tribunal there was a bonafide case for not including the subsidies in the turnover and it was not intentional. The penalty imposed was hence set aside. We agree with the Tribunal that the dictum laid down in the said case is not applicable to the facts of this case, since there was absence of maintenance of proper books and registers at the time of inspection. The sole register maintained being the stock register was written upto only five days prior and it did not show any item-wise stock of the ornaments kept in the shop. The total quantity of stock alone was reflected in the stock register, while the items on display were **O.T. [Rev.]. No.45 of 2018** **16** manufactured gold and silver ornaments. It is in this context that the necessity for maintaining a manufacturing account assumes significance. 11. The very fact that the assessee had shown the total quantity of gold in the stock register, but the display was of manufactured ornaments establish that they have been making the gold ornaments on job work basis, which requires a manufacturing account to be maintained. Otherwise, the stock shown in weight of gold and silver would result in suppression of sales over a period of time, which sold ornaments could be replaced later by other manufactured ornaments. We hence are of the opinion that the Tribunal was right in refusing to interfere with the determination of stock at 50% of that seen from the inventory carried out at the time of inspection. 12. There is a further contention raised by the **O.T. [Rev.]. No.45 of 2018** **17** petitioner before the Tribunal that ornaments weighing more than 40 grams each are kept only for display and not for sale. This would again require such item-wise ornaments to be shown in the stock register, failing which it can only be taken as being displayed for the purpose of sale, which sale would not be reflected in the books of accounts or in the stock register by reason of the subsequent replacement of such ornaments. On the slips recovered, the assessee had a contention that they were only estimation slips, which were dealt with by the First Appellate Authority and the Tribunal as noticed by us herein above. 13. Yet another serious ground taken by the learned Counsel is that the petitioner being a mere dealer is not entitled to maintain a manufacturing account as provided in sub-rule (13) of Rule 58; which is required only in case the dealer is a **O.T. [Rev.]. No.45 of 2018** **18** manufacturer. For arguments sake even if it is accepted, there is no explanation for the dealer not maintaining the various books and registers otherwise mandated by the very same Rule 58. Further the revelations on inspection; especially the Quantity Wise Details Of Sales and Purchase as seen from the documents on inspection, which is produced as Annexure A-2, point to a definite attempt at evasion. The purchase is shown in weight and if that is of old gold or ingots, necessarily they have to be converted to ornaments. Admittedly the stock available in the shop and displayed were ornaments, which are manufactured from gold. This clearly points to the petitioner having manufacture too, through goldsmiths. This are the specific details which are to be entered in Form 14A. 14. The only contention remaining is with respect the other decisions cited, which considered **O.T. [Rev.]. No.45 of 2018** **19** the question of the quantum of penalty to be imposed, which was found to necessarily have a nexus with the gravity of the offense. **St. Micheals Oil Mills** was concerned with a penalty imposed of 50% of the value of the stock. The mere fact that the officer was empowered to impose the penalty to that extent was held to be not a compulsive mandate on the officer to impose the maximum permissible. The quantum of penalty was held to be dependent on the gravity of the offense, which was dependent on the facts and circumstances of the case. 15. **Hindustan Steels Ltd.** contracted out a work of construction, and as per the terms of the contract supplied building materials to the contractor to be used in the execution of the work. The price received from the contractors was above that for which it was purchased by the Company. Proceedings were taken under the sales-tax **O.T. [Rev.]. No.45 of 2018** **20** enactment deeming the Company to be a dealer in building materials. While holding that there was definitely an element of sale in the supply of materials, on the question of penalty a statement of facts was called for from the Tribunal. However, it was declared that penalty cannot be imposed merely because it was lawful to do so and in breaches of a technical and venial nature the officer had a discretion which should be exercised judiciously. 16. In the present case, we find that the gravity of offense was quite onerous in so far as the assessee/dealer a jewelry having not maintained a stock register for five days and the maintenance of the stock register also being confined to the total weight of gold. The stock of silver ornaments as recorded in the stock register was of the beginning of the year. The stock recorded was **O.T. [Rev.]. No.45 of 2018** **21** without an item-wise description, when admittedly the petitioner was carrying on retail sale of gold and silver ornaments. The Intelligence Officer took the entire stock available as unaccounted stock, which was considerably reduced by 50% on first appeal. 17. The assessee was also not imposed penalty on the value of the stock. The tax payable on half of the stock value was taken and double that was imposed; which is the maximum penalty. The inspection was almost 10 months into the assessment year and the assessee had maintained the stock register without the description of the ornaments displayed and sold. Form 14A requires the description of the ornaments purchased as old gold, the receipts from the goldsmith and the sales effected. Only this would reveal the actual sales. The total weight shown in the stock register would **O.T. [Rev.]. No.45 of 2018** **22** enable replacement of sold ornaments with new ones. Hence there was a continuous practice of evasion throughout the nine and a half months of the year. The first appellate authority though modified and reduced the stock treated as unaccounted, imposed the maximum penalty at twice the tax evaded. According to us this is more than sufficient reduction on the facts discernible from the records. Left to us we would have found the reduction of unaccounted stock to 50% of the value of actual stock is very generous; considering the fact that more than 3/4[th] of the assessment year was over when the inspection occurred. 18. We also have to notice the submission made by the learned Senior Government Pleader that it is highly unlikely that a jewelry run in almost 600 sq. ft. on two floors of a building would have only one sale per day as has been found on inspection on **O.T. [Rev.]. No.45 of 2018** **23** the days specified by the Intelligence Officer. The Tribunal was perfectly right in having considered the dictum of the decisions, but having not applied it in the instant case on facts. The Tribunal has further found the stock register to be not maintained in the prescribed format and not containing the required details, as also being not updated as on the date of inspection. There was also absence of Day Book/Cash Book, Purchase Ledger, Sales Ledger etc. The recovered estimate slips and the letter pad indicated unaccounted sale and purchase of gold and silver ornaments. The recovered sale bills also indicated only accounting of one sale bill in most of the days. These factors were taken into account to find that the appellant is indulging in a pattern of unaccounted transactions. It was on such reasoning that the Tribunal upheld the First Appellate Authority's **O.T. [Rev.]. No.45 of 2018** **24** order determining the unaccounted stock at 50% of that seen at the time of inspection and affirmed the maximum penalty imposed. 19. On the question of _mens rea_ also the Tribunal has found deliberate and contumacious action of suppression of sales and purchase turnover, which in our opinion has been rightly found. We do not say anything about the remand made but observe that the value is minimal. Even without the test purchase and failure to issue a tax invoice, the totality of circumstances revealed on inspection: like non maintenance of books and registers as statutorily mandated, the stock found of ornaments contrary to the mere weight declared in the stock register, the slips and letter pad recovered as also absence of sufficient satisfactory explanation for the various defects, commend us to reject the revision. We have to add **O.T. [Rev.]. No.45 of 2018** **25** that the questions raised are all on facts and stand answered against the assessee by the lower authorities; which findings are perfect and impossible of contravention, in the facts and circumstances. We refuse to answer the questions raised, which are purely on facts. We reject the revision, leaving the parties to suffer their respective costs. **K. VINOD CHANDRAN, JUDGE.** **ASHOK MENON, JUDGE.** jma/sp/12/07/18