M/S. P.I. Marketing (P) Ltd. v. State of Kerala

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI MONDAY, THE 7[TH] DAY OF FEBRUARY 2022 / 18TH MAGHA, 1943 ## OT.REV NO. 40 OF 2018 AGAINST THE ORDER IN TA 1360/2011 OF KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM ## REVISION PETITIONER/S: M/S. P.I. MARKETING (P) LTD., PENTA WORLD BUILDING,POOTHOLE, THRISSUR, REPRESENTED BY A. NARAYANANKUTTY,MANAGING DIRECTOR. BY ADVS. SRI.HARISANKAR V. MENON SMT.K.KRISHNA SMT.MEERA V.MENON ## **RESPONDENT/S:** STATE OF KERALA, REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT,GOVT. SECRETARIAT, THIRUVANANTHAPURAM - 695 001. BY ADVS. GOVERNMENT PLEADER ## **OTHER PRESENT:** SR GP V.K.SHAMSUDHEEEN THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR HEARING ON 07.02.2022, ALONG WITH OT.Rev.41/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **O.T.(Rev.) Nos. 40 & 41/2018** **-2-** IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI MONDAY, THE 7[TH] DAY OF FEBRUARY 2022 / 18TH MAGHA, 1943 ## OT.REV NO. 41 OF 2018 AGAINST THE ORDER IN TAVAT 1361/2011 OF KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM ## REVISION PETITIONER/S: M/S. P.I.MARKETING (P) LTD. PENTA WORLD BUILDING,POOTHOLE,THRISSUR,REPRESENTED BY A.NARAYANANKUTTY,MANAGING DIRECTOR. BY ADVS. SRI.HARISANKAR V. MENON SMT.MEERA V.MENON ## **RESPONDENT/S:** THE STATE OF KERALA REPRESENTED BY ITS SECRETARY,TAXES DEPARTMENT, GOVT.SECRETARIAT,THIRUVANANTHAPURAM-695001. SR GP V.K.SHAMSUDHEEEN THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR HEARING ON 07.02.2022, ALONG WITH OT.Rev.40/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **O.T.(Rev.) Nos. 40 & 41/2018** **-3-** ## O R D E R [OT.Rev Nos.40/2018, 41/2018] ## S.V.Bhatti, J Heard learned Counsel Mr Harisankar V Menon and Senior Government Pleader V K Shamsudheen for parties. 2. M/s. P.I. Marketing (P) Ltd/a dealer registered under the Kerala Value Added Tax Act 2003 (for short, 'the Act'), assails the common order dated 30.12.2017 in T.A (VAT) No.1360 of 2011 and T.A (VAT) No.1361 of 2011 in the instant revisions filed under Section 63 of the Act. The order impugned in the revisions relates to the Assessment Years 2009-10 and 2010-11 respectively. The totality of circumstances and the grounds stated by the dealer are substantially similar, and, hence are disposed of by the common judgment. O.T.Rev. No.40 of 2018 **O.T.(Rev.) Nos. 40 & 41/2018** **-4-** has been treated as the representative revision for referring to the circumstances leading to the final common order made by the Tribunal in the Tax Appeals referred to above. The counsel consent to disposing of the revisions by this common judgment. O.T.Rev. No.40 of 2018 3. The dealer is incorporated as a Private Limited Company under the Companies Act, 1956. The dealer on 01.12.2009 had taken registration under the Act and was engaged in trading Cosmetics, Computer Printers, Electronic and Electrical items, Watches, Garments, Textiles, Household articles etc. On 30.04.2010 the Intelligence Officer, Squad No.II, Department of Commercial Taxes carried out inspection of the premises of the dealer where the business, narrated above, was being undertaken. The Intelligence Officer has taken possession of books of accounts, ledgers, documents etc. from the dealer. Thereafter, referring to a few omissions and commissions, ## **O.T.(Rev.) Nos. 40 & 41/2018** **-5-** warranting action under Section 67 of the Act, since are noticed, penalty proceedings were initiated under Section 67 of the Act. The insinuation or circumstances which constituted penalty proceedings, stated precisely, are categorized under the following three heads: “i) The petitioner claimed exemption of Rs. 3,11,70,760/- for the period January to March 2010 representing sales of exempted item "suit length". It is alleged that as against the sales of suit length, the profit claimed to have been achieved by the petitioner is abnormal. Suit length is being sold with other items which are taxable under the Act. But as against such sales of taxable items, the profit conceded is normal. Therefore the officer has sought to estimate the sales turnover of suit length at 15% profit and to arrive at the turnover and to take the balance as taxable sales at the rate at 12.5%, with a tax effect of Rs. 37,27,885/-. ii) For the period January to March 2010 alleged suppression of Rs. 3,45,94,350/- with a tax effected Rs. 43,67,537/- is alleged. iii) With respect to the period prior to registration 26-06-09 to 30-11-09 - alleged unaccounted sales of Rs. 5,54,99,600/- with a tax liability Rs. 70,06,825/- is alleged.” 3.1 The commissions and omissions can be abridged by terming them as misclassification, undisclosed sales turnover, **-6-** ## **O.T.(Rev.) Nos. 40 & 41/2018** and suppression of sales by the dealer. The Intelligence Officer issued show-cause notice, received reply of the dealer, and in the exhaustive and detailed order dated 26.07.2010 considered primarily multi-level marketing module of business which was carried on by the dealer, and in the process, according to the Revenue, how there has been tax evasion in the guise of classification of goods, undisclosed turnover, and suppression of turnover. The issues, in fact, on the very material relied on by the Revenue and the reply given by the dealer had received detailed attention at the hands of the Intelligence Officer, the Deputy Commissioner (Appeals), and the Tribunal, In the statutory remedies provided under the Act against the levy of penalty, the issues are confirmed against the dealer and in favour of the Revenue. Therefore, even for appreciating the legal grounds now canvassed by the dealer, we are of the view that reference to the working module of business in which the ## **O.T.(Rev.) Nos. 40 & 41/2018** **-7-** dealer is engaged, _viz_ . the combo sale of products, i.e., a combination of one taxable item and another exempt item, is made. 3.2 The following are the excerpts from order dated 26.07.2010: |26.07.2010:|26.07.2010:|||||||| |---|---|---|---|---|---|---|---|---| |||||Rs.12,000|Rs.4,000|||| ||||Rs.4,000||Rs.4,000|||| |||Rs.4,000|Rs.4,000||Rs.4,000|Rs.4,000||| |Entry|New sale|New sale|New sale||New sale|New sale|New sale|New sale| |**CBRS Primary Board**<br>**Payments**|**CBRS Primary Board**<br>**Payments**| |---|---| |Levels|Income| |1stlevel|4000| |2ndlevel|4000| |3rdlevel|12000| |Grand<br>Total|20000| **O.T.(Rev.) Nos. 40 & 41/2018** **-8-** Similar to the above board, the Company assures Express Board with Level of Income Rs.38000/- and Bonus board placements Income Rs.12000. In nut shell an investor of Rs.19170/- is asssured of Rs.2 Lakhs i.e., 1000% of the investment within shortest span of time extending from one month to maximum of 5 years. The product package details offered by the company are as follows. |**Sl.N**<br>**o.**|**Product Combination**|**Product Combination**|**Price offered by the**<br>**company**|**Chain site & Board**<br>**status**| |---|---|---|---|---| |**Binary Starter Kit Packages**||||| |1|Power X+ premium Suit Length||5490|One Binary Site| |2|Open Cooking oven +Premium suit<br>length||6790|"| |3|Pureit water Purifier + Premium Suit<br>Length||6890|"| |4|Dish TV STB + Premium Suit Length||6590|"| |||**CB Revenue Sharing Pool Packages**||| |1|OC Oven [1 No.] + Pureit [1 No] + Power X<br>[1 No] + Suit Length [3 No.'s]||19170|One Binary Site + One<br>Board Site| |2|Dish TV [1 No] + OC Oven [2 Nos.] + Suit<br>Length [3 Nos.]||20170|"| |3|OC Oven [1 No.] + Pureit [ 1 No.] + Dish<br>TV [ 1 No.] + Suit Length [ 3 No.'s]||20270|"| **O.T.(Rev.) Nos. 40 & 41/2018** **-9-** |4|OC Oven [3 No's] + Suit Length [3 No.'s]|20370|":| |---|---|---|---| |5|Digitron Inverter [1 No.] + Suit Length [1<br>No.]|26490|"| |6|Metlife Insurance [Only Nationalised<br>Bank DD]|25000|"| |7|Wipro Laptop [1 No.] + Suit Length [1<br>No.]|36990|"| ## xxx xxx xxx The real magnet for luring in people is the elaborate matrix of rewards that can only be corned by roping in new members to grow the pyramid. This sole attraction of manifold doubling of their investment is the attraction on which people are depositing with the Company. This type of scheme is a non-sustainable business model and would be getting ready to collapse at any time. The Company themselves are aware of the sky-high prices of items and for the very reason and to avoid further litigation in the matter at the time of collapse of the pyramid or matrix, the company obtains the following declaration, affirmation duly signed by the customers at the time of their new entrance to the scheme. _"Under any circumstances, I fully understand that the value of packages offered to me will be at higher side than the amount paid by me higher side than the amount paid by me”_ _Going through the product package combinations, one could see that all_ **O.T.(Rev.) Nos. 40 & 41/2018** **-10-** _packages are having one item in common i.e.. "Suit Length". The significance of this common factor "Suit Length is the it is a non-taxable item under the KVAT Act, 2003. The Company with a view of evading tax apportions the profit portion of all the sale proceeds of items towards the Sales Turnover of the exempted item "Suit Length". By this way the Company succeeded in claiming an exemption of Rs. 3,11,70,760/- for the period Jan 2010 to March 2010. The worthwhile comparison of Sale price with the purchase prices is as follows:_ |Item|Purchase Price|Sale Price<br>excluding tax|Tax|Sale Price|GP%| |---|---|---|---|---|---| |Wipro Laptop|23000|30951.92|1238.1|32190|35| |Suit Length|220|4800|0|4800|2082| |Produce Package Cost||||36990|| The prevailing Gross profit on Suit Length prevailing in the market is only 15% whereas the conceded GP of 2082% on Suit Length is nothing but the under pricing of co-selling goods with an intention of evading tax on such goods. The tax attempted to be evaded by the Company by apportionment of taxable goods profit towards the Suit Length for the period from Jan 2010 to March 2010 are worked out as under” xxx xxx xxx C. The suppressed turnover prior to registration unearthed by the Intelligence wing through inspection are advance receipts from June **O.T.(Rev.) Nos. 40 & 41/2018** **-11-** ## 2009 to November 2009 The Intelligence Wing managed to detect a huge turnover suppression of Rs. 5,54,99.600/ prior to the registration period of the Company through the inspection conducted on 30-04 2010. Against the proposal for this tax suppression, the Company submits the following explanations. i. The said receipts are only advances received by the Company and the consequent Sales were only effected after 01-04-2010 ii. Initially Company plans to market Insurance Products, Tourism Packages and other service oriented products and hence received advance amounts. iii. Our customers are from various parts and they have come to our place of business to take delivery of goods and hence the time gap between advance and sales. iv. It is proposed to arrive the alleged suppression by treating the entire turnover as assessable @ 12.5% whereas the Company is also dealing in items taxable@4% The explanations i to iv made by the Company have been considered at length with due attention to the returns filed, seized records, registration particulars, books of accounts produced and is decided accordingly on the merits as under xxx xxx xxx It has been explicitly proved that the Company is having parallel transactions involving substantial amounts which are not documented in any of the accounts produced. For the reasons stated above, the accounts subsequently produced on 25-05-2010 which **O.T.(Rev.) Nos. 40 & 41/2018** **-12-** does not represents true record of business transactions pursued by the Company. In the circumstances the explanation of the Company in this regards is not at all maintainable and hence liable to be rejected. xxx xxx xxx For the reasons stated as i. to iv. above, the explanations put forth by the company in this regards fails and it is fully established beyond any iota of doubt that the turnover of Rs. 5,54.99,600/- unearthed by the Intelligence Wing through inspection is the turnover suppressed by the Company for the period prior to obtaining the registration. The turnover of Rs. 5,54,99,600/- would be apportioned between 4% and 12.5% taxable goods on the basis of the turnover of taxable goods conceded by the Company during the year 2009-10 and is worked out in steps 1 & 2 as under. xxx xxx xxx From the facts and circumstances of the case it is evident that the Company acted deliberately with the malafide intention of evading the payment of tax under the Act. The Company resorted to flagrant violation of law coupled with perpetual evasion of tax. No doubt the Company has acted in total disregard to the statutory provision and purposefully evaded the payment of tax due to the exchequer which is offence warranting imposition of maximum penalty as envisaged under Section 67 of the Act. There are series of conscious failures on the part of the Company in performing its statutory obligations. I am fully convinced that the offender Company has not provided any satisfactory explanation for the offence committed as narrated **-13-** ## **O.T.(Rev.) Nos. 40 & 41/2018** above. The offence committed is so much grave that it must be inflicted with maximum punishment as envisaged under the Kerala Value Added Tax Act, 2003. In the circumstances the following orders are passed. ## - - - - - Order No. ITC 43/09 10 Dated 26 07 2010 for the Year 2009 10 For the reasons stated above, by virtue of the authority conferred upon me under Section 67 of the Kerala Value Added Tax Act, 2003, I hereby impose upon M/s P.I. Marketing Pvt. Ltd. No. 20/40/2, First Floor, Pentaworld Building. Poothole P.O., Thrissur a maximum - penalty Rs. 2.60.95,134/ [Rupees Two Crore Sixty Lakh Ninety Five Thousand One Hundred and Thirty Four Only] being equal to double the amount of tax evaded for the year 2009-10. The penalty imposed shall be paid as per the demand notice in Form No. 12 attached herewith.” 4. As a matter of record the penalty imposed by the intelligence officer has been confirmed by the Deputy Commissioner (Appeals) in Annexure-B order dated 22.06.2011, and by the Tribunal in Annexure-I order dated 30.12.2017. The Tribunal examined the imputation against the dealer, its reply, and detailed consideration of the conclusions recorded by the Intelligence Officer and confirmed the findings on all the three categories. The conclusions **-14-** ## **O.T.(Rev.) Nos. 40 & 41/2018** now confirmed by the Tribunal are findings of fact. By prioritizing his arguments, Adv.Harisankar V. Menon, at the outset, argued on non-disclosed turnover between 26.06.2009 to 30.11.209 and suppression of turnover during the period 01.01.2010 to 31.03.2010. 4.1 The contentions urged challenging the levy of penalty on account of alleged suppression of sale and unaccounted sales are either extension or refinement of reply given by the dealer. We would have taken the trouble of referring to the refined contentions now made, had it been a case where the contentions would lead us to examine, whether, while recording conclusions against the dealer, there has been illegality or infirmity warranting interference by this Court. In other words, the contentions now canvassed by the dealer are not pointing out a legal infirmity warranting examination by us. The conclusions now staring at the dealer are rendered by the authorities after examining the very same contentions. Under these circumstances, more particularly, after perusing the record and taking note of each one of the findings **-15-** ## **O.T.(Rev.) Nos. 40 & 41/2018** recorded by the Intelligence Officer, we deem it unnecessary to advert to these aspects in our order. Hence, we hold that the findings recorded for suppression of sales between January to March 2010, amounting to a turnover of Rs.3,45,94,350/- with tax effect of Rs.43,67,537/- and sales effected prior to registration between 26.06.2009 and 30.11.2009 amounting to Rs.5,54,99,600/with a tax liability of Rs.70,06,825/- we are in agreement with the findings confirmed by the Tribunal, and do not warrant interference by this Court. 5. Mr Harisankar, adverting to levy of Rs.37,27,885/- tax on the adjustment or apportionment of sales undertaken as exempted goods, argues that the consideration and findings thereon suffer from a serious illegality; the basis, for arriving at the turnover of wrongly classified goods is nothing short of estimation; and levy of penalty on estimation is impermissible and illegal while exercising the power under Section 67 of the Act. He relies on the judgment **-16-** ## **O.T.(Rev.) Nos. 40 & 41/2018** reported in _U.K. Monu Timbers (M/s.) v. State of Kerala_[1] , on paragraph nos 8, 9 and 10 in support of his argument that the estimation cannot constitute the basis for imposing penalty. The paragraphs relied on are excerpted hereunder: "8 The question first to be considered is with respect to the estimation of the turnover made by the Intelligence Officer based on the rates prescribed in the circular. The circular if held by us to be indicative or determinative of the actual price for which the goods are sold, the question posed is as to whether in penalty proceedings estimation can be adopted. The provision authorizing imposition of penalties, coming up for consideration in the instant case, is Section 67 of the KVAT Act. Clauses (a) to (1) of Section 67 enumerates the various offences that attract imposition of penalty. If any authority empowered under the Act is satisfied that any person has committed any or all of the offences enumerated in clauses (a) to (1): "such authority may direct that such person shall pay, by way of penalty, an amount not exceeding twice the amount of tax or other amount evaded or sought to evaded where it is practicable to quantify the evasion or an amount not exceeding ten thousand rupees in any other case." When action is initiated under Section 67 of the KVAT Act for defects/offences mentioned in clauses (a) to (I), it is to be noticed that the authority is clothed with the power to impose, by way of 1 2012 (3) KHC 111 (DB) **-17-** ## **O.T.(Rev.) Nos. 40 & 41/2018** penalty, an amount not exceeding twice the amount of tax or other amount evaded or sought to be evaded, where it practicable to quantify the evasion or in any other case, Rs.10,000/-. It is pertinent that in imposing penalty at twice the tax evaded or sought to be evaded, it should be practically possible to determine and quantify the amount evaded or sought to be evaded. This does not contemplate any estimation, however reasonable it may be, since the same would be in the realm of "best judgment", of, an individual-authority. 9 The multi-point levy as contemplated under the KVAT Act provides for assessment under Chapter V. Section 21 provides for self assessment by filing of a return under Section 20 in the prescribed manner and accompanied by the prescribed documents. This is in consonance with the scheme of multi-point levy providing set off of the tax paid at any prior point of sale; which is to be claimed by the assessee in its returns. However, the authorities under the KVAT Act have been conferred with powers of assessment in the event of any failure on the part the dealer/assessee. The KVAT Act thus provides for such assessment by Sections 22, 23, 24 and 25. Sections 22(3), 23(6), 24(1) and 25(1) all provide for 'best of judgment assessment in the event of the contingencies specified in the respective sections. Section 67 does not provide for any best judgment of turnover to be made for arriving at the tax evaded or sought to be evaded. At the risk of repetition, we notice that what is to be determined under Section 67 is the tax actually evaded or sought to be evaded and not what according to the officer initiating **-18-** ## **O.T.(Rev.) Nos. 40 & 41/2018** proceedings under Section 67 thinks in the best of his judgment has been the assessee's attempt to evade. A Division Bench of this Court had, in the decision reported in Paisons v. The Intelligence Officer and Others', while upholding the constitutionality of Section 45A in the Kerala General Sales Tax Act, 1963; similar to Section 67 of KVAT Act, held: "The discretion vested in the officer under Section 45A of the Act is not an unexaminable or unfettered discretion. Decisions are legion to hold that when the exercise of discretionary power is vested in a statutory authority on his being "satisfied" of certain facts, there should be material on record to substantiate the same. It is true that the language used in Section 45A(1) is "subjective". Though literally, the language is so, the practical approach of the Courts has been to insist on objective evaluation." 10. In penalty proceedings the offences indicated under Section 67 should be evidenced by the materials recovered on inspection or otherwise and the enquiry is pointedly against any actual suppression or omission in the course of the business transactions, which would lead to the definite conclusion of evasion or attempt to evade. On detection of such offences; in the event of the tax evaded or sought to be evaded being determinable, the officer initiating penalty proceedings is perfectly justified in imposing penalty at the maximum rate of twice the rate of tax actually evaded or sought to be evaded. Such officer conducting penalty proceedings cannot exceed his jurisdiction by finding out as to whether the evasion ## **O.T.(Rev.) Nos. 40 & 41/2018** ## **-19-** detected would in fact lead to an inference of earlier or subsequent evasion. Nor can such inferences regarding the earlier or subsequent conduct be reflected in the penalty proceedings by way of estimation of turnover based on such inferences. This, going by the clear words employed in the Statute, is within the realm of the assessment proceedings." He prays for setting aside the penalty imposed on the basis of estimation. 6. Mr Shamsudheen contends that the dealer was doing business in multilevel marketing. From the order of the Intelligence Officer, it is clear that the dealer was selling combo packages, one taxable item with a tax exempted item. The Intelligence Officer has not decided the turnover under this head either on estimation or conjunctures. By inviting our attention to the sale of Wipro Laptop and a Suit Length, noted above, he argues that the suppression of turnover is in the apportionment by the dealer while generating the invoice. It is not the MRP that is the deciding factor, it is the fudging of amount in a non-taxable item. In the case on hand, the **-20-** ## **O.T.(Rev.) Nos. 40 & 41/2018** turnover details, apportionment, calculation of profit, everything has been derived from the very data, either recovered or not contested by the dealer. Estimation is something different which has been found to be an unavailable tool for determining the escaped turnover, suppressed turnover, so on and so forth, while exercising the jurisdiction under Section 67 of the Act. Illustratively stated, a Suit Length purchased for Rs.220/- is sold for Rs.4,800/-, Laptop purchased for Rs.23,000/- is sold for Rs.30,951.92 paise. In the combo package, what ought to have been shown or stated against taxable sale is stepped down and shown against an exempt or non-taxable good. Gross profit, calculation etc has been followed on the very basis the dealer has followed. Therefore, in the case on hand, the Intelligence Officer has not done estimation or wide guess work in channelizing the turnover with incorrect figures. The principle laid down in _U.K. Monu Timbers (M/s.)_ is not applicable to the facts and circumstances of the case. **-21-** ## **O.T.(Rev.) Nos. 40 & 41/2018** 7. We have taken note of the rival submissions canvassed by the learned counsel. The levy and demand of penalty amounting to Rs.37,27,885/- is assailed on the ground that it is a conclusion or product of estimation of Intelligence Officer, such estimation is impermissible under Section 67 of the Act. We would like to refer to the very judgment on which reliance is placed by the dealer. The Division Bench, explaining the scope of enquiry under Section 67, stated that the offences indicated under Section 67 should be evidenced by the materials recovered on inspection or otherwise and the enquiry is pointedly against any suppression or omission in the course of the business transactions, which would lead to the definite conclusion of evasion or attempt to evade. Section 67, in the legislative wisdom, provides for a penalty in the case of a few commissions and omissions under the Act, has not clothed the authorities with wide discretion to embrace estimation and levy penalty on such commissions and omissions by the dealer. Estimation, if allowed to constitute one of the guiding factors, such ## **O.T.(Rev.) Nos. 40 & 41/2018** **-22-** estimation is resorted to impose penalty on consideration of revenue and the Treasury, and not commensurate to the omission/ commission noted in a given case. 8 'Estimate' in legal parlance is understood as meaning: A valuing or rating by the mind, without actually measuring, weighing or the like; rough or approximate calculation; an approximate judgment or opinion as a rough or an accurate calculation, or measurement. A statement, generally in writing, specifying the amount of money for which a contracting party will perform certain work or supply certain goods or building estimate. An offer is not less binding for being in the form of an estimate and headed estimate.' ## OR 8.1 To judge and form an opinion of the value, from imperfect data, (to fix the worth of) roughly or in a general way, to form an opinion of, as to amount, number etc from imperfect data, comparison or experience; to make an estimate of; to rate; to **O.T.(Rev.) Nos. 40 & 41/2018** **-23-** calculate roughly; to assess. A synonym used in general parlance is 'guess', meaning estimate without calculation or measurement, form hypothesis about. A word including both the meanings is 'Guestimate', a colloquial term meaning an estimate that is based largely on intention or guess work [see P.R. AIYAR's Advanced Law Lexicon] 9. The question, in the case on hand, is whether in a narrow conspectus or in a broad perspective, the Intelligence Officer had estimated or guessed what could be or what might be the suppressed turnover through apportionment of total sale price between taxable goods and exempt goods. By generally terming 'an estimate' a ground is not made out. The complaint against determination must satisfy anyone of the meanings attributed to the word to vitiate the penalty proceedings. To answer the above poser, one need not dwell into all details furnished by the Intelligence Officer in Annexure-A order. It is not the case of dealer that the details, for any purpose, incorporated in the penalty order ## **O.T.(Rev.) Nos. 40 & 41/2018** **-24-** are incorrect, unrelated etc. The apportionment of profit, percentage, etc are again in line with the method adopted by the dealer. The Intelligence Officer has found out the suppression of sales turnover in a particular sale transaction through artificial and unacceptable apportionment of sale price between taxable item and exempt item. 9.1 We have difficulty in appreciating or accepting that, in the circumstances of the case on hand and particularly having regard to the business module implemented by the dealer, the working of details by the Intelligence Officer could be termed as an estimate or guess work. A principle is followed in determining the suppressed turnover. These details are again from the record available in the enquiry. Reference to Tribunal's finding, at this juncture, is useful and excerpted below: "22. We are inclined to uphold the above stand taken by the first appellate authority. After having found that the gross profit of 2082% on sale of Suit length was not acceptable and having refixed it at 207.79%, it is unreasonable to apportion the balance towards **-25-** ## **O.T.(Rev.) Nos. 40 & 41/2018** taxable goods. The first appellate authority was therefore justified in holding that the gross profit should be fixed equally between taxable and nontaxable goods. We do not find any merit in the contentions raised by the learned State representative in this regard. 23. The Intelligence Officer has clearly explained how the taxable turnover during the registration period (conceded suppressed) have been fixed at 3,76,29,610/-, We have extracted at para 12 above how the Intelligence Officer has computed the above turnover of 3,76,29,610/-. The assessee has failed to place any material before us to show that the turnover fixed by the Intelligence Officer is erroneous. As stated earlier, the assessee's only plea before this Tribunal was to remit the case back to the Intelligence Officer. But we have stated the reasons why the plea cannot be accepted. No valid material has been placed before us to justify a remand. Based on a bare statement, the plea cannot be accepted. 24. Now coming to the appeal for the month of April 2010 (2010-11 - VAT 1486/2011), it can be seen that the Intelligence Officer has arrived at the tax sought to be evaded amounting to Rs.14,58,345/- as follows: _"The tax liability of the Company for the year 2009-10 as arrayed in para 10 -C, D and F is consolidated as under:-_ |_Sl.No_|_Particulars_|_Taxable @ 4%_|_Taxable @ 4%_|_Taxable @ 12.5%_|_Taxable @ 12.5%_|_Total_<br>_Turnover_|_Total Output_<br>_Tax Liability_| |---|---|---|---|---|---|---|---| |||_Turnover_|_Tax_|_Turnover_|_Tax_||| ## **O.T.(Rev.) Nos. 40 & 41/2018** **-26-** |_I_|Suppressed<br>Taxable Turnover<br>April 2010 – By<br>misclassification|236789|9472|6986145|873268|7222934|7222934|882740| |---|---|---|---|---|---|---|---|---| |_II_|Taxable Turnover<br>during the Month<br>of April (conceded<br>+ suppressed)|663490|26540|7517720|939715|8181210||966255| |_III_|Taxable Turnover<br>on account of<br>stock variation|124953|4998|368827|46102|493780||51101| |_IV_|Total<br>Sales<br>Turnover – Suit<br>Length + Shirting<br>fixed|0|0|0|0|1321896||0| |||||||||| |_1_|TOTAL||||||17219820|1900096| |_2_|Less Input Tax Credit||||||98353|| |_3_|Output Tax Payable (1-2)||||||1801743|| |_4_|Less Tax Paid||||||356865|| |_5_|Tax sought to be evaded by the Company (3-4)||||||1444878|| |_6_|Cess due on Output Tax Payable (3 x 1%)||||||18017|| |_7_|Less Cess Creditable||||||983|| |_8_|Cess Payable (6-7)||||||17034|| |_9_|Less Cess paid||||||3567|| ## **O.T.(Rev.) Nos. 40 & 41/2018** **-27-** |_10_|Cess Sought to be evaded by the Company (8-9)|13467| |---|---|---| |_11_|Total Tax Plus Cess sought to be evaded by the Company (5+10)|1458345| ||(Rupees Fourteen Lakh Fifty Eight Thousand Three Hundred and Forty Five only)|| 25. From the above, it can be seen that the Intelligence Officer has arrived at the tax sought to be evaded in the same manner as done for the The facts of the case are similar to that of 2009-10. No materials have been year 2009-10. placed before us to enable us to take a different view for this year. In the above circumstances, following the stand taken by us for the earlier year, we reject the plea advanced before us to remand the case back to the Intelligence Officer for reconsideration. 26. The State has in their appeal challenged the direction of the first appellate authority to reconsider the assessee's claim regarding the stock variation. The finding of the first appellate authority on this issue is as follows: _"Regarding the stock differences for 2010-11, the appellant contended that the Intelligence Officer does not take into consideration, the purchase and sales quantity of Home UPS, Inverter and Water purifier, even though, the purchase bills and sale bills for the month of April 2010 were in his possession. It is seen that the assessing authority stated NII purchase against the items. Considering this aspect, I feel some force in the contentions of the appellant in this point. Hence, I direct the assessing authority to conduct analysis once again by considering the purchases and sale bill and re-compute the_ **-28-** ## **O.T.(Rev.) Nos. 40 & 41/2018** _tax effect on this point. It is also directed to the assessing authority to refix the quantum of penalty on the basis of the discussions and directions given in the above paragraphs."_ 27. From the above, it can be seen that Deputy Commissioner (Appeals) has stated cogent reasons for directing the Intelligence Officer to make a fresh analysis after considering the purchase and sales bills. We do not find any infirmity in the above stand taken by the first appellate authority. There is no merit in the appeal filed by the Revenue. 28. Apart from the irregularities found at the time of inspection of the business place which we have referred above, the Intelligence Officer has also pointed out at page 7 of the penalty order for the year 2009-10 that the assessee represented by the Managing Director Sri.A.Narayanankutty and the Director Sri.K.B.Mohammed Azaraf has deliberately filed false and untrue affidavit before the Registering Authority of the Commercial Taxes Department. The assessee also failed to furnish the stock inventory and the unaudited financial statements for the year 2009-10 which the company had published in the Malayala Manorama News Paper on 25.05.2010. Considering all the facts stated by the Intelligence Officer in the orders of penalty, we are of the view that the Intelligence Officer was justified in initiating penalty proceedings against the assessee u/s.67(1) of the Act. Levy of maximum penalty is also justified considering the serious nature of the irregularities pointed out. As stated earlier, the first appellate authority was justified in interfering with the orders of penalty. We do not find any merit in **-29-** ## **O.T.(Rev.) Nos. 40 & 41/2018** the appeals filed by the assessee and the Revenue. In the result, the appeals fail and stand dismissed. Order accordingly." 10. We have examined independently the reasoning of the Tribunal and we are convinced that the conclusions recorded by the Tribunal are correct and available in the circumstances of the case. The only ground raised by referring to estimation of suppressed turnover is equally untenable and accordingly rejected. For the above reasons both revisions fail, accordingly dismissed. Sd/S.V.BHATTI JUDGE Sd/BASANT BALAJI JUDGE jjj **-30-** ## **O.T.(Rev.) Nos. 40 & 41/2018** ## **APPENDIX OF OT.REV 41/2018** PETITIONER ANNEXURES ANNEXURE A COPY OF ORDER ISSUED BY THE INTELLIGENCE OFFICER, THRISSUR FOR THE YEAR 2010-11 DATED 27.7.2010. ANNEXURE B COPY OF ORDER ISSUED BY THE DY. COMMISSIONER (APPEALS), ERNAKULAM 27.6.2011. ANNEXURE C COPY OF ORDER ISSUED BY THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM IN TA (VAT) NO. 1360/11, 1361/11 1485/11, AND 1486/11 DATED 30.12.2017. ## **O.T.(Rev.) Nos. 40 & 41/2018** **-31-** ## **APPENDIX OF OT.REV 40/2018** PETITIONER ANNEXURES ANNEXURE A COPY OF ORDER ISSUED BY THE INTELLIGENCE OFFICER, THRISSUR FOR THE YEAR 2009-10. ANNEXURE B COPY OF ORDER ISSUED BY THE DY. COMMISSIONER (APPEALS), ERNAKULAM. ANNEXURE D COPY OF RECONCILIATION STATEMENT OF THE PETITIONER. ANNEXURE D COPY OF PIN VOUCHER AGAINST MR.M.K.SANTHOSH. - ANNEXURE E COPY OF CONFIRMATION NOTE AGAINST MR.SREEMON K.R. ANNEXURE E1 COPY OF INVOICE AGAINST MR.SREEMON K.R. ANNEXURE F COPY OF PIN VOUCHER AGAINST MR.SHAKEER HUSSAIN N.P. ANNEXURE G COPY OF CONFIRMATION NOTE AGAINST MR.BINU C.B. ANNEXURE H COPY OF INVOICE AGAINST MR.BINU C.B. ANNEXURE I COPY OF ORDER ISSUED BY THE KERLA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM IN TA (VAT) NO.1360/11, 1361/11, 1485/11 AND 1486/11.