M/S. ST. GEORGE ELECTRICALS & CONTRACTORS v. The Intelligence Officer, Squad No. III, Department of Commercial Taxes, Kottayam; The Intelligence Officer, Squad No.1, Department of Commercial Taxes, Kottayam; The State of Kerala represented by Secretary (Taxes) to the Government

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR** **TUESDAY, THE 14TH DAY OF NOVEMBER 2017/23RD KARTHIKA, 1939** ## **WP(C).No. 14944 of 2014 (P)** **----------------------------** **PETITIONER :** **----------------------** **M/S. ST. GEORGE ELECTRICALS & CONTRACTORS KANDATHIL SHOPPING COMPLEX, K.K.ROAD, KOTTAYAM-686 002, REPRESENTED BY ITS MANAGING PARTNER SRI.JAIMON VARGHESE.** **BY ADVS.DR.K.P.PRADEEP SRI.T.T.BIJU** **RESPONDENT(S): ---------------------------** **1. THE INTELLIGENCE OFFICER, SQUAD NO.III, DEPARTMENT OF COMMERCIAL TAXES, KOTTAYAM, PIN-686 001.** **2. THE INTELLIGENCE OFFICER, SQUAD NO.1, DEPARTMENT OF COMMERCIAL TAXES, KOTTAYAM-686 001.** **3. THE STATE OF KERALA, REPRESENTED BY SECRETARY (TAXES)TO THE GOVERNMENT, SECRETARIAT, THIRUVANANTHAPURAM-695 001** **R1 TO R3 BY GOVERNMENT PLEADER SMT.M.M.JASMINE** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 14-11-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **sts** **WP(C).No. 14944 of 2014 (P) ----------------------------------------** ## **APPENDIX** **PETITIONER(S)' EXHIBITS ----------------------------------------** **EXT.P1 - TRUE COPY OF THE SHOP INSPECTION REPORT NO.32569 DATED 16-1-2010 IN TIN 32050593775 ISSUED BY THE 2ND RESPONDENT EXT.P2 - TRUE COPY OF COVERING LETTER SUBMITTED BYTHE PETITIONER ON 4-2-2010 ALONG WITH PRODUCTION OF BOOKS OF ACCOUNTS FOR THE F.Y.2009-10 EXT.P3 - TRUE COPY OF THE NOTICE NO. ISK III CR 28/2010-11 DATED 19-6-2013 ISSUED U/S 67 OF THE KVAT ACT 2003 BY THE 1ST RESPONDENT EXT.P4 - TRUE COPY OF THE REPLY DATED 21-6-2013 FILED BY THE PETITIONER TO THE 1ST RESPONDENT EXT.P5 - TRUE COPY OF THE PENALTY ORDER NO. ISK III CR 28/2010-11 DATED 23-4-2014 ISSUED BY THE 1ST RESPONDENT EXT.P6 - TRUE COPY OF THE DEMAND NOTICE NO. ISK III CR 28/2010-11 DATED 23-4-2014 ISSUED BY THE 1ST RESPONDENT.** **RESPONDENT(S)' EXHIBITS: NIL -------------------------------------------** **/TRUE COPY/ P.A.TO JUDGE** **sts** **(CR)** ## **A.K.JAYASANKARAN NAMBIAR, J.** **................................................................... W.P.(C).No.14944 Of 2014 ..................................................................... Dated this the 14[th] day of November, 2017** ## **J U D G M E N T** The petitioner is a firm engaged in the sale of electrical goods, and is a dealer for the purposes of the Kerala Value Added Tax Act (hereinafter referred to as the “KVAT Act”. Pursuant to a shop inspection carried out in the place of business of the petitioner on 16.01.2010, the petitioner was served with Ext.P2 letter asking the petitioner to appear for a hearing along with the relevant books of accounts on 11.05.2010. The petitioner appeared for the hearing, along with the books of accounts, on 11.05.2010. Thereafter, nothing was heard from the respondents till 2013 when, by Ext.P3 notice dated 22.05.2013, the petitioner was asked to show cause as to why penalty under Section 67(1) of the KVAT Act should not be imposed on him pursuant to the search of the business premises in 2010. Although the petitioner preferred Ext.P4 reply, the objections of the petitioner were overruled and Ext.P5 order dated 23.04.2014 was passed confirming a penalty of Rs.11,13,386/- on the petitioner. Ext.P6 is the demand notice that followed Ext.P5 penalty order. In the writ petition, the petitioner 2 **W.P.(C).No.14944 Of 2014** impugns Ext.P5 penalty order and P6 demand notice, primarily on the contention that the said order is barred by limitation inasmuch as it was passed beyond three years from the date of detection of the alleged offence. The petitioner also has a case that Ext.P5 order is vitiated since it was passed without hearing the petitioner. 2. A counter affidavit has been filed on behalf of the 1[st] respondent, wherein the details with regard to the shop inspection conducted on 16.01.2010 are narrated. It is stated that pursuant to the shop inspection, the petitioner's books of accounts were called for, by separate notices dated 16.01.2010, 06.05.2010 and 15.05.2012, for verification. It is stated that it was only thereafter that the offence was detected as against the petitioner, and the contention is that Ext.P5 penalty order was passed within three years from the date of detection of the offence. In response to the counter affidavit of the respondents, the learned counsel for the petitioner would submit that the reference in the counter affidavit to the notice dated 15.05.2012 is misleading, in that the petitioner was never served with such a notice. This aspect has been highlighted by the petitioner in the reply affidavit filed to the counter affidavit submitted on behalf of the 1[st] respondent. On a 3 **W.P.(C).No.14944 Of 2014** query to the learned Government Pleader as to whether such a notice was in fact served on the petitioner, the learned Government Pleader would rely on a document obtained from the files, which shows a notice bearing the date 15.05.2012, but does not contain any acknowledgment of the petitioner, in token of having received such a notice. The learned Government Pleader would submit that it is likely that the notice was sent by ordinary post and not by registered post. 3. I have heard the learned counsel appearing for the petitioner and also the learned Government Pleader appearing for the respondents. On a consideration of the facts and circumstances of the case as also the submissions made across the Bar, I find that, the statutory provision under which the penalty has been imposed on the petitioner is Section 67 of the KVAT Act. As per the said provision, as it stood during the relevant period, the authority empowered under the Section to impose penalty was obliged to dispose the case within three years from the date of detection of the offence mentioned under the Section, except where an 4 **W.P.(C).No.14944 Of 2014** extension of time was granted by the Deputy Commissioner. In the instant case, it is not in dispute that there was no extension of time granted by the Deputy Commissioner, and hence, the question that arises for consideration is whether Ext.P5 penalty order dated 23.04.2014 was passed within the period of three years from the date of detection of the offence. The learned counsel for the petitioner would contend that, the last hearing pursuant to the shop inspection that was conducted on 16.01.2010, was on 11.05.2010 when the petitioner had produced the books of accounts before the Intelligence Officer for his perusal. In fact a perusal of Ext.P5 order would indicate that the books of accounts were verified in the presence of the petitioner and an opinion formed with regard to the offence having been committed. Thereafter, the penalty proposals were intimated to the petitioner only by Ext.P3 notice dated 22.05.2013, and Ext.P5 order passed thereafter on 23.04.2014. It is the case of the petitioner therefore that between 11.05.2010 and 22.05.2013, the period of 3 years had already expired, and therefore, Ext.P5 order that was passed subsequently was barred by the limitation provisions under the Section 67 of the KVAT Act. The learned Government Pleader would rely on an unreported judgment of this Court dated 5 **W.P.(C).No.14944 Of 2014** 18.02.2009 in W.A.No.385 of 2009 (M/s.ACME Furniture & Interiors v. Commercial Tax Officer (WC & LT) and Others), wherein, while interpreting the phrase 'date of detection of offence' under Section 67(1) of the KVAT Act, it was found as follows by a Division Bench of this Court: “3. It is obvious from the above provision that limitation of one year provided for completion of proceedings under Section 67(1) is to be reckoned from the “date of detection of offence”. The appellant proceeds to assume that date of detection of offence is the date on which the search was made. We do not think any offence was detected in this case on the date of search. In fact, detection of offence requires verification of physical stock, comparison of the same with the accounts maintained and only when the Inspecting Officer is prima facie satisfied that there is an offence, it could be said that he has detected an offence. In the normal course, on the date of inspection, they take the inventory of goods, mark the records or even recover the records. It is only when records are analysed with reference to physical stock found, the officer can come to a finding as to whether any 6 **W.P.(C).No.14944 Of 2014** offence is prima facie committed. However, nothing stops the officer from on the spot comparison of the accounts with physical stock enabling him to detect the offence then and there. It is only on detecting the offence, the officer gets jurisdiction to issue notice proposing penalty for any of the offences mentioned in sub-clauses (a) to (1) of Section 67 (1) of the Act. The Section does not mention as to within what time the officer should verify the records to find out whether person searched has committed any offence or not. Since no limitation is provided for verifying this, the officer is bound to do it within a reasonable time from the date of search. In this case we are told that the records were verified on 19.07.2007. However, it is not known whether the process of evaluation was carried out then or later. In any case we are of the view that the date of detection of offence is the date from which limitation of one year runs under proviso to Section 67(1). So much so, the appellant cannot contend that limitation has to be reckoned from the date of search. Counsel for the appellants contended that proceeding is time barred even with reference to date of verification of accounts which was on 19.07.2007. Here again, we have already 7 **W.P.(C).No.14944 Of 2014** expressed our view that the verification of accounts need not be the date of detection of offence. During verification, the officer has to evaluate the accounts and compare the same with physical stock and only when he detects offence, he gets jurisdiction to proceed to levy penalty. Even though statute does not require the officer to record detection of offence, initiation of proceedings under Section 67 is sufficient evidence of detection of offence.” I note from the afore quoted extract from the Division Bench judgment that, after holding that the date of detection of the offence need not necessarily coincide with the date of shop inspection, the Division Bench found that the provisions of Section 67 clearly mandated that, although the provision does not mention as to within what time the officers should verify records to find out whether the person searched had committed any offence or not, the officer was nevertheless bound to do so within a reasonable time from the date of search. It was also clarified that during verification, the officer has to evaluate the accounts and compare the same with the physical stock and only when he detects the offence does he get the jurisdiction to proceed to levy penalty. The 8 **W.P.(C).No.14944 Of 2014** initiation of proceedings under Section 67 was deemed to be sufficient evidence of detection of offence. Taking cue from the said judgment, I find that, in the instant case, after the hearing on 11.05.2010, when the books of accounts of the petitioner were perused by the Intelligence Officer, and an opiunion formed regarding the commission of the offence, the penalty proposal was communicated to the petitioner by Ext.P3 notice only 22.05.2013. In other words, during the period between 11.05.2010 and 22.05.2013, there was no action from the Department informing the petitioner of their proposal to impose penalty. Even assuming that the date of the search of the petitioner's premises cannot be treated as the date of detection of the offence, one would assume that immediately on the Intelligence Officer having obtained the necessary documents to form an opinion with regard to whether or not an offence had been committed by the petitioner, he would have detected the commission of the offence within a reasonable time thereafter. In the instant case, the Intelligence Officer did not issue any notice to the petitioner even within six months after the last date of hearing (11.05.2010) and hence, as on 23.04.2011, there was no intimation to the petitioner informing the petitioner of the proposal to impose any penalty on him. Ext.P5 order having 9 **W.P.(C).No.14944 Of 2014** been passed on 23.04.2014 and more than three years after the detection of the offence, I am of the view that Ext.P5 order is barred by limitation for the purposes of Section 67 of the KVAT Act. Resultantly, I quash Ext.P5 order and allow this writ petition with consequential reliefs to the petitioner. Sd/- **A.K.JAYASANKARAN NAMBIAR JUDGE** mns/14.11.17