M/S Top Hill Furniture Palace v. Assistant Commissioner of State Tax, Special Circle, Malappuram; State Tax Officer (Intelligence), SGST Department, Malappuram; Commissioner of Commercial Taxes, Tax Towers, Killippalam, Karamana, Thiruvananthapuram

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MRS. JUSTICE SHOBA ANNAMMA EAPEN WEDNESDAY, THE 24[TH] DAY OF AUGUST 2022 / 2ND BHADRA, 1944 WP(C) NO. 30336 OF 2019** ## **PETITIONER:** M/S TOP HILL FURNITURE PALACE, NATIONAL HIGHWAY, EDARIKODE P.O., KOTTAKKAL, MALAPPURAM DISTRICT, REPRESENTED BY K. T. SAIDALAVI, PARTNER. BY ADV L.RAJESH NARAYAN ## **RESPONDENTS:** 1 THE ASST. COMMISSIONER OF STATE TAX, SPECIAL CIRCLE, CIVIL STATION, MALAPPURAM - 676 505. 2 THE STATE TAX OFFICER (INTELLIGENCE), SGST DEPARTMENT, SQUAD NO.III, MALAPPURAM AT PERINTHALMANNA - 679 322. 3 THE COMMISSIONER OF COMMERCIAL TAXES, TAX TOWERS, KILLIPPALAM, KARAMANA, THIRUVANANTHAPURAM - 695 002. BY GOVERNMENT PLEADER SMT.M.M.JASMINE THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 24.08.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P.(C)No.30336 of 2019 **==> picture [17 x 6] intentionally omitted <==** ## **JUDGMENT** The petitioner has approached this Court with the following main prayer:- - “ _(i)Issue a writ in the nature of a writ of certiorari or such other writ or order or direction quashing Ext.P5 Order issued by the first respondent;_ ” 2. The brief facts are as follows:- The petitioner is a private limited company engaged in the manufacture and sale of furniture and is an assessee on the rolls of the first respondent. On 24.2.2015, the Intelligence Wing of the Commercial Taxes Department inspected the petitioner's premises, recorded the stock found at the time of inspection and on finding discrepancies, proceedings were initiated against the petitioner for imposition of penalty under Section 67 of the Kerala Value Added Tax Act, 2003 (for short 'KVAT Act') for non-maintenance of true and correct books of accounts for the year 2014-15. The petitioner immediately applied W.P.(C)No.30336 of 2019 ..3.. for compounding under Section 74 of the KVAT Act and after computation of the actual suppression detected, the second respondent- State Tax Officer (Intelligence), SGST Department, Squad No.IV, Malappuram passed Ext.P2 order fixing the maximum compounding fee of Rs.8,00,000/- as stipulated in the KVAT Act. On payment of the compounding fee,the petitioner filed Ext.P3 request for an opportunity for revising the return for the year 2014-15 as provided under Section 22(10) of the KVAT Act. Without considering Ext.P3 request, the first respondent issued Ext.P4 notice under Section 25(1) of the KVAT Act proposing to assess the petitioner on the alleged escaped turnover quantified through Ext.P2 order and culminated in Ext.P5 order demanding a sum of Rs.1,04,47,414/-. Aggrieved by Ext.P5 order as well as the inaction on the part of the respondents in not considering Ext.P3 W.P.(C)No.30336 of 2019 ..4.. request for revision of return, the petitioner has approached this Court with the above writ petition. 3. The first respondent has filed counter affidavit contending that the petitioner admitted the offence and remitted the compounding fee of Rs.8,00,000/- before the Intelligence Wing. It is further contended that the petitioner was directed to revise the self-assessment return incorporating the admitted sales turnover suppression and to remit the tax thereon. But, on further verification of the books of accounts of the petitioner, it was found that since there were various turnover suppression practices like parallel billing, physical stock variation, unaccounted purchases and unaccounted sales, constituting a pattern of suppression, though the suppressions were all detected in a single shop inspection, the first respondent did not W.P.(C)No.30336 of 2019 ..5.. permit the revision of return as requested by the petitioner. It was further contended that if a return revision permission is sanctioned from the IT Cell of the Department or not, the assessing authority would have to reject the selfassessment return in the light of the above stated pattern of suppression so as to make a best judgment assessment under Section 25(1) as stipulated in the proviso to Section 22(10) of the KVAT Act. It is also contended that the return revision is only an option given to the petitioner and the purpose behind the option is to incorporate the admitted turnover suppression as part of the self assessment return and to remit tax thereon. The revision of return has relevance only if the above revision results into a deemed completion of the assessment. But, in the present case, the assessing authority found that there was a pattern of suppression followed ## W.P.(C)No.30336 of 2019 ..6.. by the petitioner throughout the year. It is also contended that proviso to Section 22(10) of the KVAT Act ends with the conditional clause that 'subject to the provisions of Sections 24 and 25 be deemed to have been completed' and the proviso to Section 22(10) of the KVAT Act states that where a pattern of suppression is detected, the assessing authority shall proceed with best judgment assessment in accordance with the provisions of Sections 24 and 25 as the case may be. In the case of the petitioner, there were a number of turnover suppression practices in a single month and it is considered as a pattern of suppression. The second respondent further contended that the assessment was completed in accordance with law and hence, it is legally sustainable. 4. Heard the learned counsel for the petitioner and the learned Government Pleader for W.P.(C)No.30336 of 2019 ..7.. the respondents. 5. The question that arises for consideration is as to whether the completion of Ext.P5 assessment without permitting the petitioner for revision of return is legally sustainable or not. It is the argument of the counsel for the petitioner that since the petitioner has already compounded the offence and paid the admitted tax due on the suppression, the request of the petitioner for revision of return ought to have been permitted and the return ought to have been deemed to be accepted. In this context, it is relevant to extract sub-sections (9) and (10) of Section 22 of the KVAT Act and its proviso. ## **“22. Assessment in case of non-filing of return and filing of defective return:-** (1) xxx xxx xxx xxx xxx xxx xxx xxx **(9)** Notwithstanding anything contained in this Act, where an offence has been detected under the Act in respect of a return filed by a dealer or otherwise and proceedings initiated under this Act, the dealer shall not be permitted to revise the return till such proceedings are W.P.(C)No.30336 of 2019 ..8.. finalized. (10) Where the proceedings referred to in the above sub-section are finalized under section 74 on payment of tax due along with the compounding fee, the dealer may thereafter file a revised return incorporating such turnover covered in such proceedings within a period of three months from the finalization of such proceedings and on the receipt of such return by the Assessing Authority, the assessment for the return period or periods shall, subject to the provisions of sections 24 and 25, be deemed to have been completed: Provided that where a pattern of suppression is detected the Assessing Authority shall proceed with best judgment assessment in accordance with the provisions of Sections 24 and 25, as the case may be.” ## 6. Counsel for the petitioner submits that the petitioner accepted the offence detected by the Intelligence Wing and agreed to compound the offence under Section 74 of the KVAT Act. Then, the petitioner is entitled for the benefit envisaged under Section 22(10) of the KVAT Act and on an incorrect and arbitrary interpretation of the above provisions, the first respondent has created a huge assessment against the petitioner. If revision of return under Section 22(10) of the W.P.(C)No.30336 of 2019 ..9.. KVAT Act was permitted to be accepted, then the revised return will be deemed to have been accepted as per the aforesaid provision. The petitioner further submits that the pattern of suppression in the proviso to Section 22(10) of the KVAT Act can only be any other defect not forming part of the compounding proceedings under Section 74 of the KVAT Act. 7. On a close reading of Section 22(10) of the KVAT Act, it is clear that it is deemed to have been completed subject to the provisions of Sections 24 and 25 of the KVAT Act and if a pattern of suppression is detected, the assessing authority has every right to proceed with the best judgment assessment. In **James Thomas** v. **State of Kerala** (R.P.No.1101 of 2018 in O.T.Rev.No.224/2014)(Manu/KE/0117/2019), this Court held that the proviso to Section 22(10)of the KVAT Act is an abundant caution ensuring that W.P.(C)No.30336 of 2019 ..10.. merely because a return is filed and the deemed provision is applied, the assessing officer is not divested of the power of best judgment assessment and estimation to cover up probable omissions and suppressions. It was further held that if there was clear and definite pattern of suppression over the year, an estimation could be made on the basis of the suppression detected even though revision of return was filed by the petitioner. ## 8. In **Moosa** v. **State of Kerala** [2020(3) KLT 638], it was held that Section 22(10) of the KVAT Act does not prohibit an assessment of escaped turnover under Section 25 of the KVAT Act even in cases where the proceedings under Section 74 of the KVAT Act have culminated by the assessee paying the compounding fee and tax on the suppressed turnover and filed a revised return within the time prescribed by the statute. W.P.(C)No.30336 of 2019 ..11.. As held by this Court in **James Thomas** (supra) and **Moosa** (supra), it is clear that when there is a pattern of suppression detected by the assessing authority, the Department can proceed with the best judgment assessment under Section 25 even if a revised return is filed within the time prescribed by the statute. 9. In **State of Kerala v. M/s.Shalimar Jewellary (Judgment dated 10/02/2021 in** **O.T.Rev.No.185 of 2016),** it was held that for the application of the proviso to Section 22(10) of the KVAT Act, it is not necessary to detect a further suppression after the filing of revised return, even though the assessee had filed the return under the sub-section and has paid up the tax and the interest due simultaneously to the payment of the compounding fee, still, best judgment assessment can be resorted to. **==> picture [345 x 12] intentionally omitted <==** W.P.(C)No.30336 of 2019 ..12.. petitioner to file revised return, since, according to the assessing authority, there was a clear detection of pattern of suppression and proceedings under Section 25(1) of the KVAT Act was finalised. Thus, where a pattern of suppression is detected, best judgment assessment under Section 25 of the KVAT Act is legally permissible, even if request for revision of return is allowed or not. I am not entering into a finding on merits as to whether there is any pattern of suppression as alleged by the assessing authority or not in the present case, since I am inclined to relegate the petitioner to avail the statutory remedy before the appellate authority. 11. Section 9 of the KVAT Act,2003 reads as follows: “ **9. Burden of Proof.** - _The burden of_ _proving that any transaction of a dealer is not liable to tax under this Act shall lie on such dealer._ ” W.P.(C)No.30336 of 2019 ..13.. The burden of proof is on the petitioner to prove whether or not there was a pattern of suppression practised by the assessee dealer. I am of the opinion that the petitioner, if aggrieved by Ext.P5 order, can avail the statutory remedy of filing an appeal before the appellate authority. 12. On an overall consideration of the entire pleadings and on hearing both sides, I am of the opinion that the writ petition can be disposed of with the following directions:- - 1) The petitioner is directed to file an appeal against Ext.P5, along with a petition for condonation of delay and petition for stay, before the appellate authority, within a period of one month from the date of receipt of a copy of this judgment. - 2)If the petitioner files appeal along with petitions as above, the appellate authority shall consider and pass orders on the same within a period of one month from the date of filing of the petitions as above, after affording an opportunity of being heard to the petitioner. Until such time, the recovery proceedings W.P.(C)No.30336 of 2019 ..14.. pursuant to Ext.P5 order shall be kept in abeyance. In case of failure by the petitioner to comply with the directions as above in filing the appeal and petitions, the stay of further proceedings pursuant to Ext.P5 already granted shall stand vacated. 3) While considering the delay petition, the appellate authority shall take a lenient view considering the pendency of the writ petition before this Court and pass appropriate orders so that the statutory remedy of appeal is not lost to the petitioner. - 4) The petitioner shall produce a certified copy of this judgment along with a copy of this writ petition before concerned authority for compliance. **==> picture [345 x 13] intentionally omitted <==** above. Sd/- **SHOBA ANNAMMA EAPEN, JUDGE** MBS/ W.P.(C)No.30336 of 2019 ..15.. ## **APPENDIX OF WP(C) 30336/2019** ## **'** - **PETITIONER S EXHIBITS** : EXHIBIT P1 COPY OF APPLICATION FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT. EXHIBIT P2 COPY OF ORDER ISSUED BY THE 2ND RESPONDENT FOR THE YEAR 2014-15. EXHIBIT P3 COPY OF LETTER SUBMITTED BY THE PETITIONER BEFORE THE 1ST RESPONDENT. EXHIBIT P4 COPY OF NOTICE ISSUED BY THE 1ST RESPONDENT. EXHIBIT P5 COPY OF ORDER ISSUED BY THE 1ST RESPONDENT.