M/S.CEYENAR CHEMICALS PRIVATE LIMITED v. STATE OF KERALA

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 21ST DAY OF JUNE 2016/31ST JYAISHTA, 1938 O.T.Appeal No.2 of 2004 --------------------------- AGAINST THE ORDER IN R2-13593/2000/CT of COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM DATED 13-01-2004 APPLICANT: ---------- M/S.CEYENAR CHEMICALS PRIVATE LIMITED, ANNANKUNNU ROAD, KOTTAYAM, REPRESENTED BY ITS DIRECTOR N RAJAGOPAL. BY ADV.SRI.V.V.ASOKAN SRI.SUNIL SHANKER RESPONDENT : ------------ STATE OF KERALA, REPRESENTED BY DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM. BY GOVERNMENT PLEADER SMT.SHOBA ANNAMMA EAPEN THIS O.T. APPLICATION HAVING BEEN FINALLY HEARD ON 21-06-2016, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: OTA No.2 of 2004 APPLICANT'S EXHIBITS: Ann.A TRUE COPY OF ORDER OF INTELLIGENCE OFFICER, SQUAD II, KOTTAYAM. ANN.B TRUE COPY OF THE ORDER OF DEPUTY COMMISSIONER, KOTTAYAM. ANN.C CERTIFIED COPY OF THE ORDER OF THE COMMISSIONER, COMMERCIAL TAXES, TRIVANDRUM. ANN.D TRUE COPY OF THE ASSESSMENT ORDER (AY 98-99). ANN.E TRUE COPY OF THE STATEMENTS SHOWING THE STOCK PARTICULARS FOR THE YEARS 97-98 AND 98-99. TRUE COPY p.s.to judge CSS/ ## **Antony Dominic & Dama Seshadri Naidu, JJ.** ------------------------------------------- ## OTA No.2 of 2004 -------------------------------------------Dated this the 21[st] day of June, 2016 ## **ORDER** Antony Dominic, J. The assessee has filed this appeal aggrieved by Annexure-C order passed by the Commissioner of Commercial Taxes, in exercise of his powers under Section 37 of the KGST Act. 2. The facts of the case are that the assessee is a dealer in chemicals. The Intelligence Officer, Squad No.3, Commercial Taxes, Kottayam inspected the place of business of the assessee on 16.8.1999 and prepared a shop inspection report. During inspection notice was issued for production of books of accounts for the assessment year 1999-2000 for verification. This was not complied with by the assessee stating that they were maintaining accounts on computer and that print outs are prepared during their periodical audit purpose on a half yearly basis. On that basis, the assessee expressed their OTA No.2 of 2004 2 inability to produce their books of accounts. 3. Subsequently the regular books of accounts were called for and on inspection of the books of accounts that were produced, variation in stock was found. On the basis of the above finding, the intelligence officer concluded that as the assessee had failed to produce any documentary evidence regarding the opening stock of the goods, items of which are mentioned in the order, and the assessee being a running firm allowed 50% of the variation and the resultant variation was quantified. On that basis, the appellant's turn over was worked out and the tax effect was worked out at `35,018/-. Thereafter, on the basis it was proved beyond doubt that the dealer had failed to maintain true and correct accounts of their business for the year 1999-2000 and also failed to produce regular books of accounts as provided under the KGST Act and the Rules made thereunder, it was proposed to levy penalty of `80,036/-. The assessee submitted their reply and overruling the objections raised by the assessee, Annexure-A order was passed imposing a OTA No.2 of 2004 3 penalty of `80,036/- for the offences of failure to maintain proper accounts and failure to keep true and correct accounts for the assessment year 1999-2000. 4. The assessee filed revision before the Deputy Commissioner who passed Annexure-B order. In Anneuxre-B order also, the finding of the intelligence officer regarding the commission of offence was confirmed. Thereafter, it was held that penalty was levied on the basis of wild estimation and accordingly, the matter was remitted to the intelligence officer to work out the opening stock as on 1.4.1999 by reckoning the stock position in any of the previous years conceded by the assessee and accepted by the department and by adding the entire purchases and deducting the entire sales. 5. Finding that the said order passed by the First Revisional Authority was prejudicial to the revenue, the Commissioner of Commercial Taxes invoked his power under Section 37 of the KGST Act. Accordingly, the assessee was heard and Annexure-C order was passed OTA No.2 of 2004 4 setting aside Annexure-B order and directing the intelligence officer to pass fresh orders after affording the assessee a reasonable opportunity of hearing. In this order, the Commissioner held thus: “I have considered the grounds raised by the dealer and examined the records of the case. At the time of inspection, the dealer could produce only the purchase bills and sales invoices. Their explanation is that though accounts are maintained in the computer, print-outs are taken only a half yearly or yearly basis, as it would take a lot of time if daily accounts were to be generated. However, the dealer has a statutory responsibility to maintain a daily stock register without which verification of stock with purchase and sale document could not be possible. Thus the finding of the Intelligence Officer that the dealer had failed to maintain accounts cannot be said to be entirely incorrect. It is also seen that the details of opening stock furnished to the Intelligence Officer at the time of verification of accounts were not supported with any evidence. Therefore, the order of the first revisional authority is erroneous and prejudicial to revenue. The order is therefore set aside.” 6. It is aggrieved by Annexure-C order, the assessee has filed this application. 7. We heard the learned counsel appearing for the assessee and the learned Government Pleader appearing for the revenue. 8. The first contention raised by the learned counsel OTA No.2 of 2004 5 for the assessee is that the invocation of power under Section 37 was illegal in as much as Annexure-B order is not prejudicial to the revenue. Secondly, the counsel contended that penalty could not have been levied on the basis of an estimation as done by the Intelligence Officer. Therefore, according to him, the First Revisional Authority was justified in directing that the opening stock be quantified and penalty be worked out on that basis. 9. On the other hand, the learned Government Pleader contended that when it is the responsibility of the dealer to maintain proper and accurate books of accounts and in a case where such books of accounts are not available, an offence is made out attracting the penalty under Section 45A. Therefore, according to the learned Government Pleader, the Commissioner of Commercial Taxes was fully justified in setting aside Annexure-B order. She has also submitted that in pursuance to Annexure-C order passed by the Commissioner and after affording an opportunity to the assessee, the order dated 3.2.2005 has been passed imposing penalty on the OTA No.2 of 2004 6 assessee. 10. We have considered the submissions made by them. Section 37 of the KGST Act, conferring the power of suo motu revision on the commissioner, provides that the commissioner may suo motu call for and examine the order passed or proceeding recorded under the KGST Act by any officer or authority subordinate to it, other than an Appellate Assistant Commissioner, which, in his opinion is, prejudicial to the revenue and may make such enquiry or such enquiry to be made and subject to the provisions of the Act may pass such an order thereon as he thinks fit. Therefore, in a case where an order passed by any subordinate authority, other than an Appellate Assistant Commissioner, is found to be prejudicial to the revenue, the commissioner is entitled to invoke his power under Section 37 of the KGST Act and suo motu call for and examine the order passed and pass such orders as he thinks fit. The term 'prejudicial to the interest of the revenue' was interpreted by a Division Bench of this Court in **Bismillah Trading Co.** v **Intelligence Officer** OTA No.2 of 2004 7 (248 ITR 292) and it has been held that if the orders under consideration as such are not in accordance with law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised, such an order would come within the ambit of this section. In so far as this case is concerned, even in Annexure-B order the fact that an offence of failure to maintain true and correct accounts has been accepted by the authorities. The entire responsibility of maintaining such records is that of the dealer and that cannot be disputed. It was despite that, the First Appellate Authority has set aside the order passed by the intelligence officer and the reason thereof is that the intelligence officer has levied penalty on the basis of a wild estimation. According to us, this reasoning of the intelligence officer is totally erroneous. A reading of Annexure-A order passed by the Intelligence Officer would show that on the basis of the documents made available by the assessee himself, the intelligence officer has recorded the quantity purchased, quantity sold and OTA No.2 of 2004 8 the balance. Thereafter on the basis of his inspection, the intelligence officer has quantified the stock available. Accordingly, the difference in the quantity shown as balance in the accounts of the assessee and the quantity found on verification has been taken as the variation, it is on that stock variation that the intelligence officer has quantified his turn over and assessed the tax. Of this, the intelligence officer has only adopted 50% thereof and penalty was levied. This exercise undertaken by the intelligence officer is an exercise of quantification and not an estimation. On the other hand, according to us, even if he is an accused of having undertaken an exercise of estimation, it was only in estimating 50% of the turn over quantified and this estimation has gone only to the advantage of the assessee. Therefore, the premise on which the First Revisional Authority has interfered with Annexure-A order itself is untenable. That apart when the responsibility of maintaining true and accurate accounts disclosing the stock is entirely on the assessee, the First Revisional Authority could not have directed the OTA No.2 of 2004 9 intelligence officer to arrive at the opening stock on the basis of the accepted stock of any previous year and taking the purchase and sale. Such an order passed by the First Revisional Authority is certainly an order prejudicial to the interest of the revenue as contemplated under Section 37 of the KGST Act entitling the commissioner of commercial taxes to exercise his powers thereunder. Therefore, the contentions raised by the learned counsel impugning Annexure-C order cannot be accepted. The appeal is dismissed as above. ## **Sd/- Antony Dominic, Judge** **sd/- Dama Seshadri Naidu, Judge** css/ true copy P.S.TO JUDGE