M/S.K.M.J.RICE MILL, Kadavoor, Muvattupuzha v. STATE OF KERALA

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: C.N.Ramachandran Nair
V.K.Mohanan
Judgment Date: 2008-08-28
Court Decision / Holding: The Revision is dismissed. However, the petitioner is given one more opportunity to compound the offence and pay the compounding fee at twice the amount of tax sought to be evaded, and to retain exemption subject to satisfying the conditions in the notification.
Final Disposition: Revision dismissed; opportunity to compound granted with conditions

Parties to the Case

Appellants / Petitioners

M/S.K.M.J.RICE MILL, Kadavoor, Muvattupuzha, represented by managing partner Sri K.M.JOSHY

Respondents

State of Kerala, represented by the Inspecting Assistant Commissioner, Department of Commercial Taxes, Muvattupuzha

Legal Representation & Advocates

Counsels for Petitioners

• Adv. Raju Joseph

Counsels for Respondents

• Spl. Government Pleader (Taxes) Sri Vinod Chandran

Case Synopsis & Summary

This sales tax revision arises from the denial of sales tax exemption granted to M/S.K.M.J.Rice Mill under SRO No.1729/1993. The mill, a new small scale industrial unit, challenged Notification S.R.O. No.295/1998, which provides for withdrawal of exemption if the unit evades payment of tax or does not maintain proper books. The Tribunal had upheld the denial of exemption, finding that the petitioner had suppressed purchases from outside the State and failed to maintain proper books of accounts, thereby attracting the withdrawal provisions of SRO 295/98. The petitioner contends that granting exemption under SRO No.1729/1993 cannot be reversed by a subsequent notification and that retroactive withdrawal would offend certain Supreme Court principles. This Court, relying on a prior decision (Sahib Rubber Industries v. State) and the text of Notification SRO 295/98, rejects the retroactivity challenge and treats SRO 295/98 as a mechanism to discipline SSI units by ensuring proper accounting of purchases, production and sales, which are essential criteria for exemption. The court ultimately upholds the Tribunal’s order, but grants one more opportunity to compound the offence by paying twice the evaded tax and retaining exemption, subject to the notification’s conditions.

Provisions of Law Cited

Section 45A of the K.G.S.T. ActSRO No.1729/1993SRO No.295/1998

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioner contends that exemption granted under SRO No.1729/1993 cannot be withdrawn by the later notification SRO 295/1998, especially on retroactive grounds. It argues that exemption is a benefit linked to investment and turnover and permitted cases should not be retroactively culled by subsequent notifications; the decision in Sahib Rubber Industries is cited to support that exemption cannot be withdrawn without proper legal basis.

Contentions of Respondents

The State submits that SRO 295/98 does not operate retrospectively; it prescribes discipline by obligating SSI units to maintain proper books of accounts so that purchases, production and sales can be fully accounted for, which is a necessary precondition for exemption under SRO 1729/93. It emphasizes that suppression of purchases from outside the State was detected and leads to ineligibility for exemption; the tribunal’s order denying exemption is proper and should stand.

Cited Precedents (1)

Case Name	Citation	Treatment	Explanation
M/s Sahib Rubber Industries v. State of Kerala	(2006) 14 KTR 184 (Ker)	Positive	The High Court cites Sahib Rubber Industries to affirm the validity of Notification SRO 295/1998 and its role in disciplining exemption norms for SSI units.

Extracted Judgment Text

Exact text extracted from official judgment records.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN THURSDAY, THE 28TH AUGUST, 2008 / 6TH BHADRA, 1930 **ST.Rev..No. 318 of 2007** (TA.411/2004 of S.T.A.T., ADDL.BENCH-II, ERNAKULAM) .................... ## REVISION PETITIONER/RESPONDENT/APPELLANT: --------------------------------------------------------------- M/S.K.M.J.RICE MILL, KADAVOOR, MUVATTUPUZHA, REPRESENTED BY ITS MANAGING PARTNER, SRI.K.M.JOSHY. BY ADV. SRI.RAJU JOSEPH ## RESPONDENT/APPELLANT/RESPONDENT: ------------------------------------------------- STATE OF KERALA, REPRESENTED BY THE INSPECTING ASSISTANT COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, MUVATTUPUZHA. BY SPL.GOVERNMENT PLEADER 9FOR TAXES) SRI.VINOD CHANDRAN. THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 28/08/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: ## **C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ.** **--------------------------------------------S.T.Rev.No. 318 of 2007 --------------------------------------------Dated this the 28[th] day of August, 2008** ## **J U D G M E N T** ## **Ramachandran Nair,J:** This Sales Tax Revision is filed against the order of the Tribunal upholding the denial of sales tax exemption to the petitioner based on Notification S.R.O.No.295 of 1998. 2. We have heard counsel for the petitioner as well as the Government Pleader. 3. The petitioner, a rice mill was enjoying sales tax exemption as a new small scale industrial unit based on the notification S.R.O.No.1729/1993. Government vide S.R.O.No.295/1998 issued notification stating that if any S.S.I.unit enjoying sales tax exemption tries to evade payment of sales tax by failing to maintain proper books of accounts, sales tax exemption will be forfeited to such unit. The validity of the notification was upheld by this Court, vide judgment in **M/s.Sahib Rubber Industries** v. ## **S.T.Rev. No. 318 of 2007** ## **:-2-:** **State of Kerala and others** [(2006) 14 KTR 184 (Ker)]. The petitioner's case is that since the petitioner was granted sales tax exemption under S.R.O.No.1729/1993, the said benefit cannot be denied to the petitioner, by reference to notification issued later namely, S.R.O.No.295/1998. This question was considered and stands decided by this Court in the judgment above referred. We do not find any ground to deviate from the view taken in the said judgment. Even though counsel for the petitioner contended that Notification S.R.O.No.295/98 amounts to retrospective withdrawal of exemption and according to certain decisions of the Supreme Court, exemption cannot be forfeited with retrospective effect, we do not find, the notification provides for any withdrawal of sales tax exemption retrospectively. On the other hand, the notification is only for disciplining industries enjoying sales tax exemption by requiring them to maintain proper books ## **S.T.Rev. No. 318 of 2007** ## **:-3-:** of accounts, so that their entire purchase, production and sales are accounted. In fact, sales tax exemption itself is based on investment, sales turn over etc. Therefore, maintenance of correct and complete accounts is a necessary pre-condition for granting sales tax exemption in terms of the main notification SRO No.1729/93. The subsequent notification SRO No.295/98 only reconfirms these principles expressly and provides for withdrawal of exemption to any industry which along with exemption tries to evade payment of tax. In this case, the petitioner was subjected to penalty for attempting evasion of tax under Section 45A of the K.G.S.T.Act. Petitioner was found to have suppressed purchases made from outside State and consequently, was found to be not maintaining proper books of accounts which attracts SRO No.295/98. Petitioner was rightly held to be ineligible for sales tax exemption under Notification SRO No.295/98. ## **S.T.Rev. No. 318 of 2007** **:-4-:** 4. We therefore do not find any ground to interfere with the order of the Tribunal. Accordingly, the Sales Tax Revision is dismissed. However, we feel, the petitioner can be granted one more opportunity to compound the offence and pay the compounding fee at twice the amount of tax sought to be evaded and retain exemption. The assessing officer is directed to permit the petitioner to enjoy the benefit subject to satisfying the conditions provided in the notification. **C.N.RAMACHANDRAN NAIR, Judge** **V.K.MOHANAN, Judge** MBS/ ## **S.T.Rev. No. 318 of 2007** ## **:-5-:** **C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ.** -------------------------------------------- I.T.A.NO. 81 OF 2000 ------------------------------------ ## **S.T.Rev. No. 318 of 2007** ## **:-6-:** J U D G M E N T DATED:17-6-2008 ## **S.T.Rev. No. 318 of 2007** **:-7-:**