Ramachandran K. v. Agricultural Income Tax and Commercial Tax Officer, Mannarkad

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** ## **THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON** **FRIDAY, THE 29TH DAY OF JUNE 2012/8TH ASHADHA 1934** ## **WP(C).No. 17120 of 2009 (H)** **---------------------------** **PETITIONER(S):** **-----------------------------** **RAMACHANDRAN.K.,KANCHANA BUTTON HOUSE, MANNARKAD.** **BY ADVS.SRI.N.MURALEEDHARAN NAIR SMT.K.HYMAVATHY** ## **RESPONDENT(S):** **-----------------------------** **AGRICULTURAL INCOME TAX AND COMMERCIAL TAX OFFICER,MANNARKAD.** **BY GOVERNMENT PLEADER SRI.SHAIJ RAJ.T.K.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 29-06-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **sts** ## **WP(C)NO.17120/2009** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** - **P1 COPY OF THE ANNUAL RETURN FOR THE YEAR 2005-06 DATED 26/04/2004** - **P2 COPY OF THE NOTICE ISSUEDBY RESPONDENT DATED 20/5/2009** - **P3 COPY OF THE OBJECTION FILED BY THE PETITIONER BEFORE THE RESPONDENT DATED 25/5/2009** - **P4 COPY OF THE ORDER PASSEDBY RESPONDENT DATED 30/5/2009** - **P5 COPY OF THE NOTICE ISSUED BY RESPONDENT DATED 29/05/2009** - **P6 COPY OF THE INVOICE NO.11197 DATED 2/5/2005** - **P7 COPY OF THE DEMAND NOTICE ISSUED BY RESPONDENT DATED 30/05/2009** - **P8 COPY OF THE PENALTY ORDER PASSED BY RESPONDENT FOR THE YEAR 200506 DATED 12/6/2009** - **P9 COPY OF THE DEMAND NOTICE ISSUED BY RESPONDENT DATED 16/06/2009** ## **RESPONDENT'S EXHIBITS: NIL** ## **/TRUE COPY/** ## **P.A.TO.JUDGE** **sts** ## **P.R.RAMACHANDRA MENON, J.** - - - - - - - - - - - - - - - - - - - - - ## **W.P.(c) No. 17120 OF 2009** - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 29[th] day of June , 2012 ## **JUDGMENT** Three interesting questions arise in this case. First question is, whether a dealer, who is having turn over less than the taxable limit, does require the permission of the departmental authorities to collect tax and to have it satisfied accordingly. The second point is, whether the persons like the petitioner, who otherwise satisfy the definition of the term 'importer' under Section 2(xxii) of the KVAT Act, does require registration under the CST Act to be an 'importer' as defined thereunder. The third question is, whether penalty will be justified for not taking CST registration, when the scope of registration is specifically dealt with under Section 7 of the CST Act and if the assessee does come within the purview of such requirement to have registration. 2. The minimum extent of factual narration for the purpose of adjudication of this case is that, the petitioner is a registered dealer WPC.No.17120/09 2 under the KVAT Act and is having only 'Inter-State purchases' and not 'Inter-State sales' ( conceded in paragraph 4 of the counter affidavit as well). In respect of the assessment year 2005-06, the petitioner filed Ext.P1 Annual Return revealing the factual position that, the petitioner was having a turn over much below the taxable limit of Rs. 10 lakhs. The petitioner had collected tax of Rs.36,914/- from customers and paid over to the respondent along with return, since the petitioner had made interstate purchase of goods for local sale, during the year. However, the petitioner was served with Ext.P2 notice by the respondent, calling for explanation as to how and why tax was being collected by him, without having any authority and observed that the petitioner was not eligible for the “Input Tax Credit,” sought for. 3. On receipt of such notice, the petitioner preferred Ext.P3 reply stating that, the petitioner very much satisfies the definition of the term “importer” as defined under Section 2(xxii) and as such, was liable to satisfy the tax. By virtue of this position, the petitioner was liable to satisfy the tax and as it stands so, the petitioner is also eligible for the benefit of “Input Tax Credit”. This being the position, there WPC.No.17120/09 3 was no need to have any permission as well, to collect the tax from the parties concerned and remitted before the authorities. 4. However, without any regard to the legal position and objection raised by the petitioner, Ext.P4 order was passed by the respondent, rejecting the claim for Input Tax Credit, simultaneously mulcting with the liability under different heads, including penalty and interest, for the reason that the petitioner did not have any valid registration under the CST Act. 5. In the meanwhile, the petitioner was also served with Ext.P5 notice proposing to impose penalty for admittedly having effected Inter-State purchase, without CST registration. The factual and legal position was sought to be explained by the petitioner, which, however, was not accepted and the respondent imposed penalty as per Ext.P8 order holding that, the petitioner was liable to take out registration under the CST Act, which in turn, forms the subject matter of challenge in this writ petition, along with other grounds as mentioned herein before. 6. Learned Government Pleader appearing on behalf of the WPC.No.17120/09 4 respondent submits with reference to the counter affidavit that, the impugned orders/proceedings are not assailable under any circumstance, the same having been passed in tune with the relevant provisions of law. During the course of hearing, learned Government Pleader submits that, the petitioner is pursuing business as defined under Section 2(aa) of the CST Act and that the term “ dealer” is defined under Section 2(b). Referring to the term 'business', it has necessary to be read into Section 7 of the CST Act, which speaks about the registration and this being the position, the petitioner ought to have taken registration under the CST Act for the purpose of such business being a dealer, submits the learned Government Pleader. 7. In the course of hearing, it was brought to the notice of this Court that, the question whether a dealer, whose turn over is below the taxable limit, is liable to take permission for collecting tax had come up for consideration before this Court and as per the decision in _**Abdul Sathar M.G. v. State of Kerala**_ ( 2012 (20) KRT 8 (Ker) , a Division Bench of this Court answered the position against the revenue and in favour of the assessee. The learned Government Pleader fairly WPC.No.17120/09 5 concedes the position in this regard and as such, the first question stands answered in favour of the petitioner. 8. With regard to the second point, the case of the petitioner is that, by virtue of the mandate under Section 6(1) of the KVAT Act, irrespective of the turn over, the petitioner/dealer is liable to pay tax being an “importer” as defined under the Act. Section 2(xxii) defines the term “importer”, which reads as follows : S.2(xxii) _“Importer means any person who obtains or brings any taxable goods from any place outside the state or country whether as a result of purchase or otherwise for the purpose of business.”_ Section 6(1) of the Act reads as follows : _Sec.6 : Levy of tax on sale or purchase of goods :-(1) Every dealer whose total turnover for a year is not less than ten lakhs rupees and every importer or casual trader or agent of a non-resident dealer or dealer in jewellery of gold, silver and platinum group metals or silver articles or contractor or any State Government, Central Government or Government of any Union Territory or any department thereof or_ WPC.No.17120/09 6 _any local authority or any autonomous body, whatever be his total turnover for the year, shall be liable to pay tax on his sales or purchases of goods as provided in this Act. The liability to pay tax shall be on the taxable turnover, -_ The above provision does not speak about any necessity to have registration for the purpose of payment of tax under Section 6(1) of the KVAT Act. This being the position, the observation made by the first respondent to the contrary in Ext.P4 does not appear to be correct or sustainable. 9. With regard to the sustainability of punishment imposed vide Ext.P8, for not having CST registration, the scope and extent of registration has to be looked into. Section 7 of the CST Act deals with registration, Sub Sections (1) and (2) of which are relevant, as extracted ## below : _Registration of dealers :- (1) Every dealer liable to pay tax under this Act, shall within such time as may be prescribed for the purpose, make an application for registration under this Act to such authority in the appropriate State as the_ WPC.No.17120/09 7 _Central Government may, by general or special order, specify and every such application shall contain such particulars as may be prescribed._ _(2) Any dealer liable to pay tax under the sales tax law of the appropriate Sate or where there is no such law in force in the appropriate State or any part thereof, any dealer having a place of business in that State or part, as the case may be, may, notwithstanding that he is not liable to pay tax under this Act, apply for registration under this Act, to the authority referred to in sub-section (1), and every such application shall contain such particulars as may be prescribed._ _Explanation - For the purposes of this subsection, a dealer shall be deemed to be liable to tax under the sales tax law the pay of appropriate State notwithstanding that under such law a sale or purchase made by him is exempt from tax or a refund or rebate of tax is admissible in respect thereof._ 10. **Sub Section 1** of Section 7 does not come to the case in WPC.No.17120/09 8 hand, as the petitioner admittedly is not dealer who is liable to pay tax under the CST Act, he having **only Inter-State purchase** and not Inter-State sales. What is stipulated in **Sub Section 2** is that, a person notwithstanding the fact that, he is not liable to pay tax under the CST Act, is also eligible to apply and obtain registration under the CST Act, upon which, it may be open for him to effect the Inter-State purchase satisfying the CST at a lesser rate, but for which, he will have to satisfy the CST at full/higher rate. It is also relevant note that the terminology used in Sub Section 2 of Section 7 is “ may” and not “shall”. The course provided in Sub Section 2 clearly speaks about the discretion vested with the dealer, giving him an option to have registration under the CST Act, notwithstanding the fact that he is not liable to pay any tax under the CST Act. It is for the dealer to decide, whether he should apply for and obtain registration, to make use of the privileges that may follow by virtue of having such registration . If the dealer is not bothered of the same, the law does not compel such dealer to take out registration under Sub Section 2. As such, Sub Section 2 of Section 7 cannot be pressed into service by the respondent to hold that the WPC.No.17120/09 9 petitioner is liable to take registration under Section 7. In short, both sub sections 1 and 2 of Section 7 do not give an idea that petitioner/ dealer is liable to take out registration under the CST Act. This is more so, when there is no case for the respondent that the petitioner has effected any Inter-State purchases, paying lesser rate of tax under the CST Act or that, the petitioner has effected any Inter-State sales. 11. In the above circumstances, this Court finds that the impugned orders passed by the first respondent vide Ext.P4 and P8 denying the benefit of Input Tax Credit to the petitioner and also imposing penalty do not have any factual or legal basis. The said orders are set aside accordingly. It is declared that the petitioner is entitled to have the benefit of “Input Tax Credit”, in so far as he happens to be an 'importer' as defined under Section 2(xxii) of the KVAT Act and there is absolutely nothing wrong for having collected and remitted the tax, without having any registration under the CST Act. The respondent is directed to finalise the proceedings afresh, with regard to the claim put forth by the petitioner, in the light of the above observations and declaration. The proceedings as above shall be WPC.No.17120/09 10 finalised, passing appropriate orders in accordance with law, at any rate, within three months from the date of receipt of a copy of this judgment. Writ petition is allowed. No cost. ## **P.R.RAMACHANDRA MENON JUDGE** sv. WPC.No.17120/09 11