Reji Jose v. State of Kerala

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN MONDAY, THE 13TH DAY OF AUGUST 2012/22ND SRAVANA 1934 ## **O.T.Rev.No.55 of 2012** ---------------------------------------- [AGAINST THE ORDER IN T.A.(VAT) No.125 OF 2011 DATED 31.03.2012 OF THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM] (ASSESSMENT YEAR 2006-07) ------------------- PETITIONER:- -------------------- REJI JOSE, NEW GOKUL ICE-CREAM PARLOUR, PALA, PIN-686 575. BY ADVS.SRI.N.N.SUGUNAPALAN (SR.) SRI.C.A.SADASIVAN SRI.JOY P.JOSE SRI.SOJAN MATHEW SRI.K.N.KRISHNAN NAMBOOTHIRI SRI.C.V.SASI SRI.K.JAYAMOHANAN PILLAI. RESPONDENT:- ----------------------- STATE OF KERALA. BY SPECIAL GOVERNMENT PLEADER (TAXES) SRI.SOJAN JAMES. THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 13-08-2012, ALONG WITH O.T.REV.No.56/2012, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:- Thottathil B.Radhakrishnan & K.Vinod Chandran, JJ. -------------------------------------------------------------- O.T.Rev.Nos.55/2012 & 56/2012 --------------------------------------------------------------Dated this, the 13[th] day of August, 2012 ## ORDER ## K.Vinod Chandran,J: The assessee is in revision, challenging the orders of the Tribunal, affirming the order of the Assessing Officer, as modified by the first appellate authority. The revisions are with respect to the years 2006-07 and 2007-08. 2. The assessee is a dealer in ice creams, registered under the Kerala Value Added Tax Act, 2003, hereinafter referred to as “the Act”, and who has opted for paying tax under Section 6(5) of the Act. Section 6(5) provides payment of presumptive tax at the rate of 0.5% by such dealers as specified therein, whose total turnover for an year is below Rs.50 lakhs; the limit being so for the respective assessment years. 3. In the year 2006-07, the assessee conceded a turnover of Rs.21,95,176.60. The returns filed by the assessee disclosing the above turnover was rejected, inter alia, on the basis of the proceedings initiated by the Intelligence Wing of the Department for suppression of purchase, which offence was compounded by the O.T.Rev.Nos.55 & 56 of 2012 **- 2 -** assessee. The actual suppression of purchase detected was multiplied with the gross profit to arrive at the sales turnover suppressed. Addition at 3 times for probable omission and suppression was also made. The turnover having crossed the limit of Rs.50 lakhs, the entire turnover was assessed. For the year 2007-08, the turnover conceded was Rs.23,97,418.85. Offences similar to that of the previous year was detected and actual suppression as also additions for probable omissions and suppressions were made. Turnover for the said year also exceeded the limit under Section 6(5). 4. The first appellate authority refused to interfere with the rejection of books of accounts and returns, but modified the additions to 2 times and 3 times for the respective years. The assessee was before the Tribunal, contending that no addition could have been made, since the entire suppression for the year was reckoned. It was the contention of the assessee that if such additions over and above the actual suppressed turnover; were not made, the assessee's turnover would have still been within the limit prescribed under Section 6(5) and then there would have been no scope for treating the assessee as being liable to pay tax under Section 6(1). The assessee also made claim for input tax credit. The Tribunal upheld the O.T.Rev.Nos.55 & 56 of 2012 **- 3 -** rejection of books of accounts as also the best judgment assessment made, as modified by the first appellate authority. The input tax credit was also declined. 5. The assessee has raised a number of questions of law in the above revisions as arising from the order of the Tribunal. Since the revisions are heard at the stage of admission itself, we do not propose to frame any question of law. The issue that comes up for consideration in the above revisions is essentially the legality of the best judgment assessment made on the ground of offences detected and compounded and the denial to the assessee the benefit of payment of tax under Section 6(5) of the Act. 6. The claim of the assessee that he ought to have been continued as a presumptive dealer, entitled to payment of tax at 0.5%, and the claim for input tax credit is mutually destructive. A presumptive dealer could not claim input tax credit as per the provisions of the Act. The claim of the assessee is to permit the assessee to continue as a presumptive dealer, since the actual suppression detected even if added, would still keep the assessee's turnover within the limits prescribed under Section 6(5). If such claim is considered, the provisions in the Act conferring power to the O.T.Rev.Nos.55 & 56 of 2012 **- 4 -** Assessing Officer to make best judgment assessment would have to be discounted and given a complete go-by. The assessee cannot contend that there was no pattern of suppression, since in both the years the assessee had suppressed purchases and the sales suppression so detected for the 1[st] year is more than 50% and for the 2[nd] year is around 30% of the conceded turnover. 7. The Act confers the power of best judgment on the Assessing Officer, to compensate any loss that could/would have been suffered by the State on detection of defects/offences being committed by a dealer. There can be no warrant for an assumption that an erring dealer would have committed only those offences which are detected. It is the conduct of such dealer itself that exposes him to a best judgment assessment. The principles of such best judgment assessment has been succinctly stated in the oft-quoted decision of the Hon'ble Supreme Court in **Commissioner of Sales Tax, M.P. v. H.M.Esufali** , (1973) 2 SCC 137. The addition of the actual suppression made as also the addition for probable omissions and suppressions cannot at all be interfered with, since it is made on best judgment and the exercise so carried on in this case cannot at all be termed to be in excess of the jurisdiction or perverse. The assessing O.T.Rev.Nos.55 & 56 of 2012 **- 5 -** authority cannot be said to have exercised its power to make best judgment assessment improperly. 8. The next issue would be the assessee being made liable under Section 6(1) rather than under Section 6(5). Admittedly the assessment made would render the assessee's turnover having exceeded the limit as prescribed under Section 6(5). The addition made on best judgment is the turnover of the assessee that ought to be considered for the purposes of assessment under the provisions of the Act. There can be no distinction between actual suppression and the additions made on probable omissions and suppressions. On an offence being detected, there arises a valid ground for rejection of accounts and best judgment assessment. What is so assessed by the assessing authority in so far as it is not shown to be a capricious exercise of power or in excess of the jurisdiction so conferred, is an assessment made under the Act. The turnover so assessed would be the turnover of the assessee for all purposes under the Act. The turnover so assessed having exceeded the limit prescribed under Section 6(5) of the Act, the assessee necessarily goes out of the presumptive net of Section 6(5). 9. On the assessee having been found to have exceeded O.T.Rev.Nos.55 & 56 of 2012 **- 6 -** its turnover limit as prescribed under Section 6(5), especially by detection of an offence, even for the turnover which falls within the limit, the assessee cannot be permitted to pay tax at the rate of 0.5%. True, the assessee would not have had the option to collect tax when he continued under the presumptive net. But, such option was always available by way of maintaining proper books of accounts disclosing the actual turnover and seeking conversion to mode of payment under Section 6(1) in the event of crossing the limit. Then the liability under Sec.6(1) would have arisen only for the exceeded turnover. Though a specific provision is absent in the relevant years, we can safely assume the same on a reading of the provisions of sub-section (5) of Section 6. The Legislature has stepped in with the introduction of a proviso by Kerala Finance Act, 2011; in the following lines: _“Provided also that notwithstanding anything contained in the Act or rules made thereunder, if the turnover of a dealer, who opted for payment of tax under this sub-section, has exceeded the turnover limit during the course of an year, he shall be eligible for input tax credit on the turnover in excess of sixty lakh rupees”._ The said proviso is sought to be given retrospective effect with effect from 1.4.2005 by Kerala Finance Bill, 2012. The said proviso is in tune with the scheme of presumptive tax and lends credence to our understanding; stated above. It was the assessee who chose to O.T.Rev.Nos.55 & 56 of 2012 **- 7 -** suppress its turnover for the purpose of remaining within the presumptive net paying tax only at the rate of 0.5%. The claim of the assessee is only to be rejected. 10. As noticed above, the claim of input tax credit is destructive to the claim of the assessee for being retained as a presumptive dealer. In any event, as found by the Tribunal, in the teeth of the suppressions having been detected, the assessee cannot claim any input tax credit as held by this Court in **Venus Marketing v. State of Kerala** , (2011) 19 KTR 575 (Ker), and **Mohammed Haji v. State of Kerala** , 2012 (3) KLT SN 17 (Case No.19). 11. The assessee also relies on a decision of this Court reported in **Paul K.V. v. State of Kerala** , (2012) 19 KTR 141. That was a case in which the assessee continued to pay tax at the rate of 0.5% under Section 6(5) of the Act even after its turnover crossed the limit. The Assessing Officer issued notice on the ground that the assessee's own accounts showed turnover in excess of Rs.50 lakhs. This Court on the ground of input tax credit; held that a dealer converting from payment of presumptive tax under Section 6(5) to value added tax under Section 6(1) cannot automatically claim such credit. The dealer has to necessarily comply with the provisions in the O.T.Rev.Nos.55 & 56 of 2012 **- 8 -** Act and the Rules framed under the Kerala Value Added Tax Rules, 2005. The facts of **Paul K.V. case** (supra) would distinguish the same from the facts in the present case. In **Paul K.V. case** the crossing of the limit was noticed from the books of accounts itself. There was no suppression detected. In the instant case the offence detected is one of wilful suppression. 12. The assessee, in the various questions has also raised the issue of the proceedings under Section 67 being taken and continued against the assessee. We are afraid that the penalty proceedings is not under challenge in the above revisions and the assessee has chosen to compound the same. In the result, we are of the opinion that the revisions lack merit and are, accordingly, rejected. Sd/Thottathil B.Radhakrishnan Judge Sd/- K.Vinod Chandran Judge. Vku/- - true copy -