Satish Warriar (MG. Director), M/S Kaaizen Meditech (P) Limited v. State of Kerala

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON WEDNESDAY, THE 28TH DAY OF FEBRUARY 2018 / 9TH PHALGUNA, 1939 OT.Rev.No. 11 of 2018 AGAINST THE ORDER IN TA(VAT) NO.68/2014 OF THE KERALA VALUE TAX APPELLATE TRIBUNAL, ERNAKULAM ## REVISION PETITIONER/ASSESSEE: SATISH WARRIAR (MG.DIRECTOR), M/S.KAAIZEEN MEDITECH(P)LIMITED, 5/206 B1 & B2 KALIASH NAGAR, TRIKAKARA-682 028. BY ADV.SRI.K.J.VINCENT (MUNDAMVELI) ## RESPONDENT/REVENUE: STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM-695 001. BY SENIOR GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 28-02-2018, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: ## OT.Rev.No. 11 of 2018 ## APPENDIX - ANNEXURE I - COPY OF THE ORIGINAL ASSESSMENT ORDER NO.320718 59414/ 2011-12 DATED 14.08.2013 OF THE ASST. COMMISSIONER SPECIAL CIRCLE-II, ERNAKULAM. - ANNEXURE II - COPY OF THE FIRST APPELLATE ORDER NO.KVATA/2653/13 DATED 25.10.13 OF DEPUTY COMMISSIONER [APPEALS]-II, ERNAKULAM. - ANNEXURE III - COPY OF THE MODIFIED ASSESSMENT ORDER NO.32071859414/ 2011-12 DATED 18.01.2014 OF THE ASST. COMMISSIONER SPECIAL CIRCLE-II, ERNAKULAM. - ANNEXURE IV - COPY OF THE SECOND APPEAL FILED BY THE ASSESSEE DATED 27.01.2014 BEFORE THE KVAT APPELLATE TRIBUNAL, ERNAKULAM. - ANNEXURE V - COPY OF THE APPLICATION FOR RECTIFICATION U/S 66 DATED 03.02.2014 PENDING BEFORE THE INSPECTING AUTHORITY TO RECONSIDER THE COMPOUNDING BASED ON FACTUAL AND LEGAL MISCONCEPTIONS. - ANNEXURE VI - COPY OF THE DEPOSIT AGREEMENT DATED 01.01.2013 WITH SREE CHITRA TIRUNAL INSTITUTE OF MEDICAL SCIENCES, TRIVANDRUM. - ANNEXURE VIICOPY OF THE DECLARATION DATED 06.09.2013 MADE BY DR.RAJEESH THACHTATHODIYIL, AMRUTHA INSTITUTE OF MEDICAL SCIENCES, EDAPPALLY. - ANNEXURE VIIICOPY OF THE APPLICATION IN I.A. NO.339/14 DATED 03.07.2014 FILED BY THE REVISION PETITIONER TO EXAMINE EXPERT WITNESS. - ANNEXURE IX - COPY OF THE ORDER IN I.A. NO.339/14 DATED 13.01.2015 REJECTING PETITION TO EXAMINATION OF EXPERT WITNESS. - ANNEXURE X - COPY OF THE APPLICATION DATED 28.02.2017 SUBMITTED UNDER REGULATION 51(1) OF KVAT TRIBUNAL ALONG WITH COPIES OF RECEIPTS ACKNOWLEDGING THE STOCK ISSUED BY VARIOUS HOSPITALS. - ANNEXURE XI - COPY OF THE DEBIT NOTES AND CREDIT NOTES SUBMITTED UNDER REGULATION 51(1) OF KVAT TRIBUNAL ALONG WITH ANNEXURE X APPLICATION DATED 28.02.2017. - ANNEXURE XIIORIGINAL ORDER IN T.A. NO.68/14 DATED 30.08.2017 OF KERALA VALUE ADDED TAX APPELLATE TRIBUNAL. //TRUE COPY// P.A. TO JUDGE sp ## **K. VINOD CHANDRAN & ASHOK MENON, JJ.** ## **---------------------------------O.T.[Rev] No.11 of 2018 ---------------------------------Dated this the 28[th] day of February, 2018** ## **O R D E R** ## K. Vinod Chandran, J. The petitioner is aggrieved by the additions made by the Assessing Officer as modified by the First Appellate Authority based on a crime file, with respect to an inspection, detection of suppression and compounding effected by the petitioner. The petitioner relies on _**Velimparambil Hardwares v. State of Kerala [(1994) 92 STC 98 (Ker)]**_ to contend that there is no estoppel against agitating and defending estimations proposed on assessment, merely for reason of the compounding effected of the offences alleged. The assessee _O.T.[Rev] No.11 of 2018_ **2** would be competent to produce sufficient evidence to show that in fact the suppression detected was incorrect or solitary, not capable of basing upon, for further additions. 2. An inspection was carried out in the premises of the assessee and there was a stock variation of Rs.97,19,554/- detected. A compounding application dated 03.12.2012 was filed by the petitioner and the offence compounded on payment of fees of Rupees Four lakhs. The Assessing Officer took note of the compounding effected by the assessee and issued notice, proposing additions on the basis of the suppression detected. Annexure I is the assessment order passed, wherein the actual suppression detected was added to the turnover along with an addition of two times, to cover up _O.T.[Rev] No.11 of 2018_ **3** probable omission and suppression. The petitioner took up the matter in appeal. In Annexure II, the First Appellate Authority modified the addition to Rs.25 lakhs, which is about 1/4[th] of the actual suppression. An appeal was filed before the Tribunal, which also stood rejected as per Annexure XII. The revision is filed by the assessee contending that despite the compounding effected before the Intelligence Officer, the assessee could challenge the additions proposed; by furnishing substantiating material and even refute the allegations of suppression. 3. _**Velimparambil Hardwares**_ [supra] was a case in which assessment proceedings were initiated on the basis of the stock variation detected; at two inspections carried on in the period of three _O.T.[Rev] No.11 of 2018_ **4** months, in which the business was functioning in the year of its commencement. On appeal, the Appellate Authority found that the statements filed in the first appeal would indicate certain discrepancies and remanded the matter for further consideration. The Revenue filed an appeal to the Tribunal, in which the order of remand was set aside. The assessment, making additions on the basis of the compounding effected, was upheld. The assessee was before this Court in revision, in which this Court found that there was no material before the First Appellate Authority to find that there were discrepancies, which could lead to a valid challenge against the compounding proceedings. The Tribunal order was upheld and so was the assessment made with additions based on the _O.T.[Rev] No.11 of 2018_ **5** compounding effected. 4. Having rejected the claims of the assessee, the Division Bench considered the finding of the Appellate Tribunal that, when compounding is effected in a crime file, then the assessee would be estopped from denying the same for reason of the admission by reason of the compounding effected. Setting aside the said finding, the Division Bench of this Court said so: _“.....But it is open to the assessee to demonstrate by specific pleading and evidence in the assessment proceedings that the details or facts, contained in the compounding proceedings are incorrect or untrue or the admissions and statements made in those proceedings were mistakenly made or rendered under peculiar context or circumstances. It should be so proved by cogent and substantial material. Vague generalisations or evasive references or casting doubts will not be enough. We are unable to accept the plea of the Revenue that the materials_ _O.T.[Rev] No.11 of 2018_ **6** _or statements in the compounding proceedings will in any way be “conclusive” in the assessment proceedings. We make it clear that the compounding proceedings or statements or admissions therein will only be relevant, but not conclusive in assessment proceedings. We express our respectful dissent with the decision of the Madras High Court in_ _**R. Sundaresa Iyer & sons v. Board of Revenue [(1971) 28 STC 430,]** wherein the learned Judges have held that the facts found in compounding proceedings may not be material in assessment proceedings. The facts found in the compounding proceedings may constitute a relevant material in the assessment proceedings, though it may not be conclusive. We make this aspect also clear.”_ 5. The declaration made therein was that in the assessment proceedings there could be a challenge raised against the offence detected and compounding effected; on sufficient material being produced. We hence queried the counsel as to such a contention having been raised before the Assessing Officer. We _O.T.[Rev] No.11 of 2018_ **7** find from Annexure I order that the reply only indicated the submission of the assessee that the compounding of offence was carried out only on obtaining legal advice and later it came to the notice of the assessee that actually it was unnecessary. The assessee had also moved an application at Annexure V before the Intelligence Officer, who detected the offence and before whom the assessee admitted the offence for the purpose of compounding. Immediately it is to be noticed that _**Velimparambil**_ [supra] did not permit a review or reversal of the compounding effected. It is also pertinent that Annexure V was filed after the assessment was completed. 6. There could be no review of a compounding proceeding and if at all the assessee had evidence _O.T.[Rev] No.11 of 2018_ **8** to disprove the offence, the assessee had to approach the Assessing Officer. Neither before the Assessing Officer nor before the First Appellate Authority was any evidence adduced. The assessee is said to have moved two applications before the Tribunal. One was rejected, which rejection order was not challenged. 7. The essential contention raised by the assessee, to challenge the suppression detected is available in paragraph 7 of the Tribunal's order, which is extracted hereunder: _“7. According to the assessee's learned counsel, the authorities below have erred in relyin on the compounding application alone and they have not independently examined the inspection report. It is explained that the practice followed in the field of cardiology is to keep a set of implants in the hospitals where the surgery is done, since suitable implants can be identified and determined_ _O.T.[Rev] No.11 of 2018_ **9** _only after the heart is opened. In the above circumstances, considerable stock would be kept in the respective hospitals where the implants are despatched and if that stock kept in the hospital are also taken into consideration, there would not be any stock variation as alleged by the authorities below. It is contended that stock kept in the hospital is acknowledged by the respective hospitals and a certificate to that effect has been issued by the hospitals. So according to him, if that stock is also taken into consideration, there would not be any variation in stock as alleged by the authorities below and therefore the addition ought to be deleted in toto. It is argued that the stand taken by the authorities below in relying solely on the compounding proceedings of the Intelligence Officer is against the dictum laid down by the Hon'ble High Court of Kerala in_ _**Velimparambil Hard Wares v. State of Kerala [(1994) 92 STC 98].”**_ 8. The Tribunal considered the dictum as laid down by this Court and it is specifically held that the challenge against the facts and details as available in the compounding proceedings being _O.T.[Rev] No.11 of 2018_ **10** incorrect or untrue or the admissions and statements made having been mistakenly made or rendered under peculiar context or circumstances, should be proved by cogent and substantial material and that vague generalisation or evasive reference or casting doubts will not be enough. 9. We are in complete agreement with the findings of the Tribunal. Based on the dictum as correctly deduced by the Tribunal, it dealt with the objections raised by the assessee in paragraph 10 as extracted here: _“10. In the present case, apart from the contention that there would not be any stock difference if the stock of implants kept in the hospitals are also taken into consideration, no effort has been taken by the assessee to reconcile the stock variation worked out by the Intelligence Officer. In this context, it will be relevant to refer to the following observation of the Intelligence_ _O.T.[Rev] No.11 of 2018_ **11** _Officer when the stock was analysed and the variations were pointed out to the managing director:_ _“Dealer explained that the difference in stock due to the consignment stock kept in various hospitals to meet with the emergency situation which are actually not sold. But the dealer has not been produced any evidence such as separate stock register or consignment agreement etc. to substantiate the claim....”_ _As rightly pointed out by the Intelligence Officer, the claim that stock has been kept in the hospitals should have been proved with valid document. The despatch to various hospitals should have been reflected in the stock register maintained by the assessee. This has not been done. Mere production of a certificate from the respective hospitals for the stock of implant held by them will not prove the assessee's case unless it is correlated with the assessee's stock register. So long as the stock variations are not reconciled by the assessee, they cannot take a stand that they would not be any stock variation if the stock of implants in the respective hospitals are also taken into consideration. In the above circumstances, we cannot accept the plea advanced before us that the stock_ _O.T.[Rev] No.11 of 2018_ **12** _variation pointed out by the Intelligence Officer do not exist. We can only conclude that the stock variation as pointed out by the Intelligence Officer do exist. Shortage in stock points to sale suppression. Therefore the assessing authority was justified in resorting to a best judgment assessment.”_ 10. The material placed before the Tribunal was found to be insufficient to challenge the stock variation found by the Intelligence Officer. We would not interfere with the factual findings as made by the Tribunal in the order. We also notice that the assessee's claim was not supported by the entries in the stock register. An arrangement between the assessee and the hospital without it being reflected in the books of accounts could lead to massive evasion. We do not discern any question of law arising from the aforesaid findings of the Tribunal. The sustainability of the estimation was _O.T.[Rev] No.11 of 2018_ **13** also considered by the Tribunal and the 1st Appellate authority's order was upheld. We do not see any reason to entertain the revision. The questions of law as raised by the petitioner do not arise from the facts, and order of the Tribunal. Revision petition dismissed. No costs. Sd/- **K. VINOD CHANDRAN, JUDGE.** Sd/- **ASHOK MENON, JUDGE.** sp/dg/03/03/18 //True Copy// P.A. To Judge