State of Kerala v. Ashique Chemicals & Cosmetics

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **WEDNESDAY, THE 10TH DAY OF JUNE 2020 / 20TH JYAISHTA, 1942** **OT.Rev.No.133 OF 2017** **AGAINST THE ORDER/JUDGMENT IN TAVAT 210/2016 DATED 21-12-2016 OF VALUE ADDED TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,PKD** ## **REVISION PETITIONER:** **STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM.** **BY GOVERNMENT PLEADER** ## **RESPONDENT:** **M/S ASHIQUE CHEMICALS & COSMETICS ANNIE HALL ROAD, CALICUT, PIN-673 002.** **R1 BY ADV. SRI.PREMJIT NAGENDRAN R1 BY ADV. SRI.P.RAGHUNATH** ## **OTHER PRESENT:** ## **SRNIOR GOVT.PLEADER SRI.MOHAMMED RAFIQ** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 10.06.2020, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **O.T. Revision No.133 OF 2017** **==> picture [20 x 10] intentionally omitted <==** **==> picture [76 x 10] intentionally omitted <==** **(Dated this the 10[th] day of June, 2020)** ## **K.Vinod Chandran, J** **The assessee is engaged** _**inter alia**_ **in the manufacture of handmade soap. The Intelligence Officer by notice dated 30.07.2008, initiated penalty proceedings for reason of the assessee having claimed reduced rate of 4% tax on the sales turnover of hand made soap amounting to Rs.33,86,322.17 which was sold during the month of April 2007.** **2. The assessee replied to the notice contending that by the Finance Bill of 2007 the reduced rate of tax was proposed, for dealers in hand made soap having turnover of less than Rs.25 lakhs. The industry moved a representation before** ## **O.T. Revision No.133 OF 2017** **==> picture [20 x 10] intentionally omitted <==** **the Government and there was a proposal to increase the limit to Rs.2 crores. In the Finance Act, the turnover limit limit was increased to Rs.2 crores and the assessee had paid the higher tax at the rate of 12.5% from the date on which the total turn over crossed Rs.2 crores; for its turnover of hand made soap.** **3. Penalty was imposed rejecting the contentions and first appeal too stood dismissed. The Tribunal on second appeal found that the penalty is imposed under Section 67(1) and (2) which is a mistake, insofar as the correct provision is Section 67(2). There being no assessment preceding the penalty order, Section 67(2) could not have been invoked, was the finding. The order of penalty was hence set aside, against which, the State is in revision.** **4. We modify the question of law as** **follows:** ## **O.T. Revision No.133 OF 2017** ::4:: **Whether the Tribunal erred in finding the penalty to be one imposed under Section 67(2) when the order showed invocation of Section 67(1) also, which takes within its ambit the filing of an untrue and incorrect return ?** **5. The learned Counsel for the petitioner Sri.Premjith Nagendran argued that there can be no contumacious conduct found especially since there was a proposal for enhancement of the limit to which the reduced rate of tax could be applied and the said proposal stood fructified when the Finance Act came into force. The assessee is also said to have paid the differential tax along with the interest due based on which the assessment order dated 30.01.2010 was rectified vide a proceedings dated 30.03.2010. Since there was no turnover suppression the Assessing Officer could have very well re-opened the assessment under** ## **O.T. Revision No.133 OF 2017** **==> picture [20 x 9] intentionally omitted <==** **Section 25 and applied the higher rate, which in any event, cannot be a ground for imposition of penalty. The learned Counsel relies on a Division Bench decision of the Madras High Court in** _**Deputy Commissioner of Commercial Taxes v. V.R.Kuppusamy Gounder and Sons{[1995] 98 STC 408}**_ **6. Sri. Mohammed Rafiq, learned Senior Government Pleader would argue that the contumacious conduct is clear since, when the return for the month of April was filed, the proposal in the Finance Bill was for a reduced tax liability for units having turnover less than Rs.25 lakhs. The turnover of the assessee crossed the proposed limit in that month itself for which return was filed, paying reduced tax for hand made soap, the sole turnover of which also crossed the limit then proposed. It is argued that the Finance Act increased the limit to Rs.2 crores based on which also the assessee could not have claimed** ## **O.T. Revision No.133 OF 2017** **==> picture [20 x 10] intentionally omitted <==** **reduced rate since their yearly turnover far exceeded the limit prescribed for exemption. On the submission made with respect to there being no contumacious conduct, for reason of the disclosure of turnover, the Government Pleader relies on** _**2018(3) KLT 360 {State of Kerala v. Alukas Jewellery}.**_ **Reliance is also placed on an unreported Bench decision in** _**W.A No.2288/2018 Diebold Systems Pvt.Ltd.v. Intelligence Officer (IB) and another dated 03.12.2018**_ **.** _**{2013 KHC 280} Suresh Lal v. State of Kerala**_ **is also relied on to argue that the subsequent payment of differential tax cannot be a reason to avoid the penal action initiated for reason of filing an incorrect return. In any event the differential tax was paid only after the initiation of penalty proceedings and that too much later, even after the penalty order.** ## **7. The assessee admits that they have** ## **O.T. Revision No.133 OF 2017** **==> picture [20 x 9] intentionally omitted <==** **filed annual return for the year 2007-08 even before the notice of penalty was issued, in which also the assessee claimed the very same reduced rate for the turnover of handmade soap for April 2007 before the total turnover exceeded Rs. 2 crores. A Division Bench of this Court in** _**Alukkas Jewellery**_ **examining the provisions under the VAT Act as also the prescription of self assessment, held that the assessee, in the new regime, has a more onerous obligation to file a correct return, failing which the provisions under Section 67 would be invoked.** **8. The assessee is also not entitled to the reduced rate since its annual turnover exceeded Rs.2 crores in the assessment year. In fact the total turnover exceeded the limit prescribed in the first month of the financial year ie: April 2007 itself. The exemption available as available in the Finance Bill of 2007** ## **O.T. Revision No.133 OF 2017** **==> picture [20 x 10] intentionally omitted <==** **is as below:** **“At the point of sale by dealers whose annual turnover does not exceed rupees twenty five lakhs”** **The exemption as per in the Finance Act of 2007 is as below:** **“At the point of sale by dealers whose annual turnover does not exceed rupees two crores”** **9. There can be no valid contention raised** **by the assessee that the reduced rate was available up to Rs.2 crores and the assessee's liability for the higher rate arose only if the turnover crossed that limit. The words employed clearly indicate that the turnover limit applies for the whole year and any manufacturer of handmade soaps, who exceeds the limit of total turnover will not be entitled to the reduced rate. 10. The contumacious conduct is again evident from the fact that despite the limit being** ## **O.T. Revision No.133 OF 2017** **==> picture [20 x 10] intentionally omitted <==** **Rs.25 lakhs as per the Finance Bill, the assessee claimed the reduced rate in its monthly return for April 2007 when the turnover for handmade soap alone exceeded that limit. The assessee paid 4% tax for a turnover of Rs.33,86,322.17. Even if there was a proposal to enhance the limit the return ought to have been filed showing the correct rate applicable as on that date, in relation to the limit prescribed and if the limit was enhanced then necessarily the assessee could have made a request for refund or adjustment in the subsequent months. One other compelling fact is that despite the enhanced limit in the Finance Act also having been crossed by the assessee, the assessee failed to pay the differential rate for the turnover of hand made soap reported for the month of April 2007 or to even declare it and pay differential tax when the annual return was filed. The assessee paid up the differential tax only after the penalty order was issued.** ## **O.T. Revision No.133 OF 2017** **==> picture [26 x 10] intentionally omitted <==** _**11. V.R.Kuppusamy Gounder**_ **was a decision in the General Sales Tax Regime when the assessment had to be carried out by the Assessing Officer after verification of books of accounts. Considering a series of decisions of the Hon'ble Supreme Court, on the same lines, a Division Bench in** _**Alukas Jewellery**_ **found that in the VAT Regime under Section 21 there is a self assessment provided by the dealer itself on the filing of a return in the prescribed manner and accompanied by the prescribed document; which creates a more onerous duty on the assessee to correctly furnish the details of business. It was held so in Paragraph 10:** **10. The provision for self assessment creates an obligation on the assessee to file a correct return; more onerous than in a regime which mandates a regular assessment. The submission of the learned Government Pleader that the filing of an** ## **O.T. Revision No.133 OF 2017** ::11:: **untrue or incorrect return as available under sub-clause (d) of S.67(1) assumes more rigour in the teeth of the onerous obligation, resulting in imposition of penalty without reference to whether there has been disclosure made in the books of accounts, has to be accepted.** **12.** _**Suresh Lal**_ **is also relevant insofar as the initiation of penal action being perfectly in order when the assessee has filed an incorrect return. In the present case, as we noticed, the assessee had filed an incorrect return for the month of April 2007 paying the reduced rate of tax on hand made soap for a turnover of Rs.33,86,322.17, when its total turnover was below Rs.2 crores. The total turnover of the assessee for the month of April, 2007, itself exceeded Rs.2 crores and stood at Rs.2,55,56,911.40. Hence there could have been no reduced rate claimed as per the provisions in the Finance Bill or the Act for the** ## **O.T. Revision No.133 OF 2017** ::12:: **turnover of hand made soap. The assessee had returned only 4% tax on the aforesaid turnover of hand made soap based only on the expectation of enhancement of the limit prescribed in the Finance Bill when even by reason of the enhancement, the assessee was not entitled to such reduced rate. The contumacious conduct hence is very clear.** **13. Sub-section (2) of Section 67 as was rightly pointed out by the learned Government Pleader could never have been invoked in the facts of the present case. Sub-section (2) of Section 67 is a** _**non obstante**_ **clause, which provides for a penalty at twice the balance amount of tax, when such tax has been determined on completion of an assessment in relation to a dealer under Sections 22, 23, 24 or 25 and the dealer has failed to pay such determined tax. The provision has very confined application and the mere quoting of the provision in the notice, by a** ## **O.T. Revision No.133 OF 2017** **==> picture [26 x 10] intentionally omitted <==** **mistake, would not render the same illegal or nugatory especially since Sub-section (1) of Section 67 also has been quoted.** **14. We answer the question of law in favour of the revenue and against the assessee and reverse the order of the Tribunal affirming that of the Assessing Officer as confirmed by the Appellate Authority.** **O.T.Revision is allowed. No order as to** **costs.** **Sd/K.VINOD CHANDRAN, Judge** **Sd/T.R RAVI, Judge** **jma** ::14:: ## **O.T. Revision No.133 OF 2017** ## **APPENDIX** **PETITIONER'S/S EXHIBITS:** **ANNEXURE A A TRUE COPY OF PENALTY ORDER UNDER SECTION 67(1) OF KVAT ACT DATED 06.09.2008 FOR THE ASSESSMENT YEAR 2007-08 PASSED BY THE INTELLIGENCE OFFICER (IB) II, COMMERCIAL TAXES, KOZHIKODE ANNEXURE B A TRUE COPY OF THE ORDER DATED 04.04.2011 IN KVATA NO.677 OF 2008 ANNEXURE C CERTIFIED COPY OF THE ORDER OF THE TRIBUNAL IN TA (VAT) NO. 210 OF 2016 DATED 21.12.2016**