State of Kerala v. James Thomas (Proprietor, Thomsun Rubbers)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON** **TUESDAY, THE 26TH DAY OF JUNE 2018 / 5TH ASHADHA, 1940** **OT.Rev.No. 224 of 2014** **---------------------AGAINST THE ORDER/JUDGMENT IN TAVAT 1386/2013 of VALUE ADDED TAX APPELLATE TRIBUNAL,ADDL.BENCH,PKD DATED 23-07-2014** **REVISION PETITIONER(S)/PETITIONER/REVENUE: -----------------------------------------** **STATE OF KERALA** **BY SR.GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ** **RESPONDENT(S)/APPELLANT/ASSESSEE:** **--------------------------------** **JAMES THOMAS PROPRIETOR, THOMSUN RUBBERS, CHITTADY, ALATHUR TALUK, PALAKKAD, PIN:678 706.** **R1 BY ADV. SRI.HARISANKAR V. MENON R1 BY ADV. SMT.MEERA V.MENON** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 26-06-2018 ALONG WITH OT.REV.9/2015 AND CONNECTED CASES, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **OT.Rev.No. 224 of 2014** **----------------------** ## **APPENDIX** ## **----------** ## **PETITIONER(S) ANNEXURES:** **-----------------------** **ANNEXURE A: COPY OF THE ASSESSMENT ORDER DATED 17-05-2013 PASSED BY THE COMMERCIAL TAX OFFICER, ALATHUR.** **ANNEXURE B: COPY OF THE ORDER DATED 09-09-2013 PASSED BY THE ASST. COMMISSIONER (APPEALS), DEPARTMENT OF COMMERCIAL TAXES, PALAKKAD.** **ANNEXURE C: COPY OF THE ORDER OF THE KERALA VALUE ADDED TAX ADDITIONAL APPELLATE TRIBUNAL, PALAKKAD IN KEIN TAVAT NOS.1386/2013 DATED 23-07-2014.** **RESPONDENT(S)' ANNEXURES:** **-----------------------** **NIL** **/TRUE COPY/** **PA TO JUDGE** _**dkr**_ ## K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- O.T.Rev (VAT) Nos.224/2014, 9/2015, 16/2015, 17/2015 & 59/2017 ------------------------------------------Dated this the 26[th] day of June, 2018 ## O R D E R ## Vinod Chandran, J. The issue dealt with in all the appeals, by the Tribunal, arising from different years, in the case of individual assessees, is the additions, which were set aside on the strength of the binding declaration in Roy Jacob v. State of Kerala, [2012] 128 STC 256 (Ker) or Chilton Refrigeration v. State of Kerala, [2004] 138 STC 472 (Ker) . 2. O.T.Rev.No.224/2014 is for the assessment year 2010-11. The Intelligence Officer of the Department, in an inspection on 15.03.2011, found certain suppression, which was added on to the turnover along with a further addition of three times of the suppressed turnover for probable omission and suppression. The same was reduced to one time by the First Appellate Authority. The Tribunal deleted the addition for probable omissions and suppression relying on the ratio in Roy Jacob . _OTR Nos.224/2014 & connected cases_ 2 3. O.T.Rev.No.16/2015 was a case in which the original assessment was completed by making an addition for probable omissions and suppression. After the assessment year, on investigation by the Intelligence Officer, certain sales suppression were again detected, which was admitted by the assessee and compounded departmentally. The assessment was reopened and again completed by adding the actual suppression and two times for probable omissions and suppression. The addition over and above the actual detected was set aside by the Tribunal relying on Roy Jacob . 4. O.T.Rev.Nos.17/2015 and 9/2015 are with respect to the very same assessee for the assessment years 2005-06 and 2006-07. For both the years, assessments were reopened and best judgment was resorted to on the basis of an inspection of the business premises by the Intelligence Wing of the Department on 07.05.2007; after the second assessment year. The actual suppression was added along with an addition of 25% of the actual suppression. The 25% addition was interfered with by the Tribunal relying on Chilton Refrigeration and Aby Simon v. State of Kerala (judgment dated 24-10-2008 in S.T.Rev.No.300/2008). _OTR Nos.224/2014 & connected cases_ 3 5. O.T.Rev.No.59/2017 is a case in which certain purchase suppression were detected from the KVATIS. The addition of the detected suppression was made and 50% addition was made for probable omissions and suppression. The rate of tax was applied at 14.5% even though the assessee had been dealing with items taxable at different rates. The First Appellate Authority sustained the addition, but, however, remanded the matter for applying the correct rate of tax with respect to the goods in proportion to that returned. The Tribunal, though sustained the additional actual suppression, deleted 50% of further addition made relying on Chilton Refrigeration. 6. We are only concerned with the question as to whether the further addition made for probable omission and suppression is to be sustained or not, on the facts of the cases as also the dictum laid down in the binding precedents. The learned Senior Government Pleader relies on the Full Bench judgment of this Court in V.Aboobacker v. State of Kerala, (2010) 27 VST 308 (Ker) . _OTR Nos.224/2014 & connected cases_ 4 7. We hence frame the questions of law as follows, applicable to all the above cases: - i) Whether the Tribunal was correct in deleting the additions made for probable omission and suppression on the ground that the suppression detected was after the subject assessment year or at the fag end of the assessment year ? - ii) Whether the Tribunal was correct in assuming that the suppression having been detected after the close of the year, the entire probable suppression was detected ? We need not tarry on the facts of the individual cases. The question of law has to be decided based on the declarations in the binding precedents as pointed out by the learned Senior Government Pleader and the learned Counsel for the respondents. 8. Roy Jacob was a case in which certain additions were made based on the offence detected on an inspection conducted at the residence of the assessee. The inspection was conducted after the subject assessment year and on the basis of the detection of unaccounted transactions coming to Rs.3,73,060/-, an addition was made of Rs.26,11,420/-. The Court noticed the contention of the _OTR Nos.224/2014 & connected cases_ 5 assessee that the inspection conducted and offence detected was after the assessment year. But the deletion of the addition made at six times the actual suppression was on account of there being no pattern of suppression established. There cannot be discerned any declaration that if the suppression detected is after the assessment year then, the entire probable suppression in the year is presumed to have been unearthed. 9. Chilton Refrigeration was again an inspection conducted after the assessment year wherein material was unearthed indicating suppression in the previous year. A Division Bench found that since there was no inspection in the concerned assessment year and the offence detected was after the close of the assessment year, there could be no further suppression alleged than that detected. There could be alleged no pattern of suppression, since there was no inspection during the assessment year and there was also no other defect in accounts alleged. Again the addition made for probable omissions and suppression was deleted. 10. Aby Simon also on similar facts, made an addition of two times to the suppressed turnover. The specific question of law _OTR Nos.224/2014 & connected cases_ 6 raised was also whether there could be addition made for probable omission and suppression when the actual suppression detected was after the assessment year. Reliance was placed on Chilton Refrigeration to delete the further addition made. 11. A different issue, having the same ramifications, came up for consideration before a Full Bench, on a reference made by a Division Bench doubting Surya Agencies v. State of Kerala, [2004] 12 KLT 215 and C.O.Varghese v. State of Kerala, [2004] 12 KLT 528 . The assessee contended that there could no be no separate addition made for probable omissions and suppression when allegation is raised of inter-state purchase suppression; as substantiated from check post declarations. The earlier Division Benches, in similar circumstances, held that when check-post declarations are available with the department and they could very well verify and unearth the entire suppression practised by the assessee; there could be no addition over and above the actual suppression detected. The Full Bench, noticed that the assessee therein had a number of check post declarations, which were not disclosed in the accounts. The Department, on a verification of the _OTR Nos.224/2014 & connected cases_ 7 materials available with the check post, reopened the assessment and sought to make additions with respect to the suppressed purchases made inter-state. The actual suppression was added along with addition for probable omissions and suppression. The assessee relied on the principle laid down in Surya Agencies and C.O. Varghese. The Full Bench, however, did not accept the contention and overruled the earlier decisions. It was found that the assessee even with the knowledge that the check post declarations were available with the Department; practised suppression. The suppression practised was only on account of the dealer being aware of the limitation of the Department to verify the entire materials before the check post, especially considering the volume of the goods coming in and going out through the check-posts. Further, the entry of goods are by various means and even on road, through routes where there are no check-posts. 12. It was held so, on best judgment assessment, based on detection of suppression: “4. The cases before us pertain to dealers who are found to have practised suppression in inter-State _OTR Nos.224/2014 & connected cases_ 8 purchases. If the view expressed by the Division Bench in the above two decisions is followed, then in the absence of finding of any other suppression of inter-State purchases, after verifying the full checkpost records, the assessing officer cannot make estimation of turnover or addition to the turnover except for the value of goods in respect of which suppression is proved. Proof of purchase suppression leads to only one conclusion that the accounts are incomplete. If the accounts are found to be incomplete, it is unreliable and the recourse available to the assessing officer is to make best judgment assessment in terms of Section 17(3) of the Act. Guidance for best judgment assessment is provided in Section 17(3) itself whereunder the officer is bound to conduct enquiry, collect reliable materials and make assessment relying on the same. In fact there are ever so many decisions both of this Court and the Supreme Court giving guidelines on best judgment assessment. The Supreme Court in Commissioner of Sales Tax v. H.M.Esufali, H.M.Abdulali MANU/SC/0374/1973 held that the assessing officer while making best judgment assessment no doubt should arrived at his conclusion without any bias and on rational basis. The Supreme Court further added that the assessing authority should not be vindictive or capricious and assessment should be made on a bona fide estimate and on rational basis. While these are the principles laid down by the Supreme Court for the assessing authority to make best judgment assessment under Section 17(3), we do not think this Court can restrict the power of the assessing authority to limit the addition to the actual suppression found by the Department. xx xx” _OTR Nos.224/2014 & connected cases_ 9 13. The principle of best judgment, stated with reference to check-post declarations, equally apply here. When suppression is detected after the assessment year, there can be no presumption that the entire suppression has been unearthed by the Department. What is relevant is the fact that the dealer had practised suppression during the relevant year. In all the aforesaid cases, which are before us for consideration, there is a pattern of suppression, in so far as there being more than one suppression detected though after the assessment year or in the course of the assessment year. The petitioner in O.T.Rev.No. 59/2017 has a contention that there is an admission by the Assessing Officer that there were no further suppression detected from the KVATIS. We did not find any such admission by the Department. Nor could such an admission be made in the context of the Assessing Officer having made additions for probable omission and suppression. The Tribunal has relied on either Chilton Refrigeration, Roy Jacob or Aby Simon, the declaration in which, on principle stands overruled by the decision of the Full Bench in V.Aboobacker . The binding precedent of the Honourable Supreme Court in Commissioner of Sales Tax. M.P. v. _OTR Nos.224/2014 & connected cases_ 10 H.M. Esufali, (1973) 2 SCC 137 ; also restrains us from fettering the powers of best judgment statutorily conferred on the Assessing Officer. 14. The fact that the suppression detected related to the previous year or the fag end of the year does not fetter the power of the Assessing Officer to proceed for best judgment, rejecting the accounts as unreliable. Then the restriction is only in making additions reasonably, free from any challenge on grounds of it being vindictive or capricious. There cannot be any assumption by the statutory authorities that when the suppression of a previous year is detected in the subsequent year, then it covers the entire suppression for the previous year. This Court exercising the visitorial jurisdiction, cannot direct such a presumption to be raised; contrary to the principles of best judgment. We, hence, answer the questions of law in favour of the Revenue and against the assessee. The Tribunal erred, in so far as, deleting the further additions made for probable omissions and suppression. We, hence, sustain the further additions made in each of the above cases as modified by the first appellate authority. The order of remand in _OTR Nos.224/2014 & connected cases_ 11 O.T.Rev.No.59/2017 to apply the correct rate of tax, will be given effect to. The revisions stand allowed leaving the parties to bear their costs. Sd/K. VINOD CHANDRAN Judge Sd/ASHOK MENON Judge dkr