The State of Kerala v Supreme Cashew Industries

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **THURSDAY, THE 18TH DAY OF JUNE 2020 / 28TH JYAISHTA, 1942** **OT.Rev.No.44 OF 2020** **AGAINST THE ORDER IN TAVAT 78/2018 OF KERALA VALUD ADDED TAX/AGRL.INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDL.BENCH, THIRUVANANTHAPURAM** ## **REVISION PETITIONER/RESPONDENT/RESPONDENT/REVENUE:** **THE STATE OF KERALA** **REPRESENTED BY THE DEPUTY COMMISSIONER OF STATE TAX (LAW)** **DEPARTMENT OF KERALA** **STATE GOODS AND SERVICE TAX, ERNAKULAM** **BY SR.GP SRI.V.K.SHAMSUDHEEN** ## **RESPONDENT/APPELLANT/APPELLANT/ASSESSEE:** **SUPREME CASHEW INDUSTRIES** **PALLITHOTTAM, KOLLAM-691006** **BY ADV. SRI.HARISANKAR V. MENON** **BY ADV. SMT.MEERA V.MENON** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 18.06.2020, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** OTREV.No.44/2020 -2- ## **ORDER** ## **T.R.RAVI, J.** The respondent/assessee is a dealer in cashew. For the assessment year 2006-07, the assessee filed return under the Central Sales Tax Act, claiming exemption/concessional rate of tax by furnishing F Form and C Form declarations. The Intelligence Officer (Investigation Branch) had verified the C Forms and F Forms furnished by the assessee, and found that one C Form declaration covering the turnover of Rs.5,20,000/and two F Form declarations covering a turnover of Rs. 20,17,000/- were bogus, since the declarations contained certain spelling mistakes and the seal of the issuing authority looked suspicious. The officer further found that the assessee had availed exemption for a turnover of Rs.48,27,552/- and concessional rate of tax for a turnover of Rs.81,14,366/- without furnishing declaration forms. On 22.12.2008, the Intelligence Officer issued notice to the assessee, proposing to impose penalty of Rs.31,78,980/-under Section 67(1) of the KVAT Act. The assessee submitted reply to the notice on 10.1.2009. OTREV.No.44/2020 -3- 2. According to the revision petitioner, an Interstate investigation was carried out on the basis of an order dated 02.12.2011 issued by the Commissioner of Commercial Taxes, and, the said investigation had revealed that two F Form declarations covering a turnover of Rs.20,17,000/- furnished by the assessee, was not issued by the concerned assessing authorities of the purchasers located outside the State. The assessee was summoned to produce books of accounts which are said to have been produced on 24.9.2013. On verification of the records produced by the assessee, the Assessing Officer noted that the assessment under the Central Sales Tax Act was completed, denying the claim for exemption covered by the said disputed F Form declarations and the assessee had accepted the same without any challenge. In the circumstances, the Intelligence Officer dropped the penalty proposed for the turnover not covered by the statutory declarations and an order imposing a penalty of the Rs.5,04,250/- was issued as per Annexure A order dated 30.11.2013. The appeal filed by the assessee against Annexure A order was rejected by the First OTREV.No.44/2020 -4- Appellate Authority as per Annexure B order dated 31.10.2017. The assessee challenged Annexure B order before the KVAT Appellate Tribunal. The Tribunal allowed the appeal by Annexure C order dated 10.5.2019, holding that the penalty order was passed violating the principles of natural justice and that the order was passed beyond the period of limitation prescribed under Section 67(1) of the KVAT Act. The order of the Tribunal is challenged by the State in this revision petition. 3. Heard Sri V.K. Shamsudheen on behalf of the revenue and Sri Harisankar V. Menon on behalf of the respondents. The learned Government Pleader for the revision petitioner contends that the finding of the Tribunal that the penalty order is barred by limitation is not correct. According to him, the proviso to Section 67(1), which prescribes the period of 3 years as limitation, was deleted with effect from 1.4.2014 by the Kerala Finance Act 2014. According to the counsel, there is no period of limitation prescribed for finalising a proceedings under Section 67(1). He also contends that the period for finalising the penalty had been extended by the Deputy Commissioner vide orders OTREV.No.44/2020 -5- dated 05.09.2011, 02.09.2012 and 31.08.2013. According to him, the offence of furnishing of bogus declarations can be said to be detected only after completion of the interstate investigation, the report of which was filed only on 17.02.2012, and that the Intelligence Officer had time up to 16.02.2015 for finalising the penalty proceedings. The counsel for the respondent on the other hand, submits that as per the proviso to the unamended Section 67(1), the authority empowered under the Section had to dispose of the case within 3 years from the date of detection of offence except where extension of time is granted by the Deputy Commissioner. Since the offence had admittedly been detected on 22.12.2008, when notice under Section 67(1) was issued to the assessee, necessarily, the authority had to complete the proceedings within the prescribed period. As such, Annexure A order dated 30.11.2013 is beyond the period of limitation, is the contention. 4. The petitioner has raised the following questions of law for decision in this revision. OTREV.No.44/2020 -6- “1. Whether on the facts and circumstances of the case, the Appellate Tribunal has erred in law in holding that Annexure-A penalty order is barred by limitation, considering the fact that date of detection of offence is only on 17.02.2012, when the investigation team filed report regarding bogus C Forms and F Forms, and hence Annexure A order passed on 30.11.2013 is not barred by limitation? 2. Whether on the facts and circumstances of the case, the Appellate Tribunal was correct in law in holding that Annexure-A penalty order is barred by limitation, considering the facts that the period for finalization of penalty proceedings were extended periodically by the Deputy Commissioner? 3. Whether on the facts and circumstances of the case, the Appellate Tribunal has erred in law in holding that Annexure A penalty order is passed violating the principles of natural justice?“ Section 67(1) at the time of issuance of the notice dated ## 22.12.2008, reads thus:- ## “ **67. Imposition of penalty by authorities.-** - (1) Notwithstanding anything contained in section 71 if any authority empowered under this Act is satisfied that any person,- OTREV.No.44/2020 -7- (a) being a person required to register himself as a dealer under this Act, did not get himself registered; or (b) has failed to keep true and complete accounts; or (c) has failed to submit any return as required by the provisions of this Act or the rules made there under; or (d) has submitted an untrue or incorrect return; or (e) has made any bogus claim of input tax credit, special rebate or refund; or (f) has continued the business during the period of suspension of registration; or (g) has failed to return the unused statutory Forms and Declarations under this Act after the cancellation or suspension of the registration; or (h) has not stopped any vehicle or vessel when required to do so; or (i) has failed to comply with all or any of the terms of any notice or summons issued to him by or under the provisions of this Act or the rules made there under; or (j) has acted in contravention of any of the provisions of this Act or any rule made thereunder, for the contravention of which no express provision for payment of penalty or for punishment is made by this Act; or OTREV.No.44/2020 -8- (k) has abetted the commission of the above offences, or (l) has abetted or induced in any manner another person to make and deliver any return or an account or a statement or declaration under this Act or rules made thereunder, which is false and which he either knows to be false or does not believe to be true, such authority may direct that such person shall pay, by way of penalty, an amount not exceeding twice the amount of tax or other amount evaded or sought to be evaded where it is practicable to quantify the evasion or an amount not exceeding ten thousand rupees in any other case: **Provided** that the authority empowered under this section shall dispose of the case **within one year** from the date of detection of offence mentioned under this section except where the extension of time is granted by the Deputy Commissioner.” It can thus be seen that at the time of issuance of the notice proposing penalty under Section 67(1), the proceedings had to be completed within one year. The period of one year fixed for disposing the case was amended as three years as per the Finance Act, 2009, and it remained that way till the issuance of Annexure A order. The proviso to the Section, as amended by OTREV.No.44/2020 -9- Finance Act, 2009, is very clear when it says that the proceedings under Section 67(1) has to be finalised within 3 years from the date of detection of the offence. It is true that the Section says that the Deputy Commissioner can grant extension of time for completion of the proceedings. Annexure D order of the Deputy Commissioner, which is relied on to say that the period had been extended is seen to have been issued on 31.08.2013. The said order further reveals that by an earlier order dated 02.09.2012, time had been extended up to 04.09.2013. Annexure D will clearly establish the fact that the order extending the period of limitation itself was issued only after the period of limitation had expired, whether we take the period as one year or three years after the amendment. We are of the opinion that no reliance can be placed on Annexure D, to contend that the period of limitation had been extended as far as the case on hand is concerned. The above conclusion is also well supported by Annexure A order of penalty issued by the Intelligence Officer. It can be seen from Reference 5 in Annexure A that, even according to the Department, there are only 2 OTREV.No.44/2020 -10- orders by which the Deputy Commissioner had extended the period of limitation, which are dated 20.09.2012 and 31.8.2013. The contention of the Senior Government Pleader that there had been an earlier order of extension dated 05.09.2011 cannot be accepted in the light of the fact the neither Annexure A nor Annexure D speaks of such an order. Such an order is also not referred to in the appellate orders Annexures B and C, even though the authorities have verified the records. A reading of Annexure A order further shows, that the notice proposing penalty under Section 67(1) was issued on 22.12.2008. Even though the notice has not been produced along with the revision petition, the contents of the notice are stated in Annexure A order, which would show that the notice was issued after the Investigation Branch of the Commercial Taxes Department had enquired into the genuineness of C Form and found that certain C Forms were not issued by the Assessing Authority and by the dealer of the outside State. It can thus be seen that the notice was issued only after detecting the offence. The revenue is not entitled to contend that the notice dated 22.12.2008 was issued OTREV.No.44/2020 -11- even before the detection of any offence. No such procedure is contemplated under Section 67. As has been held by this Court, it is only on detecting the offence, the officer gets jurisdiction to issue notice proposing penalty for any of the offences mentioned in Section 67(1) ( _**See judgment dated 18.2.2009 of Division Bench of this Court in M/s Acme Furniture & Interiors v. CTO, Writ Appeal No.385 of 2009**_ ). 5. The Hon'ble Supreme Court has in the decision in _**State of Punjab v. Shreyans Industries,** reported in_ _**[(2016) 4 SCC 769],**_ held that the period of limitation cannot be extended after the period expired. The Hon’ble Supreme Court was considering a similar provision contained in Section 11 of the Punjab General Sales Tax, 1948. Section 11(1) prescribes a period of three years from the last date for furnishing of the last return for the period, for completion of assessment. Section 11(10) empowers the Commissioner to extend the period of three years, for such periods as he may deem fit, for reasons to be recorded. Interpreting Section 11(10), the apex court held that once the period of limitation prescribed in the Act has OTREV.No.44/2020 -12- expired, the Commissioner is debarred from exercising his power to extend under Section 11(10). A Division Bench of this Court in which one among us was a party, has referred to the above judgment, in their judgment in _**Commercial Tax Officer v. Najeem** , reported in_ _**[2018 (3) KLT 877**_ **]** , and held that the period of limitation cannot be extended after the period provided in the Act has already expired. This Court was dealing with the power of the Deputy Commissioner under Section 25B, to extend the period of limitation for assessments under Section 24 and 25. The above decisions squarely apply to the facts of this case, since admittedly, Annexure A order was issued only after the period of 3 years from the issuance of the notice dated 22.12.2008. According to us, a notice proposing penalty, as has been issued in this case, is a sure sign of detection of offence. Section 67(1) is categoric when it says that the proceedings are to be completed within 3 years from the date of detection of offence. 6. The contention of the Senior Government Pleader, that the date of detection of offence should be taken as 17.02.2012, on which date the Interstate Investigation Team had submitted OTREV.No.44/2020 -13- the report after investigation, needs only to be noted and rejected. As we already found, the offence has been detected prior to the issuance of the notice dated 22.12.2008, proposing penalty. The date of detection cannot be shifted as and when the investigation reached different stages. When the period of limitation depends on a definite date of detection, the argument advanced by the counsel for the revenue, if accepted, will result in leaving the issue in a state of flux. The above issue has been considered by the Tribunal in detail. The Tribunal has found that none of the materials collected in the course of the said investigation resulting in the report dated 17.2.2012, were furnished to the assessee. The Tribunal has held that Annexure A order has been issued in violation of the principles of natural justice. The Tribunal has also noticed that no intimation has been given to the assessee regarding the extension of the period of time for completion of the proceedings pursuant to the notice dated 22.12.2008. The above findings of the Tribunal cannot be faulted in the factual circumstances. OTREV.No.44/2020 -14- In the light of the above, we are not persuaded to interfere with the order Annexure C of the KVAT Appellate Tribunal. We answer the questions of law against the Revenue and in favour of the assessee. The revision petition is dismissed, however, without any order as to costs. Sd/- **K. VINOD CHANDRAN** **JUDGE** Sd/- **T.R. RAVI JUDGE** dsn OTREV.No.44/2020 -15- ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **ANNEXURE-A A TRUE COPY OF THE PENALTY ORDER DATED 30.11.2013 PASSED SECTION 67(1) OF KVAT ACT READ WITH SECTION 9 (20 OF THE CST ACT FOR THE YEAR 2006-07** **ANNEXURE-B A TRUE COPY OF THE ORDER PASSED BY THE DEPUTY COMMISSIONER (APPEALS) II, KOLLAM IN KVATA NO.1354 OF 2017 DATED 31.10.2017** **ANNEXURE-C CERTIFIED COPY OF THE ORDER PASSED BY THE APPELLATE TRIBUNAL IN TA (VAT) NO.78/2018 DATED 10.05.2019** **ANNEXURE-D A TRUE COPY OF THE EXTENSION OF THE DEPUTY COMMISSIONER, THIRUVANANTHAPURAM DATED 41.03.2013**