U Sugathan v. Intelligence Officer-1, Office of the Investigation Branch, Department of Commercial Taxes; The Commissioner of Commercial Taxes; The State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN WEDNESDAY, THE 19[TH] DAY OF JULY 2023 / 28TH ASHADHA, 1945 WP(C) NO. 11306 OF 2013** ## **PETITIONER:** U SUGATHAN AGED 55 YEARS PROPRIETOR HOTEL SEA ROACK, KOVALAM BEACH ROAD, KOVALAM RESIDING AT SUGATH KOVALAM, KOVALAM.P.O., VIZHINJAM VILLAGE, NEYYATTINKARA TALUK. BY ADV SRI.VADAKARA V.V.N.MENON ## **RESPONDENTS:** 1 THE INTELLIGENCE OFFICER9IB)-1 OFFICE OF THE INVESTIGATION BRANCH DEPARTMENT OF COMMERCIAL TAXES, 5TH FLOOR, TAX TOWERS KILLIPPALAM, KARAMANA.P.O., THIRUVANANTHAPURAM. 2 THE INTELLIGENCE OFFICER SQUAD NO.4, COMMERCIAL TAXES, NEDUMKANDAM, IDUKKI. 3 THE COMMISSIONER OF COMMERCIAL TAXES OFFICE OF THE COMMISSIONER OF COMERCIAL TAXES, THIRUVANANTHAPURAM. 4 THE STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT, AGRICULTURAL INCOME TAX & SALES TAX, GOVT. SECRETARIAT, THIRUVANANTHAPURAM. SMT.RESMITHA R CHANDRAN-GP THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 19.07.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) No.11306 OF 2013 2 ## **CR** **ANU SIVARAMAN, J.** ========================= ## **W.P.(C) No.11306 of 2013** ## ========================= Dated this the 19[th] day of July, 2023 **JUDGMENT** ## This writ petition is filed seeking the following reliefs: - _“i) Issue a writ of mandamus or any other appropriate writ, order or direction, directing the respondents to produce the entire records leading to the issuance of Exts.P1, P2, P4, P6, P8, P9, P12 and P13 notices and Exts.P3, P5, P10 and P11 orders._ - _ii) Issue a writ of certiorari and quash Exts.P1, P2, P4, P6, P8, P9, P12 and p13 notices and Exts.P3, P5, P10 and P11 orders._ - _iii) Issue a writ of mandamus or any other appropriate writ or order, declaring that the petitioner is not bound to make the payments as shown in Exts.p1, P2, P4, P6, P8, P9, P12 and P13 notices and Exts.P3, P5, P10 and P11 orders.”_ 2. Heard the learned counsel for the petitioner and the learned Government Pleader appearing for the respondents. 3. It is submitted by the learned counsel for the petitioner that the petitioner is running a hotel in Kovalam. An inspection had been conducted on 11.04.2008 in the WP(C) No.11306 OF 2013 3 hotel and a Shop Inspection Report was prepared on the said date. It is stated that five years thereafter, Exhibit P8 notice had been issued to the petitioner proposing a penalty of Rs.25,080/- under Section 17A of the Kerala Tax on Luxuries Act, 1976. It is submitted by the learned counsel for the petitioner that the detection of the offences was on 11.04.2008 and that the penalty notice issued on 15.03.2013 as well as the order of penalty and the demand raised on 31.03.2013, are completely unsustainable, since a time period of more than 5 years have elapsed from the date of detection of the offence. 4. This Court, while admitting the writ petition had rendered an interim order, wherein it is stated as follows: “ _The petitioner in the above writ petition challenges Exhibit P3 and P5 orders of imposition of penalty under Section 67 of the Kerala Value Added Tax Act, 2003 and Exhibits P10 and P11 penalty orders under Section 17A of the Kerala Tax on Luxuries Act, 1976 for the respective years of 2007-08 and 2008-09. The penalty orders have been issued based on a shop inspection conducted on 11.4.2008 as is evidenced from Exhibit P4 as also the notices issued before the finalization of the above mentioned penalty_ WP(C) No.11306 OF 2013 4 _proceedings; which notices have been produced along with the writ petition. Though no specific ground has been raised in that aspect, what looms large is the delay in finalization of the penalty proceedings. The proviso to Section 67 of the KVAT Act specifically prescribes a period of three years from the date of detection of the offence, for disposal of the case. Though Section 17A of the Kerala Tax on Luxuries Act does not prescribe any limitation, it is trite that the penalty proceedings should be finalized within a reasonable period. In such circumstance, there shall be an interim stay of Exhibits P3, P5, P10 and P11 orders until further orders.”_ 5. A detailed counter affidavit has been placed on record by the first respondent. It is stated that the Intelligence Wing of the Commercial Tax Department had conducted an inspection on 11.04.2008 at various hotels and resorts in Kovalam and a Shop Inspection Report was also prepared. It is stated that on receipt of the files, the first respondent had issued summons dated 16.11.2009 to the petitioner to produce Books of Accounts. It is stated that he had requested repeated adjournments for the production of the Books of Accounts and it was only on 25.09.2012 that at least partial Books of Accounts were produced by the petitioner before the 1[st] respondent. It is WP(C) No.11306 OF 2013 5 stated that it was only on production of the partial Books of Accounts that the offence was detected and the notices were, therefore, duly issued as evidenced by Exhibit P1. It is further submitted that since no objection was filed by the petitioner and since he did not appear for a personal hearing, even though time was allowed, the penalty proposed in the notices for the assessment years 2007-08 and 2008-09 was confirmed and the orders were served on the petitioner. It is stated that thereafter, demand notices were also issued as evidenced by Exhibits R1(i) and R1(j). 6. It is submitted that since the detection of the offence was only on the verification of the books of accounts produced by the petitioner in the year 2012, the notices issued on 15.03.2013 were well within time. In support of the said contention, the learned Government Pleader places reliance on a judgment of a Division Bench of this Court dated 26.10.2008 in W.A.No.344/2017, wherein it is held as follows: WP(C) No.11306 OF 2013 6 _“8. Ordinarily a notice proposing penalty is a sure sign of detection of offence. But after inspection of offence if there is a requirement to verify the books of accounts, then the summons for production of any records should be issued within a reasonable period; not the reasonable time we earlier referred to for completion, but immediately or reasonably proximate to the inspection. The further notice, indicating a detection of offence should also be proximate to the verification of the books. Then necessarily; the detection of offence would be taken as the date on which the notice of penalty is first issued. However this reasonable period for summons or notice will have no relevance if the final order itself is issued within the reasonable period for completion or the period of limitation, as prescribed under the statute. If the finalisation is carried out within the period of limitation, provided for finalisation; from the date of inspection or verification; there can be no allegation raised of the notice of penalty, the sure sign of detection of offence being not proximate to the inspection or verification of accounts. The purpose for making such prescriptions of reasonable period; on judicial intervention, when there is no limitation provided in the statute shall not create road blocks at every twist and turn, resulting in the penal provisions being rendered nugatory.”_ Reliance is also placed in a decision in _**St. Mary's Hotels**_ _**(P) Ltd. v. Intelligence Officer** [2010 KHC 294]_ by the learned Government Pleader. WP(C) No.11306 OF 2013 7 7. In the instant case also, shop inspection was conducted on 11.04.2008 and the 1[st] respondent had issued summons dated 16.11.2009 to produce books of accounts. Time was sought for repeatedly by the petitioner to produce the same. These aspects are revealed from Exhibits R1(a) to R1(f) produced along with the counter affidavit. It is stated that it was only on 25.09.2012 that the cash book for the year 2008-09 and ledger for the year 2007-08 were produced by an authorized representative of the petitioner. It is submitted that it was on inspection of the partial books of accounts produced that the offence was detected by the 1[st] respondent and notice was issued on 15.03.2013. It is submitted that since it was the petitioner, who caused the delay in production of the books of accounts, he cannot take advantage of his own delay to contend that the proceedings are belated. 8. Having considered the contentions advanced, I WP(C) No.11306 OF 2013 8 notice that while it is admitted that an inspection had been conducted on 11.04.2008, the documents produced along with the counter affidavit would show that Ext.R1(a) notice was issued on 16.11.2009 to appear with records. It appears that time was sought for by the petitioner repeatedly and it was only on 25.09.2012 that partial books of accounts had been produced by an authorized representative. Thereafter, Ext.P1 notice [Exhibit R1(g)] was issued on 15.03.2013. 9. This Court has held that limitation for imposition of penalty starts only from the date of detection of offence and not from the date of inspection by the authorities concerned. In _**St. Marys' Hotel**_ (supra), it was held that it is only after verification of the books and accounts, in the light of the incriminating circumstances brought out in the course of the inspection, that the offence, if any, can be detected. The position is reiterated in the judgment dated WP(C) No.11306 OF 2013 9 18.2.2009 in W.A.No.385 of 2009 ( **M/s.Acme Furniture and Interiors vs. CTO** ) and in judgment dated 26.10.2018 in W.P.(C).No.12391 of 2017 ( **T.F.Thomas v. The Commercial Tax Officer and another** ). In the instant case, the 1[st] respondent had verified the books of accounts, detected the offence and had issued notices on 15.03.2013 and the order of penalty was passed on 31.03.2013 after hearing the petitioner. In the above factual situation and in the light of the judgments of this Court referred to above, it cannot be held that the proceedings are belated. No other sustainable ground has been made out. The writ petition, therefore, fails. The same, is accordingly, dismissed. **Sd/ANU SIVARAMAN JUDGE** SSK/19/07 WP(C) No.11306 OF 2013 10 ## **APPENDIX** ## PETITIONER EXHIBITS > EXHIBIT P1 EXT.P1 TRUE COPY OF THE NOTICE DATED 15-313 UNDER SECTION 671) OF THE K.V.A.T. ACT, 2003 FOR THE YEAR 2007-08 > EXHIBIT P2 EXT.P2 TRUE COPY OF THE NOTICE DATED 15-313 UNDER SECTION 671) OF THE K.V.A.T. ACT, 2003 FOR THE YEAR 2008-09 > EXHIBIT P3 EXT.P3 TRUE COY OF THE PROCEEDINGS OF THE OF THE 1ST RESPONDENT DATED 31-3-13 FOR THE YEAR 2007-08. > EXHIBIT P4 EXT.P4 TRUE CY OF THE DEMAND NOTICE IN FORM NO. 12 DATED 31-3-13 ISSUED BY THE 1ST RESPONDENT. > EXHIBIT P5 EXT.P5 TRUE COPY OF THE PROCEEDINGS AND ORDER OF THE 1ST RESPONDENT DATED 31-3-13 FOR THE YEAR 2008-09 > EXHIBIT P6 EXT.P6 TRUE COPY OF THE DEMAND NOTICE IN FORM NO. 12 DATED 31-3-13 ISSUED BY THE 1ST RESPONDENT. > EXHIBIT P7 EXT.P7 TRUE COPY OF THE SHOP INSPECTION REPORT DATED 11-4-2008 PREPARED BY THE 2ND RESPONDENT. > EXHIBIT P8 EXT.P8 TRUE CPY OF THE NOTICE UNDER SECTION 17(A) OF THE LUXURIES TAX ACT ISSUED BY THE 1ST RESPONDENT FOR THE YEAR 2007-08 > EXHIBIT P9 EXT.P9 TRUE CPY OF THE NOTICE UNDER SECTION 17(A) OF THE LUXURIES TAX ACT ISSUED BY THE 1ST RESPONDENT FOR THE YEAR 2008-09 > EXHIBIT P10 EXT.P10-TRUE COPY OF THGE PROCEEDINGS AND ORDER DATED 31-3-13 FOR THE YEAR 2007-08 UNDER LUXURIES TAX ACT PASSED BY THE 1ST RESPONDENT. > EXHIBIT P11 EXT.P11 TRUE COPY OF THGE PROCEEDINGS AND ORDER DATED 31-3-13 FOR THE YEAR 2008-09 UNDER LUXURIES TAX ACT PASSED BY THE 1ST RESPONDENT. > EXHIBIT P12 EXT.P12 TRUE COPY OF THE DEMAND NOTICE DATED 31-3-13 CLAIMING PENALTY OF RS. 12,47,836/- IN FORM NO. 2(A) ISSUED BY THE 1ST RESPONDENT. > EXHIBIT P13 EXT.P13 TRUE COPY OF THE DEMAND NOTICE DATED 31-3-13 CLAIMING PENALTY OF RS. 25,080/- IN FORM NO. 2(A) ISSUED BY THE 1ST WP(C) No.11306 OF 2013 11 RESPONDENT. > EXHIBIT P14 EXT.P14 TRUE COPY OF THE PROCEEDINGS AND ASSESSMENT ORDER DATED 19-8-2008 OF THE SALE TAX OFFICER (ENQUIRY) OF LUXURY TAXES. > EXHIBIT P15 EXT.P15 TRUE COPY OF THE PROCEEDINGS AND ASSESSMENT ORDER DATED 1-6-2009 OF THE SALE TAX OFFICER (ENQUIRY) OF LUXURY TAXES,. > EXHIBIT P16 EXT.P16 TRUE CYP OF THE INTERIM ORDER DATED 8-8-2003 PASSED BY TH IS HON'BLE COURT IN WPC 25587/2003. > EXHIBIT P17 EXT.P17 TRUE COPY OF THE INTERIM ORDER DATED 6-3-2004 PASSED BY THIS HON'BLE COURT IN WPC 25587/2003. > EXHIBIT P18 EXT.P18 TRUE COPY OF THE INTERIM ORDER DATED 9-3-2006 PASSED BY THIS HON'BLE COURT IN WPC 6719/2006.