WA No. 317 of 2017 in WPC 806/2017

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** **&** **THE HONOURABLE MR. JUSTICE P.SOMARAJAN** **FRIDAY, THE 9TH DAY OF MARCH 2018 / 18TH PHALGUNA, 1939** **WA.No. 317 of 2017 IN WPC. 806/2017** **AGAINST THE ORDER/JUDGMENT IN WP(C) 806/2017 of HIGH COURT OF KERALA DATED 20-01-2017** ## **APPELLANT(S)/PETITIONER.** **I.K MUNEER PROPRIETOR, M/S PLASTOWARE TRADERS, MULAMKADAKAM, KOLLAM.** **BY ADV.SRI.BOBBY JOHN** ## **RESPONDENT(S)/RESPONDENTS:** **1. THE COMMERCIAL TAX OFFICER THIRD CIRCLE, COMMERCIAL TAXES, KOLLAM.690536.** **2. THE INTELLIGENCE OFFICER, SQUAD NO.3, COMMERCIAL TAXES, KOLLAM.690536.** **3. THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, KOLLAM.690536.** **4. THE INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, KOLLAM.690536.** **5. STATE BANK OF TRAVANCORE, ANANDAVALLESWARAM, KOLLAM,** **REPRESENTED BY ITS BRANCH MANAGER.690530.** **R5 BY ADV. SRI.R.S.KALKURA, SC, SBT BY SR GOVERNMENT PLEADER SRI.C.K.GOVINDAN** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 19-02-2018, THE COURT ON 9/3/2018 DELIVERED THE FOLLOWING:** **WA NO.317/2017** ## **APPENDIX** ## **APPELLANT'S EXHIBITS** **ANNEXURE I: TRUE COPY OF THE SIR NO.121706 DATED 13.10.2014 ISSUED BY THE INTELLIGENCE OFFICER.** **ANNEXURE II: TRUE COPY OF THE SIR NO.121684 DATED 13.10.2014 ISSUED BY THE INTELLIGENCE OFFICER.** **ANNEXURE III: TRUE COPY OF THE COMPOUNDING APPLICATION DATED 30.5.2015 SUBMITTED BY THE PETITIONER/APPELLANT HEREIN BEFORE THE 2ND RESPONDENT.** ## **//True Copy//** **PS to Judge** **Rp** ## **A.M. SHAFFIQUE & P.SOMARAJAN, JJ.** ========================== W.A.No.317 of 2017 =============== Dated this, the 9[th ] day of March, 2018 ## **J U D G M E N T** ## _**Shaffique, J.**_ The petitioner in WP(C) No.806/2017 is the appellant. He challenges judgment dated 20/1/2017 by which the writ petition was dismissed. 2. The short facts involved in the writ petition are as under:- The petitioner challenged Ext.P6 order by which the assessing authority viz., the Commercial Tax Officer, Kollam passed an order of assessment for the assessment year 2014-15. Petitioner contended that his business place was inspected by the intelligence wing of Commercial Taxes Department on 13/10/2014. The entire stock found during the inspection were recorded and thereafter the books of accounts were verified by the Intelligence Officer. Petitioner submits that to avoid unpleasant consequences, he applied for compounding the offence in lieu of penalty. He remitted an amount of `8 lakhs u/s 74 of the Kerala Value Added Tax Act, WA No.317/17 -:2:- 2003 (hereinafter referred to as the Act) as compounding fee/tax. Ext.P1 is the said order. Petitioner preferred an application for rectification on the ground that the compounding fee was fixed on the basis of valuation of stock at MRP rate. In the absence of any provision for rectification, the 2[nd] respondent rejected the said application as per Ext.P2 order dated 4/5/2016. Petitioner preferred a revision along with an application to condone delay. In the meantime, the 1[st] respondent issued notice u/s 25(1) of the Act to reopen the assessment despite the objection filed stating that he was forced to compound the matter under pressure from the department officials. The assessment was reopened and as proposed in the notice, an order dated 6/5/2016 has been passed which is produced as Ext.P6. Petitioner again filed rectification application on 19/1/2016. In the meantime, further proceedings were taken by the department for recovering the amount. Petitioner therefore challenges the assessment order _inter alia_ contending that it was based on a compounding order which is patently illegal. According to the petitioner, the estimation of value of the stock at MRP rate is the basic premise on which compounding fee was calculated. In so far as the taxable event WA No.317/17 -:3:- under the Act is sale/purchase, the actual sale price/purchase price alone can be taken for the purpose of valuation under the Act. It is therefore contended that the computation of compounding fee is erroneous and clearly unsustainable in law. Petitioner expecting the correction of the said anomaly in the statutory revision contends that the assessment made on the basis of said valuation of stock is illegal and arbitrary. 3. Petitioner therefore sought for the following reliefs:- _“(I) to issue a writ in the nature of mandamus or any other appropriate writ, order or direction directing the 3[rd] respondent to dispose of Exhibit P3 revision petition expeditiously within a time limit fixed by this Hon'ble Court:_ _(II) to issue a writ in the nature of certiorari or any other appropriate writ, order or direction quashing Exhibits. P9 and P10 orders passed by the 4[th] respondent;_ _(III) to issue a writ in the nature of mandamus or any other appropriate writ, order or direction directing the 1[st] and 4[th] respondents not to initiate any recovery proceedings pursuant to Exhibit P6 assessment order for a period of six months;_ _(IV) to issue a writ in the nature of certiorari or any other appropriate writ, order or direction quashing Exhibit P6 assessment order passed by the 1[st] respondent.”_ WA No.317/17 -:4:- 4. Before the learned Single Judge, petitioner placed reliance on the judgment in _**Trichur Auto Spares v. State of Kerala**_ [(2014) 22 KTR 508 (Ker)] in order to contend for the position that when there is patent mistake in the quantification of the compounding fee payable, the assessee can contest the order of the competent authority in an appeal u/s 55 of the Act. 5. On the other hand, learned Government Pleader placed reliance upon judgment of another Division Bench in _**Jaya Jewellers v. Commissioner of Commercial Taxes**_ decided as per judgment dated 20/9/2007 in WP(C) No.19641/2003 wherein the Division Bench held that when the assessee makes an application to compound the offence departmentally, it is for the prescribed authority to determine whether the offence should be compounded or not. The process of compounding would be complete only when the money offered is accepted by the authority concerned. Once the compounding of the offence is complete, the person who has committed or reasonably suspected of having committed an offence under the Act cannot be an aggrieved person. 6. Learned Single Judge found that in so far as the WA No.317/17 -:5:- petitioner had accepted the offence and agreed for compounding, which resulted in Ext.P1 order, the rectification application is not maintainable even going by the dictum laid down in _**Trichur Auto Spares**_ (supra). In so far as the suppressed turn over was made known to the assessee by the authorities after which the assessee accepted the offence and agreed to compound the offence and the assessee did not chose to file any appeal or pay the amounts determined as compounding fee, the dictum in _**Jaya Jewellers**_ (supra) clearly applies and accordingly, the writ petition was dismissed. 7. Learned counsel for the appellant submits that there is a conflict of opinion between the two judgments viz. _**Jaya Jewellers**_ (supra) and _**Trichur Auto Spares**_ (supra). 8. In _**Jaya Jewellers**_ (supra) the business premises of the petitioner was inspected by the Sales Tax Officers on 13/10/1997. They found out certain anomalies in the stock and it is also found that the books of accounts were not properly maintained. Petitioner filed an application expressing his willingness to compound the offence departmentally. There was no threat or coercion from the side of the authorities. It is held that once the WA No.317/17 -:6:- offer is made, it is for the prescribed authority to determine whether the offence should be compounded or not. The process of compounding would be complete only when the money offered is accepted by the authority concerned. Once the compounding of the offence is complete, the person who has committed or reasonably suspected of having committed an offence under the Act cannot be an aggrieved person. 9. In _**Trichur Auto Spares**_ (supra), the place of business of the petitioner was inspected on 26/11/2009 and penalty proceedings were proposed. Petitioner chose to have the offences compounded in terms of S.74 of the Act and submitted an application who proceeded to accept the application and determine the tax payable as `1,52,000/- and the compounding fee payable as `1,52,200/-. Annexure B was the order passed. Petitioner preferred an appeal against Annexure B order which came to be rejected, against which a further appeal filed before the Appellate Tribunal was also rejected. The Tribunal held that since the petitioner had compounded the offence u/s 74 of the Act, no challenge should be made invoking S.55 of the Act. After placing reliance on S.55 and S.74 of the Act, it is held at WA No.317/17 -:7:- ## paragraph 8 as under:- _“8. It is clear from a reading of S.74 that an assessee who opts for the benefit of the said provision, accepts the commission of the offence alleged to have been committed by it. Once it does that, the competent authority proceeds to determine the compounding fee payable by the assessee in accordance with clause (a) or (b) of sub-section (1) of the said Section. We feel that in such a situation, it will not be open to an assessee who opts for compounding under the said Section, and thereby avoids adjudication proceedings for penalty and prosecution under the Act, to turn around and contest the order of the competent authority accepting its application for compounding the offence. We are of the view that the scheme of composition of offences under Act does not permit an assessee to approbate and reprobate. No doubt it may be open, in cases of patent mistakes in the quantification of the compounding fee payable, for an assessee to contest the order of the competent authority in an appeal under S.55 of the Act but that recourse can be had only in cases where the mistake is one that is relatable solely to the quantification of the compounding fee and does not militate against the admission by the assessee of its having committed the offence alleged against it. The legal justification for such an appeal would be the contention that while the assessee has admittedly compounded the offence, the_ WA No.317/17 ## -:8:- _department has no right to demand or collect any amount towards compounding fee, as is in excess of what is authorised by the statutory provision.”_ 10. It is apparent from the aforesaid two judgments that there is a conflicting view. In _**Jaya Jewellers**_ (supra) it is held that once a compounding is accepted, the order cannot be challenged at all whereas in _**Trichur Auto Spares**_ (supra), another Division Bench observed that the legal justification for preferring an appeal against a compounding offer would be the contention of the assessee that while admitting compounding of the offence, the department has no right to demand or collect any amount towards compounding fee as is in excess of what is authorised by the statutory provision. In _**Trichur Auto Spares**_ (supra), it is further observed that the contention put forth by the petitioner before the First Appellate Authority was not one that pertained to quantification of the compounding fee but went to the very root of its admission before the competent authority for the purpose of S.74. Therefore, on facts, it was held that petitioner could not have availed the appellate remedy u/s 55 of the Act. 11. In the case on hand, the contention urged is that in certain stock inspection reports, value recorded against each of WA No.317/17 -:9:- the item of stock is the MRP value and certain other deficiencies are also pointed out with reference to the manner in which the turnover suppression is arrived at. As a result of such irregular turnover suppression noticed or taken note of, the suppression exceeded `8 lakhs as a result of which petitioner had to pay a compounding fee of `8 lakhs. The question is, whether in such instances, the compounding order could be challenged by filing a revision petition. 12. As held in _**Trichur Auto Spares**_ (supra), if the dispute raised pertains to quantification of the compounding fee alone, an appeal u/s 55 of the Act is the remedy. But, in _**Jaya Jewellers**_ (supra), an earlier Division Bench judgment decided on 20/9/2007 went a little further and held that once an offer for compounding is made and a compounding order is passed, and the amount offered is accepted by the authority concerned, compounding of the offence is complete and such a person cannot be an aggrieved person. 13. Under Section 55, any person aggrieved by the order issued or proceedings recorded other than those under various other provisions could prefer an appeal within a specified time. WA No.317/17 -:10:- There is no provision which indicates that no appeal could be filed against an order passed u/s 74. Section 74 of the Act reads as under:- _**“74. Composition of offences.--** (1) The assessing authority or other officer or authority authorized by the Government in this behalf may accept from any person who has committed or is reasonably suspected of having committed an offence against this Act, other than those specified under clause (3) of sub-section (1) or clauses (b), (c) or (d) of sub-section (2) of section 71, by way of compounding of such offence:-_ _(a) where the offence consists of the evasion of any tax payable under this Act, in addition to the tax so payable a sum of money equal to the amount of tax so payable subject to a minimum of rupees five hundred and maximum of rupees eight lakh: and_ _[Provided that the maximum compounding fee collectable against a single offence spread over several return periods in a financial year shall be two lakh rupees]._ _(b) in other cases, a sum of money not exceeding ten thousand rupees:_ _Provided that the Commissioner may by order authorize any officer to compound the offence under this section on payment of a reduced amount._ _(2) On payment of such amount under subsection (1), no further penal or prosecution_ WA No.317/17 -:11:- _proceedings shall be taken against such person, in respect of that offence.”_ 14. This provision enables the assessing authority or other officer authorized by the Government to accept from any person who has “ _committed or is reasonably suspected of having committed an offence under the Act other than exempted provisions, by way of compounding of such offence_ ” and if compounding is ordered, on payment of such amount under subsection (1), no further penal or prosecution proceedings can be taken in respect of that offence. As far as the compounding fee is concerned, where the offence consists of evasion of any tax payable under the Act, it would be, “ _in addition to the tax so payable a sum of money equal to the amount of tax so payable subject to a minimum of_ ` _500 and maximum of_ ` _8 lakhs_ ”. Therefore, in the case of evasion of tax payable, it is related to the tax so payable and an equal sum of money subject to a minimum of `500/- and maximum of `8 lakhs. 15. Petitioner contends that the computation of the tax payable u/s 74(1)(a) alone is challenged. He accepted the fact that he has committed the offence under the Act. The offence WA No.317/17 -:12:- which he is mulcted with as evident from Ext.P1 is based on inspection by the Intelligence Squad in the place of business and godowns of the dealer on 13/10/2014. It was found that there is turnover suppression of 14.5% taxable goods amounting to `59,93,340/- and turnover suppression of 5% taxable goods amounting to `9,03,243/-, the total tax effect tax being `9,14,200/- and having violated Section 40 of the Act, proposal was to impose on the dealer penalty of `18,28,400/-. The proposal was communicated to him and objections were called for. He appeared on 13/5/2014 admitting the offence and praying to compound the offence departmentally in lieu of prosecution. It could therefore be seen that when a proposal to impose penalty is being served, an opportunity is always given to contest the matter and an option is available u/s 74 of the Act. When the offence, is admitted, necessarily, the petitioner is admitting that there was irregularity in maintaining true and correct accounts and also the turnover. Therefore, when the petitioner compounds the offence, he is admitting two aspects. One is that he did not maintain true and correct accounts and secondly he agrees with the actual turnover suppression. In _**Jaya Jewellers**_ (supra), WA No.317/17 -:13:- Division Bench held that when these facts are not disputed and the compounding application is filed without any coercion, no challenge can be made by filing appeal. 16. In _**Trichur Auto Spares**_ (supra), the Division Bench only held that “ _only in case of patent mistakes in the quantification of compounding fee payable, the assessee could contest the order of the competent authority in an appeal u/s 55 of the Act_ ”. It is also further held that such recourse can be had only in a case where the mistake is one that is relatable solely to the quantification of the compounding fee and does not militate against the admission by the assessee of having committed the offence alleged against it. Therefore, the only issue on which an appeal could possibly arise is (1) a patent mistake by the competent authority in arriving at the compounding fee and (2) computation of the rate of tax to be applied in respect of the goods in question. 17. Even in _**Trichur Auto Spares**_ (supra), on facts the Division Bench did not interfere with the compounding order. 18. Taking into account the factual circumstances arising in the present case also, when an assessee exercises the option u/s WA No.317/17 -:14:- 74 (1) of the Act, he virtually agrees to the turnover suppression and the irregularity in maintaining true and correct accounts. Therefore,even without going into the so called conflict of opinion, in the facts of the present case, we do not think that we will be justified in interfering with the judgment of the learned Single Judge. Appeal is, therefore, dismissed. Sd/- ## **A.M. SHAFFIQUE, JUDGE** Sd/- ## **P.SOMARAJAN, JUDGE** Rp //True Copy// PS to Judge