W.A.No.344 of 2017 (Division Bench) - The Intelligence Officer (IB), Commercial Taxes, Mattancherry; The Commercial Tax Officer, Department of Commercial Taxes, Aluva; The Deputy Commissioner, Department of Commercial Taxes, Mattancherry; The Deputy Commissioner (Intelligence), Commercial Taxes, Ernakulam v. Muhammed Sameer Proprieter, M/s K.K. Impex

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR.JUSTICE ASHOK MENON** **FRIDAY, THE 26TH DAY OF OCTOBER 2018 / 4TH KARTHIKA, 1940** ## **W.A.No.344 of 2017** **AGAINST THE JUDGMENT IN WP(C) NO.12066/2015 DATED 05-10-2016 OF HIGH COURT OF KERALA** ## **APPELLANTS/RESPONDENTS:** - **1 THE INTELLIGENCE OFFICER (IB), COMMERCIAL TAXES, MATTANCHERRY AT MINI CIVIL STATION, ALUVA-683 101.** - **2 THE COMMERCIAL TAX OFFICER, DEPARTMENT OF COMMERCIAL TAXES, ALUVA-683 101.** - **3 THE DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, MATTANCHERRY-682 002.** - **4 THE DEPUTY COMMISSIONER (INTELLIGENCE), COMMERCIAL TAXES, ERNAKULAM-682 015.** **BY SPECIAL GOVERNMENT PLEADER SRI.C.E.UNNIKRISHNAN** ## **RESPONDENT/S:** **MUHAMMED SAMEER PROPRIETOR, M/S K.K. IMPEX, U.C. COLLEGE P.O., ALUVA.** **BY ADVS.SRI.K.SRIKUMAR (SR.) SRI.P.R.AJITHKUMAR SRI.K.MANOJ CHANDRAN** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 26.10.2018, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **- 2 -** **WA.344 of 2017** ## **JUDGMENT** ## **Vinod Chandran,J.** **The appeal is filed by the State and the impugned judgment disposed of a batch of cases. However, the appeal is with respect to only one case which was categorised as Group-D and disposed of by the learned Single Judge. The issue arising in the writ petition was of the limitation prescribed under the Kerala General Sales Tax Act, 1963 [for brevity "KGST Act"] and the Kerala Value Added Tax Act, 2003 [for brevity "KVAT Act"]; for completion of penalty proceedings, under Section 45A and Section 67 of the respective enactments.** **2. Section 45A of the KGST Act did not provide for any period of limitation. Section 67 of the KVAT Act, at its inception, provided a limitation period of one year from the date of detection of offence. The same was enhanced to three years in the year 2009. The limitation prescribed was completely removed in 2014. In this context, we have to notice the decision of another Division Bench dated 18.02.2009 in W.A.No.385 of 2009 [** _**M/s.Acme Furniture & Interiors**_ **v.** _**CTO**_ **]. The Division Bench considered the issue as to when the limitation commences as stipulated under Section 67(1) of the KVAT Act. The learned Judges held that the detection of offence normally does not occur on the date of** **- 3 -** **WA.344 of 2017** **inspection when an inventory of goods is taken or seizure of records is made. Only when the records are analysed with reference to physical stock found, the officer can come to a finding as to whether any offence is** _**prima facie**_ **committed.** **It was categorically declared that the limitation commences only from the date of detection of offence. The learned Judges also found that the statute did not provide for a limitation for detection of offence; which should be within a reasonable time from the inspection and the verification of records and books of accounts.** **3. We hold that as to the specific date of detection, this necessarily is an aspect to be adjudicated upon, after looking into the nature of the inspection, the materials recovered, the inventory carried out, the date of production of the books of accounts and the manner in which the officer proceeded with the available materials on record as also the specific offence alleged. We have to consider the issue raised in the context of the findings rendered above and that declared by the earlier Division Bench, which binds us.** **4. The learned Special Government Pleader appearing for the State would contend that** _**Eastern Ore Corporation**_ **v.** _**Commercial Tax Officer**_ **[** _**(1974) 33 STC 129**_ **] and** _**State of Andhra Pradesh**_ **v.** _**Dhanalakshmi General Stores**_ **[** _**(1998) 26 STL**_ **- 4 -** **WA.344 of 2017** _**185**_ **] were with respect to assessment proceedings and they cannot be equated to penalty proceedings.** _**St.Mary's Hotels - - (P) Ltd**_ **. v.** _**Intelligence Officer**_ **[** _**LAWS (KER) 2010 2 75**_ **], which was also relied on by the learned Single Judge, did not at all decide any issue on limitation and relegated the petitioner to the statutory remedies. The learned Senior counsel Sri.K.Srikumar appearing for the respondent-assessee, also does not have a case based on any of these decisions. The learned Senior Counsel would rely on** _**State of Punjab and Others**_ **v.** _**Bhatinda District Coop. Milk P.Union Ltd.**_ **[** _**(2007) 10 VST 180 (SC)**_ **] to buttress the contention that even if there was no limitation provided in the statute, action has to be taken within a reasonable period and the reasonable period would depend upon the nature of statute, rights and liabilities created thereunder and various other factors.** **5. The learned Special Government Pleader, on facts, would point out that the assessments in the above case are with respect to assessment years 2003-04, 2004-05, 2005-06 and 2006-07; the first two years coming within the KGST regime and the last two years coming within the VAT regime. It is pointed out that the proceedings were initiated on the basis of the proceedings taken by the Commissioner of Customs pursuant to the inspection of the premises of the assessee by the Directorate of Revenue Intelligence (DRI for short). The** **- 5 -** **WA.344 of 2017** **order of the Commissioner is dated 03.05.2011 and only when the same was received there could be a detection of offence by the Commercial Taxes Department. The penalty proceedings were commenced soon after the receipt of the order of the Commissioner of Customs and the same was completed within two years by the impugned orders at Exhibit P4 series, all dated 05.12.2014. It is pointed out that in the KGST regime, there was no limitation and even then the proceedings were completed within two years from the order of the Commissioner of Customs, though the assessment years were far earlier, of 2003-04 and 2004-05. Exhibit P4 and P4A, hence, does not suffer from the defect of limitation, is the contention. With respect to KVAT regime, it is submitted that in the period when the offence was detected, i.e., after 03.05.2011, there was a limitation of three years as provided under Section 67(1) of the KVAT Act. However, within the limitation period, the orders at Exhibits P4B and P4C were issued; both again on 05.12.2014 and, hence, not vitiated for reason of limitation alone. The State anchor their submissions on the ground that the detection of offence is on the date of issuance of notice, immediately after the order of the Commissioner of Customs was received.** **6. The learned Senior Counsel appearing for the respondent, however, would submit that the proceedings were** **- 6 -** **WA.344 of 2017** **brought to the notice of the Commercial Taxes Department as early as in the year 2006. A search was conducted in the premises of the assessee by the DRI on 13.10.2006. A statement of the Intelligence Officer of the Commercial Taxes Department [for brevity “CTD”] was taken on 07.12.2006. A show cause notice dated 11.04.2008 was issued by the DRI to the Commissioner of Commercial Taxes for investigation, which was received by the latter on 25.04.2008. The detection of offence should be related to the said show cause notice when the offence alleged was specifically brought to the notice of the CTD. If that be so, the order passed in the year 2014 would be hit by limitation, as the statute provided at that point of time; limitation of one year in so far as the proceedings under the KVAT Act. Even with respect to the KGST period, it is submitted, relying on** _**Bhatinda District Coop. Milk P.Union Ltd.**_ **(** _**supra**_ **) that the reasonable period, as could be discernible from the KGST Act, is five years. The said period being the maximum period provided under the Act for any proceedings and specifically for re-assessment under Section 19 of the Act.** **7. We bow to the binding precedent of the Hon'ble Supreme Court in** _**Bhatinda District Coop. Milk P.Union Ltd.**_ **(** _**supra)**_ **and we accept the submission of the learned Senior Counsel that even if no limitation period is provided in the** **- 7 -** **WA.344 of 2017** **statute, the proceedings should be completed within a reasonable period. The authorities cannot be left to their sweet will to sit idle after an inspection or after verification of records and initiate proceedings at their own pleasure; to manufacture a ground only of the detection of offence having been made on a later date. We also see from the KGST Act that for re-assessment proceedings; Section 19 provides for a limitation period of five years. Though there is no reference to detection of offence under Section 45A of the KGST Act, for computing the reasonable period, definitely the proceedings could be said to have commenced only on the date of detection of offence as has been held by the Division Bench of this Court in W.A.No.385 of 2009. However, what is the date of detection of offence is a matter for adjudication on facts by looking into the proceedings, the manner in which it was dealt with and the specific offence alleged against the assessee in the majority of instances; except when the facts are explicit and the exact date require no judicious determination.** **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** **- 8 -** **WA.344 of 2017** **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.** **9. Obviously here, the notice was first issued long after the defalcation alleged by the DRI, was brought to the notice of the CTD. But the proceedings initiated by the DRI was pending and the CTD waited for the final result. If the notice has been delayed, as in the present case, where the** **- 9 -** **WA.344 of 2017** **proceedings were initiated by the DRI in 2006 and the same was concluded only in the year 2011 after which the CTD took out proceedings under Section 45A of the KGST Act and Section 67 of the KVAT Act, then necessarily it would have to be decided as to whether the offence alleged by the CTD was one dependent only on the proceedings initiated by the DRI or also on the order of the Commissioner of Customs. This essentially is a factual adjudication, which we would not enter into in a proceeding under Article 226 of the Constitution. If the offence detected by the CTD, as evident from the notice issued, is one which is relatable to and dependent on the order of the Commissioner of Customs, then we have to say that there is no question of limitation arising, since the proceedings were completed within three years from the date of the order of the Commissioner of Customs itself, the notice having been issued in the year 2012, which is for reason of the receipt of the order of 2011, being in 2012.** **10. This necessarily calls for a factual adjudication and arguments have been addressed from both sides as to the penalty proceedings being related and totally alien, to the proceedings as initiated by the DRI. We would not refer to these arguments** _**lest**_ **we pre-empt a proper consideration by the first appellate authority. We are of the** **- 10 -** **WA.344 of 2017** **opinion that the facts as seen from the various orders and the proceedings noticed in the said orders do not commend invocation of the extra-ordinary jurisdiction under Article 226 of the Constitution to find limitation, which, it is trite, is a mixed question of law and fact. It would have to be agitated by the respondent-assessee first before the statutory authorities. We would, hence, set aside the judgment of the learned Single Judge impugned in the appeal to the extent it deals with W.P.(C) No.12066 of 2015. We permit the respondent-assessee to file an appeal from the impugned orders within a period of thirty days from the date of receipt of a certified copy of this judgment. An appeal so filed would be considered to be within time and decided on merits by the first appellate authority keeping in mind the observations made by us on the question of limitation in the aforesaid judgment.** **The appeal would stand allowed in part. Parties are left to suffer their respective costs.** **Sd/K.VINOD CHANDRAN JUDGE** **Sd/ASHOK MENON JUDGE** **Vku/-** **[true copy]**