W.P.(C.) No. 18678 of 2014 (H) - A.N. Sankaran v. Intelligence Officer, Commercial Taxes, Squad No. II, Thrissur; Intelligence Inspector, Commercial Taxes, Squad No. II, Thrissur; State of Kerala, represented by Secretary to Government, Taxes Department, Secretariat, Thiruvananthapuram

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** **FRIDAY, THE 26TH DAY OF AUGUST 2016/4TH BHADRA, 1938** **WP(C).No. 18678 of 2014 (H) ----------------------------** ## **PETITIONER(S):** **-------------** **A.N. SANKARAN, GOLD SMITH, AYYAPPATH HOUSE, THIRUVALLUKAVU, CHERPU P.O., THRISSUR - 680 561.** **BY ADV. SRI.TOMSON T.EMMANUEL** **RESPONDENT(S): --------------** ## **1. INTELLIGENCE OFFICER** **COMMERCIAL TAXES, SQUAD NO. II, THRISSUR - 680 003.** ## **2. INTELLIGENCE INSPECTOR,** **COMMERCIAL TAXES, SQUAD NO. II, THRISSUR - 680 003.** **3. STATE OF KERALA, REPRESENTED BY SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM- 695 001.** **R1,R2 & R3 BY GOVERNMENT PLEADER SRI.BOBBY JOHN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 11-07-2016, THE COURT ON 26-08-2016 DELIVERED THE FOLLOWING:** **bp** **WP(C).No. 18678 of 2014 (H) ----------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS -----------------------** |**EXHIBIT-P1:-**|**TRUE COPY OF THE PAN CARD ISSUED BY THE**| |---|---| ||**COMMISSIONER OF INCOME TAX, COCHIN TO THE**| ||**PETITIONER, UNDER INCOME TAX ACT.**| |**EXHIBIT-P1(A):- **|**TRUE COPY OF THE CERTIFICATE OF REGISTRATION**| ||**NO. 144/88 DATED 15/07/1988 AS A GOLD SMITH**| ||**ISSUED TO THE PETITIONER BY SUPERINTENDENT OF**| ||**CENTRAL EXCISE, METTUPALAYAM.**| |**EXHIBIT-P2:-**|**TRUE COPY OF THE MEMBERSHIP CARD NO. 224/94**| ||**ISSUED TO THE PETITIONER BY THRISSUR DISTRICT**| ||**ABHARANA THOZHILALI UNION.**| |**EXHIBIT-P2(A):- **|**TRUE COPY OF THE MEMEBRSHIP CARD NO. 156**| ||**ISSUED TO THE THE PETITIONER BY THE JEWELERS**| ||**MANUFACTURERS' ASSOCIATION, KERALA, THRISSUR.**| |**EXHIBIT-P3:-**|**TRUE COPY OF THE ONLINE REGISTRATION DETAILS**| ||**OBTAINED FROM THE WEBSITE OF MOTOR VEHICLE**| ||**DEPARTMENT, KERALA FOR VEHICLE NO.KL 08 AH**| ||**2424 FOR MAHINDRA SCORPIO CAR, TO PROVE THE**| ||**OWNERSHIP OF VEHICLE AT THAT TIME, ON THE**| ||**PETITIONER.**| |**EXHIBIT-P4:-**|**TRUE COPY OF THE CERTIFICATE DATED 23/02/2012**| ||**ISSUED TO THE PETITIONER BY STATE BANK OF**| ||**TRAVANCORE, URAKOM BRANCH, THRISSUR FOR THE**| ||**CASH CREDIT LIMIT OF RS.60 LAKHS.**| |**EXHIBIT-P5:-**|**TRUE COPY OF THE TAX INVOICE NO. T017 DATED**| ||**09/06/2009 FOR THE PURCHASE OF BULLION, ISSUED**| ||**TO THE PETITIONER BY M/S. THOTTAN 22, MISSION**| ||**QUARTERS, THRISSUR.**| |**EXHIBIT-P5(A):- **|**TRUE COPY OF THE TAX INVOICE NO. T 104 DATED**| ||**16/12/2010 FOR THE PURCHASE OF BULLION, ISSUED**| ||**TO THE PETITIONER BY M/S. THOTTAN 22, MISSION**| ||**QUARTERS, THRISSUR.**| |**EXHIBIT-P6:-**|**TRUE COPY OF THE CONFIRMATION OF RETURN OF**| ||**GOLD BARS DATED 18/02/2012 ISSUED TO THE**| ||**PETITIONER BY M/S. T.R. CHAINS, CHENNAI.**| |**EXHIBIT-P6(A):-**|**TRUE COPY OF THE COMMUNICATION OF GOLD**| ||**ORNAMENTS HANDED OVER TO THE PETITIONER ON**| ||**18/02/2012 FOR RE-POLISHING AND RETURNING**| ||**ISSUED BY M/S. VATTAKUZHI PRINCE JEWELLERS,**| ||**POST URAKAM, THRISSUR.**| ## **WP(C).NO. 30765 OF 2015 (U)** **EXHIBIT-P7:TRUE COPY OF THE F.I.R NO. 355 DATED 19/02/2012 SUBMITTED BEFORE THE JFCM COURT NO.1, THRISSUR BY THRISSUR EAST POLICE ALONG WITH SEIZURE MAHAZAR. EXHIBIT-P8:TRUE COPY OF THE NOTICE NO. VC/II 878/11-12 DATED 14/03/2012 ISSUED U/S 47 (2) BY THE 2ND RESPONDENT IN DEMANDING SECURITY DEPOSIT FOR THE GOLD SEIZED AS PER EXHIBIT-P7 EXHIBIT-P9:TRUE COPY OF THE COMMON ORDER DATED 19/03/2012 OF THE JFCM COURT-I THRISSUR IN M.P NO. 123, 1257 AND 2033 IN CRIME NO. 355 OF 2012, WHEREIN IST RESPONDENT IS ONE OF THE PETITIONERS. EXHIBIT-P10:TRUE COPY OF THE AFFIDAVIT DATED 03/04/2012 SUBMITTED BY THE PETITIONER BEFORE THE JFCM COURT-I, THRISSUR IN CRIME NO. 355 OF 2012. EXHIBIT-P11:TRUE COPY OF THE NOTICE NO. VC. II/878/2011-12 DATED 15/06/2012 ISSUED BY THE IST RESPONDENT TO THE PETITIONER FOR CONDUCTING AN ENQUIRY U/S 47 (2) AND (56) TO THE KVAT ACT. EXHIBIT-P12:TRUE COPY OF THE ARGUMENT NOTE DATED 25/07/2012 SUBMITTED BY THE PETITIONER BEFORE THE IST RESPONDENT, ALONG WITH EXHIBIT-P3, P5, P5(A), P6 AND P6(A) AT THE TIME OF ENQUIRY CONDUCTED U/S 47 (5) TO THE KVAT ACT. EXHIBIT-P13:TRUE COPY OF THE ORDER NO. VC.II/878/2011-12 DATED 25/08/2012 IN CONVERTING THE SECURITY DEPOSIT INTO PENALTY U/S 47 (6) AND OF SIMULTANEOUSLY DEMANDING PENALTY U/S 69 (1) TO THE KVAT ACT, SERVED TO THE PETITIONER BY THE IST RESPONDENT.** **RESPONDENT(S)' EXHIBITS : NIL.** **//TRUE COPY//** **P.A. TO JUDGE** **bp** ## **A.M.SHAFFIQUE, J * * * * * * * * * * * *** W.P.C.No.18678 of 2014 ---------------------------------------Dated this the 26[th] day of August 2016 ## **J U D G M E N T** This writ petition is filed challenging Ext.P13, an order passed by the Intelligence Officer imposing penalty on the petitioner for an amount of Rs.11,93,354/- under Section 69(1) of the Kerala Value Added Tax Act, 2003 (hereinafter referred to as 'the KVAT Act'). 2. The short facts involved in the writ petition would disclose that the petitioner was searched by the police while he was travelling in a vehicle having registration No.KL-08 AH 2424. Gold ornaments weighing 5.0364 Kgs was seized and produced before the Judicial Magistrate of First Class. On receiving information, the Intelligence Officer submitted an application before the Judicial Magistrate of First Class claiming tax and penalty under the KVAT Act, 2003. Petitioner also preferred a claim petition which was allowed by the Court as per order dated 19/03/2012 releasing the confiscated gold on certain conditions including execution of a bond for Rs.15 lakhs with two solvent sureties and the petitioner giving a bank guarantee for W.P.C.No.18678/2014 2 Rs.30 lakhs. According to the petitioner, the gold ornaments were handed over to him on 18/02/2012 by M/s.Vattakkuzhy Prince Jewellers and re-polishing and return with impression. These facts were brought to the notice of the respondent authorities as well. It is stated that the petitioner received a notice dated 15/06/2012 under Section 47(5) to conduct enquiry under Section 47(2) of the KVAT Act. Petitioner submitted an argument note on 25/07/2012 in which it is stated that the petitioner was served with an order Ext.P13 dated 25/08/2012 by which the security deposit was converted into penalty under Section 47(6) and imposing a further penalty under Section 69(1) of the KVAT Act. The main contention urged by the petitioner is that Ext.P8 notice under Section 47(2) dated 14/03/2012 is not one issued in the course of transport. It is stated that it was issued only on 14/03/2012 when a miscellaneous petition was filed before the Judicial Magistrate of First Class, Thrissur. Therefore, Ext.P8 is without jurisdiction. It is further contended that petitioner is not a dealer as defined under Section 2(xv) and Section 15 of the KVAT Act nor he is liable to be registered under the KVAT Act. He is only a job worker being a goldsmith. Further W.P.C.No.18678/2014 3 contention urged is that the 1[st] respondent has not issued any notice under Section 69(4) of the KVAT Act prior to an order of penalty being imposed as per Ext.P13. It is contended that though an appeal is provided against an order of penalty under Section 47(6), only a revision will lie against an order of penalty under Section 69(1) of the KVAT Act. Since Ext.P13 order is common, the petitioner has no effective remedy other than approaching this Court. It is, in the said circumstances, that the writ petition is filed seeking to quash Exts.P8 and P13. 3. Counter affidavit has been filed on behalf of the respondents wherein it is stated that in terms of Section 15 of the KVAT Act, 2003, the petitioner has to mandatorily obtain registration. It is stated that the dealer has not produced any books of accounts and manufacturing accounts based on the alleged activities The volume of gold seized and the overdraft facility availed by the petitioner from the State Bank of Travancore shows that he is a large scale manufacturer who must possess registration under the Act and must file regular returns. It is further submitted that one Sudheer Chukkoth House and the petitioner carried gold ornaments in a vehicle belonging to the W.P.C.No.18678/2014 4 petitioner. They gave a statement that the goods were transported from Chennai to Alappuzha, but no valid documents were produced. It is further stated that with reference to the proceedings under Section 47(5) of the KVAT Act, notice was issued on 15/06/2012 and the petitioner was heard on 25/07/2012 and 03/08/2012. It is further submitted that the hearing note submitted by the petitioner was verified in detail. However, the petitioner failed to produce the books of accounts and manufacturing account of his activities. In the light of the aforesaid facts, he sought for sustaining the impugned order. 4. Petitioner had filed a reply affidavit controverting the stand taken by the respondents. 5. Learned counsel for the petitioner placed reliance on the judgment of the Division Bench in **Sunitha Diesel Sales & Services v. State of Kerala** _[1996(102) STC 448]_ . That was a case which had arisen under the KGST Act. Paragraphs 13 and 14 are relevant which reads as under: _“13. A reading of the provisions of Section 29A particularly sub-sections (3) and (4) thereof would clearly show that it is sufficient that the party satisfies the adjudicating authority that_ W.P.C.No.18678/2014 5 _there is no attempt at evasion of tax by producing necessary documents. The adjudicating authority is bound to consider the documents produced before him. We are of the view that the documents produced before the Sales Tax Officer (Enquiry) are all documents, which would satisfy the requirements for establishing the claim of the assessee that the transaction in sale in transit. We further find that the case of the Sales Tax Inspector, Sales Tax Check-post in the notice issued under Section 29A(2) of the Act is that the delivery note is not one as prescribed under the Rules and that the value is not shown in the delivery note. These, according to us, are only defects of a technical or venial nature and that it has nothing to do with attempt of evasion of tax. In these circumstances, we are of the view that the transaction in question is an inter-State and/or a sale in transit._ _14. In order to attract the provisions of Section 29A of the Act, it is necessary for the assessing authority to establish that there is an attempt at evasion of tax on the part of the assessee. In the instant case, if the transaction is an inter-State transaction or a sale in transit, as contended by the assessee, there is no question of any tax being exigible under the provisions of the Kerala General Sales Tax Act. We have_ W.P.C.No.18678/2014 6 _already found that the transaction in question is an inter-State transaction and/or a sale in transit. As such, there is no question of any tax being exigible under the provisions of the Kerala General Sales Tax Act. A fortiori it follows that the provisions of section 29A of the Act are not attracted in the instant case.”_ 6. Another judgment relied upon is that of Karnataka High Court in **Mahaveer Fancy Stores v. Commissioner of Commercial Taxes in Karnataka** _[1993(89)STC 524_ ]. It was held at paragraph 2 as under: _“2. We do not find any material to hold that the documents produced by the appellant were the result of an after thought and the goods were transported with a motive to evade tax, without documents. Just because the documents were produced subsequent to the check, one cannot infer that they were got up documents. The original authority does not refer to these documents while the appellate authority does not refer to these documents while the appellate authority accepted these documents and the Commissioner had no material at all to brush aside these documents by imputing motive to the appellant. These is no presumption that every_ W.P.C.No.18678/2014 7 _trader indulges in malpractice and his conduct always is motivated to evade the tax. There should be something more apart from the delayed production of the documents to doubt the bona fides of the trader. When section 28-A (4) contemplates issuance of a show cause notice before levying penalty it is implied that the concerned person may explain the circumstances resulting in the failure to have the documents readily available for production at the check-post. Section 28-A(4) empowers the levy of penalty when sufficient cause is not furnished for the non-compliance with sub-section (2) of section 28-A (here we are not concerned with the other provisions). In S.T.A. 6 of 1984 (Prakash Roadlines (P) Ltd. v. Commissioner of Commercial Taxes in Karnataka) (Reported in MANU/KA/0306/1991 : 1991(1)KarLJ444 ) we have already held that the levy of penalty is not an automatic imposition for the failure to comply with the requirements of section 28-A and the levy is discretionary and the power created by sub-section (4) will have to be read in the background of the constitutional requirements. In the instant case the Check-post Officer has not given any reason as to why the maximum penalty has to be levied, while the Commissioner_ W.P.C.No.18678/2014 8 _has imputed motive to the appellant for which there is no basis. The Commissioner should have held an independent investigation about the allegations made by the appellant that the documents produced by him were not considered by the Check-post Officer especially in the background of the finding given by the appellate authority against the Check-post Officer. In these circumstances, we are constrained to allow the appeal._ _The appeal is accordingly allowed.”_ 7. Judgment in **South Travancore Distilleries & Allied** ## **Products v. The Asst.Commissioner of Commercial Taxes &** **Another** _[(1999) 7 KTR 364]_ has been relied upon in order to indicate that this Court can interfere in matters where there is violation of the fundamental rights or principles of natural justice are violated. The Division Bench, after referring to **Whirlpool** ## **Corporation v. Registrar of Trade marks, Mumbai and Others** _[(1998) 8 SCC 1]_ held that alternate remedy is not to operate as a bar in atleast three contingencies. One is when the writ petition has been filed for enforcement of any of the fundamental rights or where there has been a violation of the principles of natural W.P.C.No.18678/2014 9 justice or where the order of proceedings are wholly within the jurisdiction or the vires of the Act is challenged. 8. Heard the learned counsel for the petitioner and the learned Government Pleader appearing on behalf of the respondents. 9. The first question to be considered in this writ petition is whether this Court should exercise the jurisdiction to entertain the challenge to Ext.P13 order despite the fact that an appellate remedy is available under the Statute. The procedure for inspection of goods in transit is provided under Section 47 of the Act. Sec.47(1) of the Act reads as under: ## _“_ _**47. Procedure for inspection of goods**_ _**in transit.-** (1) The driver or other person in charge of a vehicle or vessel shall stop the vehicle or vessel and any person referred to in subsection (4) of Section 46 shall stop or, as the case may be, stop the animal at any place within a notified area when so required by the officer in charge of that notified area, or at any other place when so required by any officer empowered by the Government in that behalf, for the purpose of enabling such officer to verify the documents required by sub-section (3) of Section 46 to be in_ W.P.C.No.18678/2014 10 _the possession of the person transporting the goods and to satisfy himself that there is no evasion of tax.”_ 10. Sec.47(2) further provides that if such officer has reason to suspect that the goods under transport are not covered by proper and genuine documents, or that any person transporting the goods is attempting to evade payment of tax, he has jurisdiction to detain the goods and allow to be transported only on furnishing security for double the amount of tax likely to be evaded. Sub Section (2) of Se.47 reads as under: _“47(2): If such officer has reason to suspect that the goods under transport are not covered by proper and genuine documents (in cases where such documents are necessary) or that any person transporting the goods is attempting to evade payment of the tax due under this Act, he may, for reasons to be recorded in writing, detain the goods and shall allow the same to be transported only on, the owner of the goods or his representative or the driver or other person in charge of the vehicle or vessel on behalf of the owner of the goods, furnishing security for double the amount of tax likely to be evaded, as may be estimated by such officer.”_ W.P.C.No.18678/2014 11 11. Sub Section (5) permits the officer detaining the goods to submit the proceedings along with connected records to such officer not below the rank of commercial tax officer as may be authorised by the Government for conducting necessary enquiry in the matter. The said officer, after issuing notice to the owner of the goods and giving him an opportunity to be heard, impose on the owner of goods a penalty not exceeding twice the amount of tax attempted to be evaded. Primarily it could be seen that an action as contemplated under 47(6) of the Act could not have been taken by the Intelligence Inspector based on a crime initiated by the police. The seizure by the police was on 19/02/2012 and Ext.P8 is taken only on 14/03/2012. Therefore, Ext.P8 was without jurisdiction. This is an instance where the gold seized by the police was produced before the Judicial Magistrate of First Class and the same was released to the petitioner on the petitioner furnishing security as directed by the Court. Ext.P13 refers to notice dated 14/03/2012 and another notice dated 15/03/2012. Perusal of Ext.P13 also would show that proceedings were initiated only under Section 47 of the Act and notice was issued under Section 47(6). It is further mentioned that in addition W.P.C.No.18678/2014 12 to the notice of detention under Form 17A, another notice No.878/2011-12 dated 14/03/2012 proposing penalty for an amount of Rs.11,93,354/- was issued to the owner of the vehicle under Section 69(1) of the KVAT Act. As rightly pointed out by the learned counsel for the petitioner, perusal of the order would show that substantially what is considered is the procedure prescribed under Section 47 of the KVAT Act and it was found that the proposal to impose security deposit is upheld and thereafter without further going into the controversy, the proposal to impose penalty was concluded. A composite order , apparently, has resulted in a situation where the petitioner had to challenge the orders in two separate proceedings, which is quite irregular and illegal. 12. Whether a proceeding can be taken by the respondents under Section 47 of the KVAT Act when there is no seizure by the designated officer. In this case the gold was seized by the police and produced before the Magistrate for release to the claimant/petitioner on furnishing security. On a reading of Sec.47 of the KVAT Act no provision is available to take an action in respect of a seizure done by any person other than the W.P.C.No.18678/2014 13 designated officers. Under such circumstances, the proceedings taken under Section 47 KVAT Act is absolutely without jurisdiction. 13. The next question is whether the petitioner is liable for any penalty. This issue requires re-consideration as no independent consideration has been made pursuant to the notice issued under Section 69(1) of the KVAT Act. Section 69(1) of the KVAT Act reads as under: ## _“_ _**69. Penalty for transport of goods**_ _**without records** .- (1) If any officer empowered under sub-section (1) of section 47 finds on inspection of any vehicle or vessel that any transporting agency or contract carriage transporting any goods without the documents required under sub-section (3) of section 46, such officer may, without prejudice to any action that may be taken under section 47, impose by an order in writing on such transporting agency, or contract carriage, or the owner of the vehicle a penalty equal to twice the amount of the tax due on such goods subject to a minimum of five thousand rupees.”_ 14. I do not want to express any opinion on merits on the contentions urged and the only question to be considered is W.P.C.No.18678/2014 14 whether there is any illegality in the order passed. As already indicated, clubbing of the orders under Sections 47 and 69 of the KVAT Act is quite illegal and irregular, though it is possible for an officer to take proceedings under Section 69, without prejudice to any action taken under Section 47. In the result, i) This writ petition is allowed. ii) Ext.P13 order is set aside without prejudice to the right of the Department in initiating fresh proceedings under Section 69 of the KVAT Act. (sd/-) **==> picture [258 x 13] intentionally omitted <==** jsr