Kerala High Court
Jainulavudheen vs State Of Kerala on 4 November, 2010
Bench: C.N.Ramachandran Nair, K.Surendra Mohan
IN THE HIGH COURT OF KERALA AT ERNAKULAM
OT.Rev.No. 16 of 2010()
1. JAINULAVUDHEEN
... Petitioner
Vs
1. STATE OF KERALA
... Respondent
For Petitioner :SRI.HARISANKAR V. MENON
For Respondent : No Appearance
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice K.SURENDRA MOHAN
Dated :04/11/2010
O R D E R
'CR'
C.N.RAMACHANDRAN NAIR &
K. SURENDRA MOHAN, JJ.
------------------------------------------------------------
O.T.REV.NOS: 16, 17 & 18 OF 2010
-----------------------------------------------------------
Dated this the 4th November, 2010.
JUDGMENT
Ramachandran Nair, J.
Question raised in the connected revision cases is whether the Tribunal was justified in confirming the order of the first Appellate Authority modifying the penalty levied on the petitioner under Section 67(1) of the KVAT Act. We have heard counsel appearing for the petitioner and Govt. Pleader appearing for the respondent.
2. The facts leading to the controversy are the following. The petitioner is a dealer in scrap materials having shop at Palakkad. In the course of business petitioner purchased old vehicles from various persons, dismantled the same and sold the items as scrap taxable at 4%. During inspection the Intelligence Officer noticed that scrap portion of the dismantled vehicle is sold in the breaking yard itself and usable automobile spare parts are recovered by the petitioner from the dismantled O.T.Rev Nos: 16,17 & 18/2010 2 vehicles and the same are brought to shop and sold as automobile spares. The petitioner's case is that old spares also are sold as scrap in as much as sale is by weight and so much so tax collected at the rate applicable to scrap materials that is 4% is correct. The Intelligence Officer found on inspection that the items sold are spare parts of automobiles usable as such and so much so tax payable is at the rate shown under the specific entry in the Act and the petitioner's effort by showing sale as by weight is only to avoid payment of actual rate of tax. Even though penalty at double the differential tax amount is levied by the Intelligence Officer, in appeal the first appellate authority though upheld in principle the levy of penalty on the appellant reduced the penalty to equal amount of tax. On second appeal, Tribunal confirmed the same against which these revisions are filed by the petitioner.
3. During hearing counsel for the petitioner relied on the sale bills which show that the spares are sold by weight. However, what is clear from the findings of the Intelligence Officer and what is evident from the sale bills is that sales though are shown by weight, the price is at different rates per unit weight. Most of the automobile spare parts are items of iron O.T.Rev Nos: 16,17 & 18/2010 3 and steel and it is common knowledge that the price of scrap steel should not vary substantially because price of scrap will depend on the recoverable metal content in it. So much so the spare parts sold at different rates of price even though the sale is shown as made by weight in the bills are in fact spare parts sales and what is disclosed in bill is unit price and not scrap price. It is common knowledge that the spares and components recovered on dismantling an old automobile would not have suffered uniform erosion because items would have been replaced in the course of use of the automobile periodically and there may not be uniform erosion in the quality on all such items leaving sizable number of spare parts obtained on dismantling the vehicles as fit for re-use as such. Scrap is purchased only for melting and for re-rolling the primary metal. However, when old spare parts are sold as such, those are for use as spare parts in Automobiles and so much so tax is leviable at the rate applicable for the commodity. However, the only difference is that the dealer of second hand spare parts will be liable to pay tax on those items at reduced value at which the same are sold. This does not mean that the petitioner can claim rate of tax applicable to scrap for old spare parts sold as such by him. Scrap is O.T.Rev Nos: 16,17 & 18/2010 4 invariably old but old is not always scrap is true of automobile spares. So much so, the findings of the Intelligence Officer that the rate of tax applicable for sale of old automobile spare parts is the rate applicable to automobile spare parts is perfectly correct.
4. The next question to be considered is whether the penalty was rightly sustained by all the authorities. On facts and based on records verified by the Intelligence Officer what is clear is that the petitioner made an attempt to camouflage the spare parts sales as sale of scrap because the bills disclose the price fixed based on weight which is factually incorrect. In the first place nobody purchases pieces of iron scrap from an automobile spare dealer. Scrap is generally sold in bulk and petitioner did it in the breaking yard itself. The balance items brought and sold under the guise of scrap were really found to be old parts recovered from dismantled vehicles. The attempt of evasion is established beyond doubt and therefore, petitioner has no escape from the penalty. We therefore uphold in principle the orders of the lower authorities in confirming the penalty on the petitioner for evasion of tax. The next question is only with regard to the quantum of penalty which is fixed at equal amount of tax. It is not known whether petitioner remitted the tax or O.T.Rev Nos: 16,17 & 18/2010 5 whether the turnover is assessed to tax at higher rate. Since petitioner is only a small scrap dealer, we feel petitioner can be granted reduction of penalty provided petitioner pays tax based on the assessment orders. We accordingly grant a conditional reduction of penalty to 50% of the tax provided petitioner pays the tax based under the assessment orders on the turnover involved at higher rate. The Intelligence Officer is directed to grant the relief after consultation with the Assessing Officer and after ensuring that the tax is collected based on assessment and if not, by making assessment and by recovering differential tax. The sales tax revision is allowed to the above extent.
C.N.RAMACHANDRAN NAIR Judge K. SURENDRA MOHAN Judge jj O.T.Rev Nos: 16,17 & 18/2010 6