Kerala High Court
3 vs Commercial Tax Officer )Enabling The ... on 20 March, 2012
Author: P.R. Ramachandra Menon
Bench: P.R.Ramachandra Menon
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON
TUESDAY, THE 20TH DAY OF MARCH 2012/30TH PHALGUNA 1933
WP(C).No. 35333 of 2009 (J)
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PETITIONER
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WESTEND TYRES, BANERJI ROAD, ERNAKULAM,
REPRESENTED BY ITS MANAGING PARTNER-M.O.VARGHESE.
BY ADVS.SRI.V.V.ASOKAN
SMT.RUKHIYABI MOHD KUNHI
RESPONDENTS:
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1. INTELLIGENCE OFFICER (IB), MATTANCHERRY,
OFFICE OF THE DEPUTY COMMISSIONER (INTELLIGENCE)
DEPARTMENT OF COMMERCIAL TAXES
ERNAKULAM AT EDAPPALLY.
2. ASSISTANT COMMISSIONER,
SPECIAL CIRCLE I (KVAT), ERNAKULAM, KOCHI-30.
BY GOVERNMENT PLEADER ADV. MR. SOJAN JAMES.
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
20-03-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
WP(C).No. 35333 of 2009 (J)
APPENDIX
PETITIONER'S EXHIBITS
EXT.P1 : TRUE COPY OF THE CIRCULAR NO.13 OF 2007
EXT.P1(a) : TRUE COPY OF THE CIRCULAR NO.41 OF 2007
EXT.P2 : TRUE COPY OF THE PENALTY NOTICE ISSUED
BY THE 1ST RESPONDENT TO THE PETITIONER.
EXT.P3 : TRUE COPY OF THE REPLY GIVEN BY THE PETITIONER
TO THE FIRST RESPONDENT.
EXT.P4 : TRUE COPY OF THE DECLARATION OBTAINED FROM
BIRLA TYRES LTD.
EXT.P4(a) : TRUE COPY OF THE DECLARATION OBTAINED FROM
APPOLLO TYRES LTD.
EXT.P4(b) : TRUE COPY OF THE DECLARATION OBTAINED FROM
MICHELIN INDIA TYRES PVT. LTD.
EXT.P4(c) : TRUE COPY OF THE DECLARATION OBTAINED FROM
BRIDGESTONE INDIA PVT. LTD.
EXT.P4(d) : TRUE COPY OF THE DECLARATION OBTAINED FROM
JK TYRE AND INDUSTRIES LTD.
EXT.P4(e) : TRUE COPY OF THE DECLARATION OBTAINED FROM
CEAT LTD.
EXT.P5 : TRUE COPY OF THE PENALTY ORDER ISSUED BY THE
1ST RESPONDENT.
EXT.P5(a) : TRUE COPY OF THE DEMAND NOTICE ISSUED BY THE
1ST RESPONDENT.
/TRUE COPY/
P.S. TO JUDGE.
P.R. RAMACHANDRA MENON, J.
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W.P.(C) No.35333 OF 2009
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Dated this the 20th March, 2012
J U D G M E N T
Ext.P5 order passed by the first respondent imposing penalty in respect of the offence punishable under Sections 67(1)
(d) and (e) of the KVAT Act, 2003 followed by Ext.P5(a) demand notice asking to satisfy sum of Rs.6,12,798/- in respect of the assessment year 2006-07, is under challenge.
2. The petitioner is a registered dealer on the rolls of the second respondent and is engaged in the trade of Automobile Tyres and Tubes. In the course of business, purchasing tyres and tubes from various manufacturers, the petitioner had to pay tax at the prescribed rate, at the time of purchase and in turn availed corresponding input tax credit when they effected sales to their dealers as well as customers. According to the petitioner, all such transactions are supported by proper documents and the petitioner has not availed any excess input W.P.(C) No.35333 OF 2009 2 tax credit. However, in the course of verification of accounts, the first respondent came across certain incriminating circumstances and observed that as per the books of accounts, the petitioner had received an amount of Rs.24.51.191.65 as discount or incentive from various dealers and that the petitioner had claimed excess input tax for the said amount as well. This was cited as an offence involving bogus claim of input tax credit, which is punishable under Section 67(1)(e) of the KVAT Act. Since the tax effected at the rate of 12.5% in respect of the said turnover of Rs.24,51,191.65 was Rs.3,06,398.90/-, it was proposed to impose a penalty of Rs. 6,12,798/- being double the amount of tax sought to be evaded . Accordingly, Ext. P2 notice dated 05.02.2009, asking the petitioner to file objections, if any; simultaneously conveying that the petitioner would be at liberty to compound the offence under Section 74 of the KVAT Act.
3. On receipt of Ext. P2 notice, the petitioner submitted Ext.P3 reply, referring to the amendment brought about, incorporating the latter part of the 5th proviso to Section11(3) of the KVAT Act and contending that since the suppliers of the W.P.(C) No.35333 OF 2009 3 petitioner have not availed any benefit or refund in respect of the discount given to the petitioner, altering the input tax credit already availed of, the petitioner was entitled to have the benefit thereunder. Reference was also made to the Circular No.41/2007 dated 18.09.2007, scope of which was widened to the suppliers of other commodities as well, than the Cement Company shown therein, vide decision reported in (2008) 16 KTR 287, (Priya Agencies vs. Commercial Tax Officer )enabling the dealers to produce declarations from the suppliers to the effect that the suppliers have not claimed deduction on the credit note amounts and that full tax on the bills were paid. It was stated that in conformity with the said decision, the petitioner was also producing the relevant declarations from their suppliers along with Ext.P3 reply, thus requesting to drop further proceedings. Ext. P4 series are the declarations in this regard.
4. After considering the reply submitted by the petitioner, the first respondent observed that the petitioner had not produced any evidence to show that the discount received subsequently by them did not affect the input tax already availed W.P.(C) No.35333 OF 2009 4 and that the said discounts are of the nature depicted in the added provision by Finance Act 2008, vide the 5th proviso to Section 11(3) of the KVAT Act and hence said contention was rejected. It was observed that the petitioner was not entitled for the benefit of the decision reported in 16 KTR 287 (cited supra) and also that the petitioner had produced declarations only from 'six dealers', out of the total 'ten'. Observing that there was a deliberate act on the part of the dealer to evade tax legitimately due to Government and that the return filed by the dealer was not true and correct and further that the petitioner had availed excess input tax credit, the proposal in Ext. P2 notice was confirmed and the penalty to the tune of Rs.6,12,798/- being double the amount of tax sought to be evaded in respect of the assessment year 2006-07 was imposed as per Ext. P5 order dated 16.11.2009, which forms the subject matter of challenge.
5. The first respondent has filed a counter affidavit contending that the writ petition itself is not maintainable in view of existence of an effective alternate remedy, as provided in the Statute. The finding and reasoning given in Ext. P5 are W.P.(C) No.35333 OF 2009 5 reiterated, stating that the petitioner had not filed any revised return modifying the input tax credit and hence the offence stood vindicated. The circumstance under which Ext. P1 Circular was issued, as applicable only for the assessment year 2005-06, (since the 5th proviso was not in the VAT Act during the said assessment year), is also explained in the said counter affidavit. Pointing out that the petitioner had produced only 'six' declarations from the suppliers, penalty imposed as per Ext. P5 is sought to be sustained.
6. Mr. Mayankutty Mather, the learned Counsel for the petitioner submitted that the scope and object of the change sought to be brought out by the Finance Act, 2008 and its applicability are very much evident from the terms of the Statute, particularly the 5th proviso to Section 11(3). The intention of the legislature was only to safeguard the interest of the Revenue; at the same time, it was also vigilant to see that the equilibrium was never shattered, if the discount allotted by the suppliers by way of credit note did not affect the input tax credit already availed. It was also stated that Ext.P1 Circular is W.P.(C) No.35333 OF 2009 6 intended to meet such a situation and that eventhough it was issued with reference to Cement dealers, this Court, vide the decision reported in (2008) 16 KTR 287 (cited supra) had exclaimed why such benefit was not being extended to the other dealers as well, which in turn was ordered accordingly, enabling the concerned dealers to produce the declarations to the above effect and to avail the benefit accordingly.
7. The learned Government Pleader however sought to sustain the impugned order, raising the contentions as stated in the counter affidavit. It was also pointed out that the petitioner had not produced the declarations from all the dealers concerned and as such, there was no scope for interference.
8. The factual position that the petitioner was given credit notes by the concerned dealers, whereby the petitioner was benefitted to an extent of Rs.24,51,191.65/- in respect of the turnover of Rs.24,51,191.65/- for the year 2006-07 is not in dispute. The question is, whether the tax payable at the rate of 12.5% amounting to Rs.3,06,398.90/- has become a loss to the Revenue on issuance of such Credit Notes.
W.P.(C) No.35333 OF 2009 7
9. The petitioner contends that, though the suppliers have issued credit notes providing discount, no Revenue loss has been caused, for the fact that the suppliers have not taken any input tax credit with reference to the discount element, which stands established as per Ext. P4 series declarations given by them. But it has to be noted that, the first respondent has clearly observed in the second penultimate paragraph of Ext. P5, that the dealer had produced declarations only from 'six dealers' out of the total ten. The fact that the petitioner had dealings/transactions with ten different dealers/suppliers as above, is not sought to be controverted anywhere in the writ petition. As a matter of fact , the petitioner has stated in Ext. P3 reply to Ext. P2 show-cause notice, that the petitioner was producing the concerned declarations from the concerned suppliers in support of his case and that, as stated in paragraph '6' of the writ petition, the petitioner had made available all the declarations obtained from the suppliers confirming that they have not taken any benefit in tax or propose to seek refund of the tax element, with reference to the credit notes issued to the petitioner while giving discount. W.P.(C) No.35333 OF 2009 8 True copies of the declarations are produced as Ext. P4 series. In other words, but for the above 'six declarations', no other declaration was ever produced before the first respondent or even before this Court in support of the claim, which virtually substantiates the observation of the first respondent in Ext. P5, that the petitioner had produced declarations only from 'six' dealers, out of ten. To put it more clear, the transactions resulting in issuance of credit notes to the petitioner by 'four' dealers, who are not connected with Ext.P4 declarations, stand virtually un-controverted and in these four cases, the petitioner, despite obtaining discount vide credit notes, has not filed any revised return or filed any declaration like Ext.P4 series, in support of the claim. As it stands so, it cannot but be held that that the petitioner has committed the offence under Section 67 (1)(d)/(e) of the KVAT Act and it is liable to be proceeded with.
10. Then comes the question of quantum. The learned Counsel for the petitioner submits with reference to the dictum in Hindustan Steel Ltd. vs. State of Orissa [(1970)25 STC 211], that even if violation is proved, it has still to be W.P.(C) No.35333 OF 2009 9 considered, whether penalty to the whole extent, as stipulated in the Statute, has to be imposed or whether a nominal penalty would be enough to meet the situation as in the instant case. It remains a fact that the petitioner produced declarations only from 'six' dealers, out of ten, as observed by the first respondent in Ext. P5 order and reiterated in paragraph 5 of the counter affidavit filed by the said respondent. Whether such declarations were got verified ; whether the plea raised by the petitioner with reference to such declaration that no loss to the Revenue was resulted in respect of such transaction etc., are not revealed from Ext. P5 or the counter affidavit filed by the concerned respondent. There is also a contention for the petitioner that the existence of any wrongful intention/ill-motive is not considered by the first respondent while passing Ext. P5, fixing the quantum.
11. This Court finds considerable force in the said submission, which necessitates a remand on the quantum; more so, when the petitioner was let known, as per Ext. P2 notice that it would be open for the petitioner to have the offence W.P.(C) No.35333 OF 2009 10 compounded under Section 74 of the KVAT Act.
12. In the above facts and circumstances, the quantum of penalty imposed upon the petitioner is set aside and the matter is remanded to the first respondent for re-fixing the quantum, after hearing the petitioner, which shall be finalised as expeditiously as possible, at any rate, within six weeks from the date of receipt of a copy of the judgment.
13. It is made clear that the benefit of this remand to the above limited extent needs to be extended, only if the petitioner remits a sum of Rs.3,06,398.90/- on or before 30th of this month, which, of course, will be subject to the orders to be passed by the first respondent, as aforesaid.
The writ petition is disposed of.
P.R. RAMACHANDRA MENON, JUDGE.
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