Kerala High Court
M/S.Valvoline Cummins Ltd vs Sales Tax Officer
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
WEDNESDAY, THE 11TH DAY OF APRIL 2012/22ND CHAITHRA 1934
WP(C).No. 12865 of 2008 (F)
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PETITIONER(S):
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M/S.VALVOLINE CUMMINS LTD
DOOR NO. XII/774 E, PITTAPPILLY ESTATE
PALACHUVADU ROAD, PADAMUGAL, KOCHI-30
REPRESENTED BY M.SANTHOSH KUMAR
AUTHORISED SIGNATORY
BY ADVS.SRI.VIJAYAN. K.U.
SRI.K.N.SREEKUMARAN
RESPONDENT(S):
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1. SALES TAX OFFICER
KGST 2ND CIRCLE, TRIPPUNITHURA
2. COMMERICIAL TAX OFFICER
KVAT 2ND CIRCLE ,TRIPPUNITHURA
3. COMMERICIAL TAX OFFICER
AUDIT ASSESSMENT COMMERICIAL TAXES
SALES TAX COMPLEX, ERNAKULAM.
4. STATE OF KERALA
REPRESENTED BY THE SECRETARY TO GOVT
RAXES DEPARTMENT, THIRUVANANTHAPURAM
BY GOVERNMENT PLEADER SRI. SHAIJ RAJ.
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 11-04-2012,
THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
WP(C).No. 12865 of 2008 (F)
APPENDIX:
PETITIONER'S EXHIBITS:
EXT.P1: TRUE COPY OF THE RETURN AS ON 31.3.05 UNDER THE KGST FILED
BEFORE THE 1ST RESPONDENT.
EXT.P2: TRUE COPY OF THE RETURN 4/05 UNDER THE KVAT FILED BEFORE
THE 2ND RESPONDENT.
EXT.P3: TRUE COPY OF THE ANNUAL RETURN FOR 2005-06 UNDER THE KVAT
FILED BEFORE THE 2ND RESPONDENT.
EXT.P4: TRUE COPY OF THE ASSESSMENT ORDER FOR 4/05 TO 12/05 DATED
9.6.06 ISSUED BY THE 3RD RESPONDENT.
EXT.P5: TRUE COPY OF THE PENALTY NOTICE U/S.67(1) DTD. 30.6.06
ISSUED BY 3RD RESPONDENT.
EXT.P6: TRUE COPY OF THE REPLY DTD. 25.7.06 FILED TO EXT.P5.
EXT.P7: TRUE COPY OF THE PENALTY ORDER DATED 17.8.06 ISSUED BY THE
3RD RESPONDENT.
EXT.P8: TRUE COPY OF THE JUDGMENT DTD. 10.1.07 IN W.P.(C) 22607 OF
2006 OF THIS HON'BLE COURT.
EXT.P9: TRUE COPY OF THE JUDGMENT DTD. 2.3.2007 IN W.A. 514/2007 OF
THIS HON'BLE COURT.
EXT.P10: TRUE COPY OF THE JUDGMENT DTD. 15.11.05 IN W.P.(C) 31485/05
OF THIS HON'BLE COURT.
EXT.P11: TRUE COPY OF THE REVISED ORDER FOR 2005-06 DTD. 5.6.07
ISSUED BY THE 3RD RESPONDENT.
EXT.P12: TRUE COPY OF THE LETTER DTD. 8.6.07 ADDRESSED TO THE 3RD
RESPONDENT FOR MODIFYING THE PENALTY ORDER.
EXT.P13: TRUE COPY OF THE REPLY DTD. 27.6.07 OF THE 3RD RESPONDENT.
EXT.P14: TRUE COPY OF THE APPLICATION IN FORM 21 CC FILED BEFORE THE
2ND RESPONDENT FOR REFUND OF EXCESS TAX.
EXT.P15: TRUE COPY OF THE REPRESENTATION FILED ON 14.1.08 BEFORE THE
3RD RESPONDENT FOR MODIFYING THE PENALTY ORDER.
RESPONDENTS' EXHIBITS: NIL.
TRUE COPY
P.A. TO JUDGE.
P.R. RAMACHANDRA MENON, J.
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W.P.(C). No. 12865 of 2008
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Dated this the 11th day of April, 2012
JUDGMENT
The petitioner company is challenging Ext.P11 order passed by the third respondent, stating that the same is not in conformity with Ext.P9 judgment passed by a Division Bench of this Court in W.A. No.514/2007, in so far as the concerned authority has only considered the eligibility to have set off the excess tax paid, while nothing is mentioned with regard to the 'penalty' already imposed upon petitioner, by virtue of Ext.P7.
2. The sequence of events is as follows:
The petitioner company is a dealer in lubricating oils and such other goods, including spare parts of tractor. In the course of the business, the petitioner used to bring goods from outside, by way of stock transfer, from other branches, as well as from the head office situated outside the State. The lubricating oil marketed by the petitioner was eligible to entry tax under Section 3 of the Kerala Tax on Entry of Goods into Local Area Act, 1994 at the specific rate and Section 4 provides for a reduction in entry tax, W.P.C. No. 12865 of 2008 -2- to the extent of tax paid under the KGST/KVAT Act. The case of the petitioner is that, entry tax in respect of the above commodity was paid at the check post and claim was made to have set off/reduction against the sales tax payable under the KGST Act, as given in the returns filed. According to the petitioner, as per the entries of Ext.P1 return, there is an excess payment of Rs. 15,39,629/-(Rupees fifteen lakhs thirty nine thousand six hundred and twenty nine), which in fact is sought to be set off against the subsequent tax liability.
3. While so, the assessing authority refused to accept the return filed by the petitioner and declined the relief to set off the excess payment effected by the petitioner under the KGST Act in respect of the liability arising from 1.4.2005 under the KVAT Act, stating that there was no enabling provision. Ext.P4 assessment order for the period from April 2005 to December 2005 passed by the third respondent was followed by Ext.P5 penalty notice under Section 67(1) of the KVAT Act, mainly on two grounds. The petitioner submitted Ext.P6 reply, which however was not acceptable and the penalty as proposed was confirmed by the W.P.C. No. 12865 of 2008 -3- third respondent as per Ext.P7 order dated 7.8.2006. The petitioner has approached this Court by filing W.P.(C) 22607/2006, challenging the assessment order as well as the penalty notice which were produced therein as Exts.P8 and P9 respectively.
4. When the said matter came up for consideration, it was observed by the learned Judge that, Ext.P8 therein was very much appealable and accordingly interference was declined, relegating the petitioner to avail the statutory remedy; observing that the period during which the writ petition was pending before this Court shall be given credit to, with regard to the question of condoning the delay, if at all any such course was availed of. With regard to Ext.P9 notice (Ext.P5 herein) under Section 67(1) of the KVAT Act, it was held that the same was only a notice and hence was premature to have the challenge entertained in a writ petition.
5. Being aggrieved by the above verdict, the petitioner approached the Division Bench of this Court by filing W.A. No. 514/2007 which culminated in Ext.P9 judgment. The case of the W.P.C. No. 12865 of 2008 -4- petitioner was that, the idea and understanding of the assessing authority as to the absence of any provision in the KVAT Act to have a 'set off', was wrong and misconceived. Reliance was sought to be placed on the judgment passed by another learned Judge of this Court in W.P.(C) No. 31458/2005, a copy of which is produced along with the present writ petition as Ext.P10. It was pointed out that, by virtue of the said decision rendered with reference to Section 89 as well as 98 of the KVAT Act, the petitioner was entitled to have similar relief. Taking note of the facts and figures, the Division Bench of this Court intercepted Ext.P8 judgment only, to the extent the petitioner was relegated to avail the statutory remedy in respect of the assessment and the assessing authority was directed to pass appropriate orders in tune with the judgment passed by this Court in W.P.(C) No.31458/2005. In other words, the challenge raised against Ext.P9 notice therein, i.e., the penalty proceedings under Section 67(1) of the KVAT Act was never touched.
6. Pursuant to Ext.P9 verdict passed by the Division Bench, the matter was reconsidered by the third respondent, who passed W.P.C. No. 12865 of 2008 -5- Ext.P11 order dated 5.6.2007, whereby the amount in credit of the petitioner by way of excess payment was given credit to and assessment was modified accordingly. However, with regard to the claim of the petitioner for intercepting the penalty proceedings, it was observed that the same stood on a different pedestal and that no interference was possible, for not having directed in this regard as per Ext.P9 judgment; which forms the subject matter of the challenge in this writ petition.
7. The respondents have filed a counter affidavit seeking to sustain the impugned proceedings, referring to the facts and figures as borne out from the materials on record.
8. The learned counsel for the petitioner submits that Ext.P11 passed by the assessing authority is per-se wrong and illegal, in so far as it is not in conformity with the specific direction given by the Division Bench of this Court vide Ext.P9 judgment. Attention of this Court was brought to the fact that the challenge raised by the petitioner was both in respect of the 'assessment' as well as the 'penalty'. But the fact remains that, in W.P.(C) No.22607/2006, the challenge was in respect of the W.P.C. No. 12865 of 2008 -6- assessment order and Section 67(1) 'notice' proposing to impose penalty. It was during the pendency of the above writ petition, that Ext.P7 order imposing the penalty was passed by the concerned authority on 17.8.2006. Even though, Ext.P8 judgment was passed only much later on 10.1.2007, the petitioner did not produce Ext.P7 order imposing penalty and got the writ petition amended, challenging the said order as well. Even in W.A.No.514/2007, which led to Ext.P9 judgment dated 2.3.2007, no reference is made to the said order and the grievance was in respect of the assessment order and Section 67 notice. Though interference was made by the Division Bench with regard to the assessment, the proceedings in respect of 'penalty' were left untouched, as borne by paragraph 2 of the said verdict. The only direction given to the third respondent was to consider the request of the appellant for adjustment of tax paid towards tax due, in the light of the judgment of this Court in W.P.(C).No. 31458/2005, i.e, Ext.P10. This being the position, it is explicitly clear that, no interference was made by the Division Bench with regard to the question of 'penalty' and no observation W.P.C. No. 12865 of 2008 -7- or direction was ever given to the concerned authority in this regard. As such, the contention of the petitioner, that Ext.P11 order has been passed by the third respondent contrary to the mandate given by the Division Bench of this Court as per Ext.P9, is thoroughly wrong and misconceived; which fails and is rejected accordingly.
9. Regarding the imposition of penalty, this Court finds that Ext.P5 notice was issued under Section 67(1) of the KVAT Act on the following two grounds:
"The assessee is a dealer in lube oil, grease, tractor parts etc. The goods for sale were received as stock transfer from the Head Office and other branches situated outside the State. Entry tax was paid for the entire stock transfer receipt and since they were intended for resale in the sate the entry tax paid was claimed as special rebate every month under Section 12 of the KVAT Act 2003. Subsequently a portion of the goods so received were seen re-transferred to other branches outside the State. So these goods, against which special rebate was claimed under Seciton 12(1), were subsequently used for the purpose other than that specified in W.P.C. No. 12865 of 2008 -8- the above sub section. Therefore the special rebate claimed on such goods which were used otherwise will become reverse tax vide section 12(4) of the Act. Therefore the portion of special rebate claimed on the goods which were subsequently transferred outside the state as stock transfer would be treated as reverse tax due for the respective return periods and as such the returns for these periods ought to have been revised. But the dealer has not filed the revise return so far.
Further, during the return period for April 2005 the assessee claimed input tax credit of Rs.15,45,493.00 being excess KGST paid during 2002-03 and 2004-05. As per Rule 22(9) of the Act, any amount paid toward 90% of the estimated tax for March 2005 under the KGST Rules and which is later found in excess only shall be claimed as input tax for April 2005. Therefore the amount of KGST said to be in excess for the years 02-03 and 04-05 is not eligible to be set off as input tax during April 05. Further the actual amount of excess tax under KGST for the said period is not ascertainable since the KGST assessments for 02-03 to 04-05 is pending to be finalized."
W.P.C. No. 12865 of 2008 -9-
After considering Ext.P6 reply submitted by the petitioner, the penalty proposal was confirmed as per Ext.P7 order, imposing liability to the tune of Rs. 17,02,419/-(Rupees seventy lakhs two thousand four hundred and nineteen). The learned counsel for the petitioner submits that Ext.P1 return submitted by the petitioner was rejected and the assessment proceedings were finalized imposing a further tax liability to the tune of Rs.2,40,396/-(Rupees two lakhs forty thousand three hundred and ninety six). It is in respect of said event, that the penalty to the tune of Rs 17,02,419/-(Rupees seventy lakhs two thousand four hundred and nineteen) as given in Ext.P7 is left in tact, without being altered in any manner, in spite of the change in the course of events resulted by virtue of the decision passed by the Division Bench of this Court vide Ext.P9. The learned counsel further submits that the very basis for having pursued such a course was with reference to the claim of the petitioner to have the refund/set off, which was initially rejected, refering to absence of enabling provision, which by itself has been caused to be changed vide Ext.P9 judgment passed by the Division Bench W.P.C. No. 12865 of 2008 -10- and the consequential order passed by the third respondent himself as per Ext.P11. The question then arising for consideration is, whether Ext.P7 is to be let to remain in tact.
10. True, the assessment proceedings and the penalty proceedings are distinct and separate. But the question is whether the basic ingredient as contemplated under the provisions, particularly with reference to the element of 'mens rea' stands satisfied, so as to justify the penalty. It is also brought to the notice of this Court by the learned counsel for the petitioner that, the first circumstance/ground as raised in Ext.P5 notice with reference to the term 'reverse tax' under Section 12 (4) of the Act, in respect of the taking back of some of the goods after availing the rebate under the Entry Tax Act to places outside the State is correct or not. It is also stated that, the very charging provision under the Entry Tax Act has been set aside by this Court as per the judgment reported in Thressiamma L. Chirayil V. State of Kerala (2007 (1) KLT 303). The learned Government Pleader appearing for the respondents submits that the said decision has not become final, in view of the fact that W.P.C. No. 12865 of 2008 -11- the matter has already been subjected to challenge by filing SLP before the Supreme Court and that the same is pending. However, as on date, the fact remains that, the liability with reference to the said charging provision can never be mulcted upon the petitioner, unless and until the decision rendered by this Court is reversed by the Supreme Court.
In the above circumstances, this Court finds that, this is a matter which requires to be reconsidered with regard to the imposition of 'penalty' and the quantum, if any, by the third respondent. Accordingly, Ext.P7 order is set aside and the first respondent is directed to re-consider the matter in the light of the above observations and pass appropriate orders in accordance with law, after giving an opportunity of hearing to the petitioner, as expeditiously as possible, at any rate, within three months from date of receipt of a copy of this judgment.
Writ petition is disposed of.
P.R. RAMACHANDRA MENON, JUDGE.
Kp/-