Kerala High Court
V. Pradeep vs Asst. Commissioner (Assmnt) on 21 May, 2012
Author: A.M.Shaffique
Bench: A.M.Shaffique
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR
&
THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE
TUESDAY, THE 4TH DAY OF FEBRUARY 2014/15TH MAGHA, 1935
WA.No. 1324 of 2012 () IN WP(C).7545/2010
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AGAINST THE ORDER/JUDGMENT IN WP(C) 7545/2010 of HIGH COURT OF KERALA
DATED 21-05-2012
APPELLANT(S)/APPELLANT:
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V. PRADEEP
'GAYATHRI', T.K.V.NAGAR, BANK COLONY,
KALMANDAPAM, PALAKKAD.
BY ADVS.SRI.HARISANKAR V. MENON
SMT.MEERA V.MENON
SRI.MAHESH V.MENON
RESPONDENT(S)/RESPONDENTS:
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1. ASST. COMMISSIONER (ASSMNT),
COMMERCIAL TAXES, SPECIAL CIRCLE, PALAKKAD.678 001.
2. STATE OF KERALA,
REPRESENTED BY SECRETARY, TAXES DEPARTMENT,
GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM.695 001.
R1 & 2 BY ADVOCATE GENERAL SRI.K.P.DANDAPANI
SPL.GOVERNMENT PLEADER SRI.GEORGE MECHERIL
THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON
04-02-2014, ALONG WITH WA. 1325/2012 AND WA. 1326/2012, THE COURT
ON THE SAME DAY DELIVERED THE FOLLOWING:
'C.R'
MANJULA CHELLUR, C.J
&
A.M.SHAFFIQUE, J.
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W.A.No. 1324 of 2012,
W.A.No. 1325 of 2012
&
W.A.No. 1326 of 2012
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Dated this the 4th February, 2014
JUDGMENT
Manjula Chellur, C.J.
Heard learned counsel Sri.Harisankar V.Menon for the appellants and learned Advocate General Sri.K.P.Dandapani appearing for the revenue.
2. In all the above three appeals, the challenge before the court is in respect of protective assessment came to be made under Section 26 of the Kerala Value Added Tax Act (for short, 'KVAT Act') and also imposition of penalty under Section 67(1) of the KVAT Act. The entire controversy pertains to two dealers, S.R.Traders and Star Enterprises. The facts that led to present appeals in brief are as under:
The registered dealer of S.R.Traders is one Sukumaran and so far as Star Enterprises, the registered dealers are Mohammed Ali and Sakir. It is alleged, till dishonour of cheques issued towards advance tax came to be enquired into, the truth that WA.1324, 1325 & 1326/12 2 some of the registered dealers were not the actual dealers did not come to light. They were only name lenders for running business of someone else. So far as present cases, it was one Pradeep and Murugadas, who were actually conducting the business of live chicken under the name and style of 'S.R.Traders', but Sukumaran was a name lender, who was getting monetary benefit from the above two persons for lending his name as a registered dealer. So far as 'Star Enterprises', Mohammed and Sakir were the name lenders for Murugadas and Vinod and they were also getting monetary benefits for lending their names to do the business on behalf of Murugadas and Vinod.
3. When the cheques given towards payment of advance tax amounting to more than 13 crores were dishonoured, it was enquired into by the intelligence wing of the department and during the course of enquiry, revelations brought out the names of the actual persons who were conducting business in live chicken in the name of the registered dealers on record. After proposition notice to the appellants herein, department received reply sent by the appellants. After considering the reply, protective assessment and order of penalty came to be made, which are the subject matter of challenge.
WA.1324, 1325 & 1326/12 3
4. The two grounds upon which the Writ Petitions came to be filed were, (1) report of the enquiry team was never made available to the appellants, therefore, the assessment orders and imposition of penalty were not sustainable, as they are issued in violation of principles of natural justice; and (2) copies of the statements which were the basis to form opinion by the investigating team and further no opportunity to cross-examine those persons who made statement before the investigating team would lead to failure of justice, as the appellants herein had no occasion to establish false and intentional complicity of them in the statement of several persons, who said to have given information to the investigating team. It is relevant to point out that statements of several persons which became the foundation for issuance of proposition notice as referred in the report of the team were all mentioned in the proposition notice sent to the appellants. It is also not in dispute, appellants sought copy of the report of the investigating team which was not made available to the appellants. Again a request was made to examine the so-called persons who gave reliable information and the same came to be turned down, therefore, they are prejudiced by the orders of assessment and penalty.
WA.1324, 1325 & 1326/12 4
5. Learned Single Judge referred to details of series of notices and the reply dated 28.1.2010. He ultimately held that non service of copy of the enquiry report and non examination of witnesses in the case on hand will not amount to violation of principles of natural justice and further held that the appellants herein can explain the factual situation before the statutory appellate authority, if they are aggrieved by the protective assessment and penalty orders. According to learned Single Judge, the first respondent has meticulously analysed the facts and figures in arriving at the conclusion and there is proper application of mind. Therefore, depositions of witnesses does not have much significance. Considering the nature of enquiry conducted, the learned Single Judge dismissed the Writ Petitions. Aggrieved by the same, the appellants/writ petitioners are before us.
6. According to learned counsel Sri.Harisankar V.Menon arguing for the appellants, there are several factual discrepancies which ought to be brought on record and could be brought on record only by way of cross-examination, therefore, in the absence of an opportunity to cross-examine the witnesses examined by the investigating team, the appellants are unable to WA.1324, 1325 & 1326/12 5 bring on record the true facts thereby justice is impaired. He further brings to our notice copy of the report of the investigating team obtained by him. So far as Sakthi Complex, Murugadas is alleged to be the owner of the same but he is not at all conducting his profession as tax practitioner in the said building and there is another tax practitioner by name Murugan, therefore, there is possibility of mistaking Murugadas with that of Murugan is the stand of the appellants. This factual issue has to be clarified, therefore, in the absence of an opportunity to establish these facts, they are handicapped and it is nothing but violation of principles of natural justice.
7. As against this learned Advocate General took us through the relevant portions of counter affidavit filed in the Writ Petition pointing out the enormous amount of advance tax attempted to be evaded. He further submits enquiry by special team brought to light several serious issues including the complicity of several persons who were running the show behind the curtains.
8. So far as proposition notices and the assessment orders, each and every point relied upon by investigating team from its report is indicated. In other words, the appellants were aware of the basis upon which the protective assessment orders and the WA.1324, 1325 & 1326/12 6 penalty orders were made. As a matter of fact, in the proposition notices itself the basis for such opinion of the investigating team was clearly indicated with reference to each person who was examined by them. Therefore, it is not open to them to contend that material was concealed from the appellants in the proposition notice and later on indicated in the assessment orders. The basis for proposition notice and the basis for the assessment orders is one and the same. Except details of objections raised by the writ petitioners, no other fresh information is indicated in the assessment orders. So far as the material relied upon by the department, it was all through one and the same. The only question that has to be considered is whether the appellants were handicapped in explaining the contents of proposition notice and whether the appellants were disabled to meet the case of department properly on account of non-examination of witnesses referred to in the proposition is to be seen. Learned counsel for the appellants places reliance on State of Kerala v. Shaduli Yusuff [(1977) 39 STC 478]. He specifically relies upon paragraph 4 at page 489 of the said decision, which reads as under:
WA.1324, 1325 & 1326/12 7 "An analysis of this provision would show that this sub-section contemplates two contingencies: (1) where the assessee does not file his return at all; and (2) where the assessee files his return, which, however, is found to be incorrect or incomplete by the assessing authority. The sub-section further enjoins on the assessing authority a duty to consider the necessary materials and make an enquiry before coming to its conclusion. The proviso expressly requires the assessing authority to give to the assessee a reasonable opportunity of being heard even if the assessee had committed default in not filing the return. Since the statute itself contemplates that the assessee should be given a reasonable opportunity of being heard, we are not in a position to agree with the contention of the learned counsel for the appellant that if such an opportunity is given, it will amount to condonation of default of the assessee. The tax proceedings are no doubt quasi-judicial proceedings and the sales tax authorities are not bound strictly by the rules of evidence, nevertheless the authorities must base their order on materials which are known to the assessee and after he is given a chance to rebut the same. This principle of natural justice which has been reiterated by this court in the decisions cited above has been clearly incorporated in section 17(3) of the Act as mentioned above. The WA.1324, 1325 & 1326/12 8 statute does not stop here, but the second part of the proviso confers express benefit on the assessee for giving him an opportunity not only of being heard but also of proving the correctness or completeness of such return. In view of this provision, it can hardly be argued with any show of force that if the assessee desires the wholesale dealers whose accounts are used against him to be cross-examined in order to prove that his return is not incorrect or incomplete he should not be conceded this opportunity. Apart from anything else, the second part of the proviso itself confers this specific right on the assessee. It is difficult to conceive as to how the assessee would be able to disprove the correctness of the accounts of Haji P.K. Usmankutty or the other wholesale dealers, unless he is given a chance to cross-examine them with respect to the credibility of the accounts maintained by them. It is quite possible that the wholesale dealers may have mentioned certain transactions in their books of account either to embarrass the assessee or due to animus or business rivalry or such other reasons which can only be established when the persons who are responsible for keeping the accounts are brought before the authorities and allowed to be cross-examined by the assessees......."
WA.1324, 1325 & 1326/12 9
9. He also contends that the factual situation explained in the said case with reference to provision of law, i.e., Section 17(3) of the Kerala General Sales Tax Act (for short, 'KGST Act') and the present factual situation is one and the same. In other words, the relevant material gathered by the department in the above case with reference to the return of dealers, the dealer could have proved his case as contemplated under the proviso to Section 17(3) of the KGST Act. According to learned counsel, in terms of Section 26 of the KVAT Act, under which the proceedings are initiated, there is no provision for filing return, therefore, question of proving the contents of the return as correct would not arise. With this difference in factual situation, present case falls within the settled position in Shaduli Yusuff's case (Supra), therefore appellants have established violation of principles of natural justice.
10. We have gone through the cited judgment in detail. In the above case the ambit of Section 17(3) of the KGST Act and the proviso thereunder were discussed at length. We are dealing with Section 26 and the proviso under the KVAT Act. Similar provision or equivalent to Section 26 of the KVAT Act also existed under the KGST act, i.e., Section 19C. The Apex Court had no occasion to analyse the facts under Section 19C of the KGST, WA.1324, 1325 & 1326/12 10 but it was under Section 17(3) of the KGST Act. In order to understand the stand of the appellants whether principle laid down in the above case is applicable to the facts of the present case essentially one has to examine and analyse what exactly Section 17(3) of the KGST Act and Section 26 of the KVAT Act along with respective provisos would mean. Section 17(3) of the KGST Act reads as under:
"17. Procedure to be followed by the assessing authority:-
xx xx xx (3) If no return is submitted by the dealer under sub-section(1) within the prescribed period, or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after making such enquiry as it may consider necessary and after taking into account all relevant materials gathered by it, assess the dealer to the best of its judgment:
Provided that before taking action under this sub-section the dealer shall be given a reasonable opportunity of being heard and, where a return has been submitted to prove the correctness or completeness of such return."
WA.1324, 1325 & 1326/12 11 Section 26 of the KVAT Act reads as under: "26. Protective assessment.-
Notwithstanding anything to the contrary contained in any judgment, decree, order, direction or decision of any Court, Tribunal or other Authority, where the assessing authority has reason to believe that any person is, or was carrying on business in the name of, or in association with any other person, either directly, or indirectly, whether as agent, employee, manager, power of attorney holder, guarantor or in any other capacity, such person and the person in whose name the registration certificate, if any, is taken, shall jointly and severally, be liable for the payment of the tax, penalty or other amount due under this Act which shall be assessed, levied and recovered from all or any of such person or persons, as if such person or persons are dealers:
Provided that before taking action under this section, the persons concerned shall be given a reasonable opportunity of being heard."
11. Reading of Section 17(3) of the KGST Act and the proviso thereunder, the proviso contemplates two situations, before taking action under sub-section (3) of Section 17, the dealer shall be offered reasonable opportunity of being heard and in case returns are submitted, he must be given an opportunity to prove WA.1324, 1325 & 1326/12 12 the correctness or completeness of such return. Section 26 of the KVAT Act contemplates totally a different procedure so far as protective assessment. None of the situations mentioned under section 17(3) of the KGST Act would arise under Section 26 of the KVAT Act. Reading of the above section clearly indicates, the assessing authority must have reason to believe that another person was involved in the business concerned, but his name was never revealed in the records. Irrespective of name in the registration certificate such other person or persons who dealt with the business along with the persons having registration are jointly and severally liable. In other words, this provision clearly indicates there cannot be any difference between a registered dealer and a person who had not obtained any registration of dealership. So far as liability is concerned, they are jointly and severally liable. If the registration in the present case so far as S.R.Traders is taken in the name of Sukumaran, irrespective of absence of registration in the name of Pradeep and Murugadas, they also will be liable. Similarly, so far as Star Enterprises, Murugadas and Vinod, who were not the registered dealers, will be liable along with Mohammed Ali and Sakir. This is what the main section clearly indicates.
WA.1324, 1325 & 1326/12 13
12. Then how to proceed against such person whose names are not reflected in any of the documents, but material was collected by the department. In the present case, when series of cheques issued towards advance tax at check posts came to be dishonoured, the department not only initiated action against the officials, who accepted cheques instead of demand drafts disobeying clear instructions from the department, but further enquired into all such cases. Under various cheques received towards advance tax amount due was 13,35,95,000/-. This is only towards advance tax. So far as the quantum of amount shown against S.R.Traders, it takes more than 50%, whereas 65,10,000/- so far as Star Enterprises. When these figures revealed, there is justification for the department to conduct an enquiry by the intelligence wing to know the depth of the issue. During the course of such enquiry, the investigating team learnt several facts not only with regard to S.R.Traders and Star Enterprises, but several other business concerns. In order to opine there was conspiracy against these two traders, we do not understand why many other persons are also involved, whose advance tax cheques also came to be dishonoured. Appellants are not singled out. They are not the only persons against whom WA.1324, 1325 & 1326/12 14 protective assessments are made. Suitable action is initiated depending upon the material collected by the investigating team. Therefore, there is no intentional complicity of these persons by the department as could be seen from the material.
13. Then coming to reasonable opportunity of being heard and the proviso with reference to decision of the Apex Court, the proviso under Section 26 of the KVAT Act has no reference to word "to prove" the correctness of returns as contemplated in the proviso to Section 17(3) of the KGST Act. The emphasis in this Section is with reference to assessing authority having 'reason to believe'. This would mean, from the material collected during the course of enquiry officer or authority could come to such reasonable conclusion against a particular person or not. As observed by the learned Single Judge, a detailed order with reference to each objection raised was analysed by the assessing authority. Therefore, the order under challenge is an order after application of mind by the authorities concerned giving reasons.
14. Then coming to the proviso whether the appellants have an opportunity to seek cross-examination of witnesses, the proviso to Section 26 of the KVAT Act is not similarly worded as proviso to Section 17(3) of the KGST Act. In the absence of such WA.1324, 1325 & 1326/12 15 procedure and reading of Section 26 with proviso, we cannot conclude that the procedure contemplates a roving enquiry into the matter. It indicates summary enquiry. Whether opportunity was given to the appellants to explain the proposition notice revealing the material which was gathered by the department or not alone has to be seen. Apparently, a reasonable opportunity of being heard was given as the appellants had ample opportunity to explain the proposition notice. Whether Murugadas was mistaken for Murugan and whether wife of Murugadas by name Sumathy was under duress to sign blank papers are all matters of factual situation. This Court while dealing with issue of violation of principles of natural justice cannot put itself into the chair of statutory appellate authority and analyse the factual situation. The orders of protective assessment and penalty are matters for challenge before the statutory authority. The statutory appellate authority is a fact finding authority as well before whom the appellants are entitled to raise such objections and if statutory appellate authority while considering the appeals opines that cross- examination of the witnesses would be necessary depending upon the facts and circumstances of each case, it is always open to them to take a decision in accordance with the procedure contemplated.
WA.1324, 1325 & 1326/12 16
15. So far as the Supreme Court decision, while referring to another decision of the Apex Court, Their Lordships have clearly opined that rule of principles of natural justice requires an opportunity to be given to a person likely to be affected by a decision is also like the genus of which it is a species, not an inflexible rule having a fixed connotation. They further opined that it has a variable content depending on the nature of the enquiry, the framework of the law under which it is held, the constitution of the authority holding the enquiry, the nature and character of the rights affected and the consequences flowing from the decision. Therefore, they opined that in every case the rule of audi alteram partem requires that a particular specified procedure is to be followed. With this opinion of the Apex Court, when we analyse the provisions of Section 17(3) read with the proviso thereunder of the KGST Act and Section 26 read with proviso of the KVAT Act, it is very clear, the procedure contemplated under proviso to Section 26 of the KVAT Act was strictly complied with by the assessing authority and there is no violation of principles of natural justice. Because of the words "to prove" under proviso to Section 7(3) of the KGST Act with reference to the facts in Shaduli Yusuff's case (Supra) Their Lordships opined that the WA.1324, 1325 & 1326/12 17 dealer ought to have had an opportunity of proving the correctness of returns filed by him. There is no justification to claim such benefit in these appeals.
In the light of above reasoning, we are of the opinion, the learned Single Judge was justified in dismissing the Writ Petitions. We find no good ground to interfere with the said opinion.
Accordingly, the Writ Appeals are dismissed.
MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE vgs5.2.14