Kerala High Court
M/S. Neptune Ready Mix Concrete Pvt.Ltd vs State Of Kerala
Author: K Vinod Chandran
Bench: K.Vinod Chandran
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN
FRIDAY, THE 6TH DAY OF JUNE 2014/16TH JYAISHTA, 1936
WP(C).No. 5383 of 2011 (W)
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PETITIONER :
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M/S. NEPTUNE READY MIX CONCRETE PVT.LTD.,
PLOT NO.VI/58 & 59, INDUSTRIAL DEVELOPMENT AREA
EDAYAR, KOCHI, REPRESENTED BY THE DIRECTOR
MR.ALEX THOMAS.
BY SENIOR ADVOCATE SRI.RAJU JOSEPH
BY ADVS.SRI.K.T.POULOSE (KORATTY)
SRI.GEORGE KUTTY MATHEW
RESPONDENT :
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STATE OF KERALA
REPRESENTED BY THE COMMISSIONER OF COMMERCIAL TAXES
THIRUVANANTHAPURAM.
BY GOVT.PLEADER SRI. LIJU STEPHEN
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 06-06-2014,
ALONG WITH WP(C) NO. 5384/2011, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:
Mn
...2/-
WP(C).No. 5383 of 2011 (W)
APPENDIX
PETITIONER'S EXHIBITS :
EXT.P1 : COPY OF ATYPICAL PURCHASE ORDER DT. 2.1.2004.
EXT.P2 COPY OF ATYPICAL WORK ORDER.
EXT.P3 COPY OF MOU DT.27.3.2004 WITH CCCL.
EXT.P4 COPY OF PROCEEDINGS OF INTELL. OFFICER, SQUAD IV,
ERNAKULAM DATED 3.5.06.
EXT.P5 COPY OF ORDER NO. STRP 96/2006 DT. 5.10.2007 OF DEPUTY COMM.,
COMMERCIAL TAXES, ERNAKULAM.
EXT.P6 COPY OF PROCEEDINGS OF INTELL. OFFICER, SQUAD NO. IV,
ERNAKULAM - ORDER NO. EMQ/05-06/03-04 DATED 21.1.2008 WITH
DEMAND NOTICE DATED 21.1.2008.
EXT.P7 COPY OF PETITIONER'S APPLICATION DT.24.12.2008 TO SETTLE
DEMAND WITHOUT WAIVER OF RIGHT OF APPEAL UNDER THE
'AMNESTY SCHEME'.
EXT.P8 COPY OF INTIMATION DATED 24.12.2008 OF ASST. COMM. TAXES OF
ARREARS OF DEMAND TO BE SETTLED UNDER THE 'AMNESTY
SCHEME'.
EXT.P9 COPY OF PROCEEDINGS OF FAST TRACK TEAM III WITH DEMAND
NOTICE DATED 27.11.2008 OF ASST. COMM.
EXT.P10 STATEMENT OF SETTLEMENT OF DEMAND BY PETITIONER.
EXT.P11 COPY OF INPUGNED ORDER DATED 1.11.2010 OF COMMISSIONER OF
COMMERCIAL TAXES DATED 1.11.2010.
RESPONDENT'S EXHIBITS : NIL
//TRUE COPY//
P.A. TO JUDGE
Mn
K VINOD CHANDRAN, J
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W.P(C) Nos.5383 of 2011 & 5384 of 2011
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Dated this the 6th day of June, 2014
J U D G M E N T
The petitioner is a manufacturer and seller of "ready mix concrete" (RMC). The petitioners contention is that the petitioner sells the RMC; ex-factory and only in cases, where the purchaser requires; the same is transported to the site of the purchaser in special vehicles for delivery at site, which transportation is separately billed. The requirement of special vehicle is there, insofar as the ready mix concrete, if transported, as produced from the factory, would set and harden into a solid state, by the time it reaches the site. Hence, the transport has to be effected through a vehicle which has a 'transit mixer' and the RMC is continuously kept in a state of agitation within the said mixer, till delivery at the site, where the W.P(C) Nos.5383/2011&5384/2011 :2: concreting is to be carried out.
2. The writ petitions impugn penalty orders, passed by the Intelligence Officer, Commercial Taxes, Ernakulam for the assessment years 2003-2004 and 2004-2005. The allegations are more or less similar and is evident from the impugned orders.
3. The petitioner contends that it enters into different type of transactions for sale of its products. Sale is always ex-factory and when, as an incidence of sale, transportation is carried out; then freight is liable to be deducted under Rule 9(f) of the Kerala General Sales Tax Rules, 1963. Works contract, for laying the concrete as also setting up conversion units at the construction sites, are also carried on; wherein the permissible deductions are claimed. It is also averred that the assessments were completed W.P(C) Nos.5383/2011&5384/2011 :3: under the KGST Act and in the guise of penalty proceedings, what is attempted is a re-opening of assessment; which the Intelligence Officer does not have the authority to proceed with.
4. At present, this Court is not concerned with whether the transportation/freight charges, would form part of the sales turn over of the petitioner or is permissible as a deduction under Rule 9(f). Learned Senior Counsel Sri. Raju Joseph, appearing for the petitioner, would in fact contend that the delivery is ex-factory, and only when the purchaser requires the same to be transported to the construction site, then alone, the product; the title in which has been transferred to the purchaser, is transported to the site. However, that question need not be considered here especially, since, it is admitted that reopening of W.P(C) Nos.5383/2011&5384/2011 :4: assessments were also taken up, on the very same premise and that issue is not up for consideration, before this Court at this juncture.
5. One has to look at the penalty imposed on the proposal. What is clear is that the assessee had disclosed other income in its annual return, as also termed as expenditure the cost of supply as also the cost of production; in the Profit and Loss account. The Intelligence Officer conducted an enquiry with respect to the actual nature of the said expenditure and income. Evidently, books of accounts were called for from the assessee. It is from the books of accounts that the Intelligence Officer found the various heads, under which the aforementioned "other income", and other operating expenses were allegedly "misclassified". Hence, the allegation was that, certain W.P(C) Nos.5383/2011&5384/2011 :5: amounts shown in the books of accounts as income and expenditure, ought to have been included as taxable turnover. On the allegation of "misclassification", attempt to suppress taxable turnover was suspected and penalty proceedings were initiated. The proposals stood confirmed by Ext.P4, in W.P(C) 5383/2011 and Ext.P3, in W.P(C) No.5384/2011. Presumably, it is not the question of suppression of turnover which was examined by the Intelligence Officer, but the taxable turnover being classified as non-taxable.
6. The enquiry was proceeded with as to the different heads under which income and expenses were shown which according to the Intelligence Officer, was taxable. On the verification of the books of accounts, the above facts were revealed, is the clear finding. This was an exercise, which the Assessing W.P(C) Nos.5383/2011&5384/2011 :6: Officer himself could have and should have conducted. If the assessee had claimed a portion of the sale proceeds as other income, then, necessarily the same could have been disallowed if the law is otherwise; and additions could have been made, on that count; on verification of the books of accounts. For initiating penalty proceedings, necessarily there should be an attempt to evade tax by suppression of turnover, by not maintaining true and complete accounts, by making an untrue or incorrect return or so on and so forth; as provided under Section 45A.
7. The learned Government Pleader however, would contend that by misclassification, the assessee was in fact attempting to suppress the tax due and had in fact, evaded tax. The learned Government Pleader, places reliance on two decisions of the Hon'ble W.P(C) Nos.5383/2011&5384/2011 :7: Supreme Court; 2006(5) SCC 361, Chairman, SEBI v. Shriram Mutual Fund and another, and Bharjatiya Steel Industries v. Commissioner, Sales Tax, Uttar Pradesh [2008(11) SCC 617] to contend that penalty is attracted as soon as there is contravention of statutory obligation. Hence the intention of the parties (mens rea); committing the violation becomes wholly irrelevant, argues the learned Government Pleader. To sustain the levy made on the freight charges, deeming it to be part of "sale price" the learned Government Pleader banks on (2010(9) SCC 423) India Meters Ltd. v State of Tamil Nadu.
8. India Meters(Supra) definitely found that, freight ought to be included in the sale price; but on the specific terms of the contract as is clear from W.P(C) Nos.5383/2011&5384/2011 :8: Paragraph 38. The contract in that case stipulated that the ownership will remain with the supplier till the goods are delivered at the destination. The Hon'ble Supreme Court, in fact, stated so in the earlier part of the judgment in paragraph 13:
"Had the sale been completed at the
factory gate, the expenses incurred
thereafter by way of freight charges would then be capable of being regarded as expenditure which was in the nature of a post-sale expenditure and, if paid by the seller, regarded as an amount paid by such seller on behalf of the buyer."
9. The question, hence, would be a mixed question of fact and law. The terms of the contract would have to be examined, as against the deduction W.P(C) Nos.5383/2011&5384/2011 :9: permissible under Rule 9(f) of the KGST Rules, 1963; which rule incidentally was extracted in India Meters (supra). But, that would be a question to be raised and answered in the assessment proceedings. We are here, concerned with a penalty proceeding under Section 45A of the KGST Act. Whether the ingredients, to satisfy, a finding of attempt to evade tax could be garnered or not, would be the limited scope herein. Also whether to attract such penalty; there should be an element of contumacious conduct.
10. Chairman, SEBI (supra) dealt with a violation of the terms of the Certificate of Registration; by a Mutual Fund, which was held to attract penalty on establishment of the violation. The decision, reiterated the principle that, mens rea is not an essential element for imposing penalty for breach of civil obligation or W.P(C) Nos.5383/2011&5384/2011 :10: liabilities. When the violation of a statutory obligation is conclusively established for which penalty is levied, then the imposition of penalty, was held to be a sine qua non of the finding of violation.
11. Bharjatiya Steel Industries (supra) dealt with the penalty under the U.P Trade Tax Act, wherein a manufacturer, availed concessional rate, under a provision granting such benefit only on instances of purchase being effected for the purpose of manufacture. The manufacturer who purchased the scrap-iron, on an as-is-where-is, basis; sold the unusable variety to other dealers. The Court though upheld the levy of penalty on facts; negatived the contention of the State that under no circumstance, levy of penalty could be opposed on the ground of lack of mens rea. A distinction was drawn: W.P(C) Nos.5383/2011&5384/2011 :11:
"18. ... Furthermore, the question as to whether mens rea is an essential ingredient or not, will depend upon the nature of the right of the parties and the purpose for which penalty is sought to be imposed.
19. A distinction must also be borne in mind between a statute where no discretion is conferred upon the adjudicatory authority and were such a discretion is conferred. Whereas in the former case, the principle of mens rea will be held to be imperative, in the latter, having regard to the purport and object thereof, it may not be held to be so.
xxx xxx xxx xxx
22. It is, therefore, difficult to accede to the contention of Mr.Banerjee that under W.P(C) Nos.5383/2011&5384/2011 :12: no circumstances absence of mens rea would not be a plea for levy of penalty. An assessing authority has been conferred with a discretionary jurisdiction to levy penalty. By necessary implication, the authority may not levy penalty. If it has the discretion not to levy penalty, existence of mens rea becomes a relevant factor."
12. The said distinction assumes significance herein. Section 45 A contemplates imposition of penalty, at a maximum of twice the amount of tax evaded or ought to be evaded; only where such evasion is practicable of quantification. In contexts, where quantification is not possible, a maximum penalty of Rs.10,000/- alone is prescribed. Hence, there should W.P(C) Nos.5383/2011&5384/2011 :13: necessarily be an evasion or at least an attempt to evade, which takes in a contumacious conduct of the dealer. Mens rea definitely is a sine qua non to such finding. Further more, there is no absolute mandate as to the quantum and the authority under Section 45 A has a discretion in mulcting a penalty, for which only the maximum is prescribed. This definitely is to be exercised with reference to the gravity of the offence; which has a direct bearing to the intention of the assessee. The discretion to award penalty up to a maximum provides for mitigation with reference to the facts, as to the real intent of the dealer.
13. 1980(1) SCC 71 Cement Marketing Co. of India Ltd., v. Assistant Commissioner of Sales Tax, Indore was a case in which the assessee deducted the freight charges from the price shown in W.P(C) Nos.5383/2011&5384/2011 :14: the invoice and returned that part of the turnover as non-taxable. The issue was held to be covered against the assessee and the claim was found to be unsustainable. But regarding penalty, it was held so:-
"But where the assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a 'false' return inviting imposition of penalty. This view which is being taken by us is supported by the decision of this Court in Hindustan Steel Ltd. v. State of Orissa (1970 (25) STC 211), where it has been held that "even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to W.P(C) Nos.5383/2011&5384/2011 :15: impose penalty, when there is a technical venial breach of the provisions of the Act or where the breach flow from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute....." It is elementary that S.43 of the Madhya Pradesh General Sales Tax Act, 1958 providing for imposition of penalty is penal in character and unless the filing of an inaccurate return is accompanied by a guilty mind, the section cannot be invoked for imposing penalty. If the view canvassed on behalf of the Revenue were accepted, the result would be that even if the assessee raises a bona fide contention that a particular item is not liable to be taxable turnover, he would W.P(C) Nos.5383/2011&5384/2011 :16: have to show it as forming part of the taxable turnover in his return and pay tax upon it on pain of being held liable for penalty in case his contention is ultimately found by the Court to be not acceptable. That surely could never have been intended by the Legislature."
14. In this context, apposite is the decision in Sree Krishna Electricals v. State of Tamil Nadu and another (2009)11 SCC 687; paragraph 7 of which is extracted below:
"So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's accounts books. Where certain items which are not included in the turnover are disclosed in the dealer's own W.P(C) Nos.5383/2011&5384/2011 :17: account books and the assessing authorities includes these items in the dealers turnover disallowing the exemption penalty cannot be imposed. The penalty levied stands set aside."
15. On point is also the observation in CIT, Ahmedabad v Reliance Petroproducts (P) Ltd. (2010)11SCC 762):
"A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to inaccurate particulars."
16. The allegation is only of "misclassification" of income as non-taxable, which the W.P(C) Nos.5383/2011&5384/2011 :18: Intelligence Officer is of the opinion, is taxable. The assessee returned the entire turnover and claimed deduction with respect to freight charges; which according to the assessee is allowable under the Rules. No suppression can be found as the amounts claimed as deduction were also disclosed in the books of accounts. In such circumstance, this court is of the opinion that the penalty proceedings cannot be sustained and the same are set aside. However the issue as to whether the transporting charges and other expenses would fall within the sale consideration, is left open to be considered in the assessment proceedings.
17. The learned Senior Counsel submits that the penalty demanded was settled under the Amnesty scheme, which, however, provides for refund of the W.P(C) Nos.5383/2011&5384/2011 :19: amounts paid, on a further challenge, turning in favour of the assessee. In such circumstance, subject to the provisions of the scheme, there shall be a refund made to the petitioner, or appropriate adjustments made towards subsequent demand.
Writ Petitions are allowed. Ext.P3 in W.P(C) 5383/2011 and Ext.P4 in W.P(C)5384/2011 are set aside. Parties shall suffer their costs.
Sd/-
(K. VINOD CHANDRAN, JUDGE) jma //true copy// P.A to Judge