IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 22667 of 2009(C)
1. BENNY JOSEPH,
... Petitioner
Vs
1. THE COMMISSIONER OF COMMERCIAL TAXES,
... Respondent
2. DEPUTY COMMISSIONER OF COMMERCIAL TAXES,
3. ASSISTANT COMMISSIONER (KVAT),
For Petitioner :SRI.A.M.SHAFFIQUE (SR.)
For Respondent :GOVERNMENT PLEADER
The Hon'ble MR. Justice C.K.ABDUL REHIM
Dated :04/05/2010
O R D E R
C.K.ABDUL REHIM, J.
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W.P.(C).Nos.22667 And 24991 Of 2009
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Dated this the 4th day of May, 2010
J U D G M E N T
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1. Challenge in these writ petitions are against
assessments completed under the provisions of the Kerala
General Sales Tax Act, 1965 (KGST Act) and the Kerala Value
Added Tax Act, 2003 (KVAT Act). In WP(C).No:22667/09
Ext.P12 is the order of assessment under KGST Act for the year
2007-08, with respect to sale of liquor in the Bar Hotel of the
petitioner namely, “Hotel Picnic”. Ext.P13 is the assessment
under KVAT Act for the very same year with respect to sale of
grocery and food items. In WP(C).No.24991/09 Ext.P8 is the
order of assessment under KGST Act for the year 2007-08, with
respect to sale of liquor in the Bar Attached Hotels of the
petitioner. The petitioners in both these cases are challenging
orders of assessment without filing statutory appeal, alleging
that there is gross violation of principles of natural justice and
that the assessment is completed on the basis of written
instructions issued by the 2nd respondent, the Deputy
Commissioner. It is contended that the assessments were
completed on the dictates of higher authority and not on
W.P.(C).Nos.22667 & 24991/09 2
independent consideration of the assessing authority.
Relying on settled legal principles it is contended that such
assessment is nullity in the eye of law and the same need be
quashed in exercise of jurisdiction vested under Article 227,
despite availability of alternate remedy by way of statutory
appeal. Eventhough the petitioner contended that
availability of alternate statutory remedy is not a bar for
entertaining writ petition and placed reliance on the decision
of South Travancore Distilleries Allied Products Vs.
Asst. Commissioner of Commercial Taxes (1999 (1)
KLT SN 4 (C.No.44)), I am not impressed about any
material available which warrants interference of this court
for quashing the impugned orders bye-passing the statutory
remedy of appeal, but for the contention that the additions
proposed at equal amount of the conceded turnover, was only
on the basis of written instructions issued by the 2nd
respondent at the time of approval of the assessments.
Hence these writ petitions are entertained to the limited
extent of examining merit of such contention.
2. A brief description of the factual aspects in both
W.P.(C).Nos.22667 & 24991/09 3
the cases will be of beneficial in this context. The petitioner
in WP(C).No.24991/09 is having two branches; one at
Meenangadi in Wayanad District and the another at
Palakkad. On 22.3.2008 an inspection was conducted at the
branch at Meenangadi namely, “Hotel Vanarani” by the
Intelligence Officer. Eventhough variation of stock detected
was of negligible value, huge differential in the gross profit
declared was detected, along with non-maintenance of true
and complete books of accounts. The offences alleged were
compounded by the petitioner by remitting a sum of Rs. 2
lakhs as compounding fee in lieu of prosecution. During
inspection it was revealed that the petitioner was showing
gross profit only at the rate of 20%. But in the returns filed
50% gross profit was conceded. However the returns were
not accepted and the assessing authority proposed best
judgment assessment through Ext.P3 notice. In Ext.P3 the
assessing authority added differential sales turnover
estimated on the basis of inspection with respect to “Hotel
Vanarani” as well as differential sales turnover with respect
to the Palakkad branch, calculating gross profit at 40%.
W.P.(C).Nos.22667 & 24991/09 4
Apart from that equal amount of the conceded turnover of
‘Hotel Vanarani’ was added to cover probable omissions and
suppressions. The petitioner submitted Ext.P4 and P5
objections to the proposal. Apprehending that the
assessment will be finalised without affording further
opportunity, the petitioner filed WP(C).No.19101/09 before
this court. In Ext.P6 judgment, direction was issued to the
assessing authority to give opportunity to the petitioner to
produce requisite materials and to consider such materials if
any produced before finalising the assessment. But,
according to the petitioner, without affording adequate
further opportunities, the assessment was finalised as per
Ext.P8 confirming the proposal made under Ext.P3. It is the
specific case of the petitioner that Ext.P8 assessment was
made by the 1st respondent on the basis of instructions issued
by the 2nd respondent Deputy Commissioner. It is alleged
that when the order was submitted by the 1st respondent for
approval of the 2nd respondent, it was returned with specific
directions in writing to the effect that addition of 100% shall
be made on the conceded turnover. It is contended that the
W.P.(C).Nos.22667 & 24991/09 5
Approval Register contains such written instructions and
therefore the assessment is completed without independent
appreciation of factual aspects, by the assessing authority.
On the other hand the assessment was completed on the
dictates of the higher authority and hence it is unsustainable
and is a nullity in the eye of law. The petitioner relied on a
decision of the Hon’ble Supreme Court in Commissioner of
Income Tax Vs. Greenworld Corporation ((2009) 314
ITR 81 (SC)). In the said decision the hon’ble Apex Court
observed that the order of assessment passed by the
assessing officer on the dictates of higher authority, being
wholly without jurisdiction, was a nullity and therefore with a
view to doing complete justice between the parties the
assessment proceedings should be gone through again.
3. In WP(C).No.22667/2009 there was an inspection
on the business premises of the petitioner on 31.3.2003.
Before that, application filed by the petitioner for payment of
the tax at the compounded rate under Section 7 of the KGST
Act with respect to the year concerned was rejected through
Ext.P15 order, assigning the reason that the application filed
W.P.(C).Nos.22667 & 24991/09 6
after 31.7.2007 could not be entertained. As that of the
previous case, here also the stock variation detected during
inspection was of negligible value. But huge suppression of
gross profit was detected along with non-maintenance of true
and correct accounts. The petitioner had compounded the
offence by paying compounding fee of Rs.2 lakhs in lieu of
prosecution. It is contended by the petitioner that
assessment with respect to the year was completed by
accepting declared gross profit at the rate of 50%. Ext.P1
order is produced to substantiate such a contention. But on
a perusal of Ext.P1 it is revealed that the order was issued
permitting payment of tax in installments, in response of an
application filed by the petitioner in Form-21H with a
request for such permission. However the petitioner was
issued with Ext.P2 notice under the KGST Act and Ext.P3
notice under the KVAT Act proposing additions of equal
amount of conceded turnover for probable omissions and
suppressions. Petitioner objected such proposal through
Ext.P4 and P5. Subsequently various communications were
there between the petitioner and the assessing authority, in
W.P.(C).Nos.22667 & 24991/09 7
which the petitioner had sought information regarding
declared gross profit of other Bar Hotels in the District as
well as average rate of declared profits with respect to other
such assessees etc. However, the proposals were confirmed
through Ext.P13 and P14 orders, which are impugned in this
writ petition. It is contended by the petitioner that the
addition of 100% of the conceded turnover on the allegation
of probable omissions and suppressions is made by the 1st
respondent based on the written instructions issued by the
2nd respondent in the case of “Hotel Vanarani”. Therefore
the assessment orders are assailed on the very same grounds
as raised in WP(C).No.24991/09.
4. As observed above, I am not proposing to go into
the merits of the assessments based on facts and figures,
since the petitioner has filed these writ petitions without
resorting to remedy of statutory appeal. The only question
which I am proposing to examine is within the limited
premise as to whether the assessing authority had completed
the assessment as per dictate of the 2nd respondent or not. In
the counter affidavit filed in WP(C).No.24991/09 it is
W.P.(C).Nos.22667 & 24991/09 8
mentioned that, considering gravity of the suppression
detected, the addition of equal amount is minimal, just and
reasonable and the proposal was made purely based on
materials available on record wherein the assessing authority
had acted under bonafide faith. It is contended that the
proposal was issued after verifying all the records.
According to the respondents, Ext.P8 assessment order was
passed by the 1st respondent independently after verifying all
the records, penalty files and the reply filed by the petitioner.
It is specifically stated that the allegation that the 2nd
respondent directed to add exorbitant amount towards
suppressed turnover, etc. are baseless and incorrect. But it
is stated that the 1st respondent has discussed the matter
with the 2nd respondent as a routine work and the proposal
notice and the orders were issued strictly as per law.
5. In the counter affidavit filed in WP(C).
No.22667/2009 it is stated that the addition proposed was
only to commensurate with the suppression detected. It is
specifically stated that the addition proposed in that case was
merely approved by the 2nd respondent. But it is admitted
W.P.(C).Nos.22667 & 24991/09 9
that, in the case of ‘Hotel Vanarani’ the assessing authority
had initially proposed only an addition of Rs.4,000/-, against
an admitted gross profit suppression of about Rs.48 lakhs,
due to an oversight. But during the time of approval this was
brought to notice of lower authority and interests of revenue
was protected. It is contended that approval and other
internal matters are only departmental issues and those are
only procedures wherein directions of superior officers are
given in the course of supervisory matters. It is also
contended that if the assessee files appeals against the
impugned orders the same will be considered by independent
agency under the statute and that merely because the
assessment was completed based on any direction of the
approving authority the same will not cause any prejudice as
far as such appeals are concerned.
6. Heard, Sri.Vinod Chandran, learned Special
Government Pleader (Taxes). As directed by this court the
“Assessment Approval Register” maintained in the office of
the 1st respondent was produced for perusal. It is noticed
that assessment with respect to Hotel Picnic (WP(C).
W.P.(C).Nos.22667 & 24991/09 10
22667/09), for the years 2007-08 under the KGST as well as
KVAT Acts was approved by the 2nd respondent without any
remarks written thereon. But in the case of the petitioner in
WP(C).24991/09 there is an endorsement in the remark
column as follows:-
“Discussed. Equal addition of the conceded
TO may be considered in view of huge profit
suppression of that Branch.”
From the above fact it is evident that there occurred a
revision of the rate of additions based on the remarks noted
by the higher authority. But the question to be considered is
as to whether such revision was effected totally without
application of mind by the assessing authority, merely based
on remarks noted by the approving authority. However,
since I am not proposing to quash the orders of assessment
impugned, it is not fair on my part to arrive at any conclusion
as to whether there was any proper application of mind by
the assessing authority. In my opinion the remarks seen
made in the ‘Approval Register’ by itself could not be taken
as a dictate or a mandatory direction issued by the higher
authority, with respect to finalisation of the assessment. At
W.P.(C).Nos.22667 & 24991/09 11
the same time I find merit in the contention that the
assessing authority might have been carried away by such
remarks made by the approving authority, in the matter of
fixing the rate of addition for probable omissions and
suppressions. It is pointed out by learned Special
Government Pleader that appeals if any filed against the
impugned orders of assessment will be dealt with by an
authority who is the Deputy Commissioner (Appeals), and
that the 2nd respondent is not dealing with such appeals.
Therefore it is contended that such Appellate Authority will
be free to examine all aspects of the matter untrammeled by
direction if any issued by the 2nd respondent at the time of
approving the assessment. Therefore in the matter of appeal
against the assessments impugned, the petitioners will not be
met with any prejudices. As in the case of all other similarly
situated assessees the appeals if any filed against the
impugned assessments will be considered by the Statutory
Appellate Authority, who has got equal power to evaluate
assessments and to finalise the same as that of the assessing
authority. Hence I am of the opinion that the matter need
W.P.(C).Nos.22667 & 24991/09 12
only be relegated for consideration of the Appellate Authority
in the normal course of statutory appeal.
7. Under the above mentioned circumstances I am of
the considered opinion that the impugned assessments are
not liable to be quashed exercising powers under Article 226
of the Constitution of India. At the same time the petitioners
shall be afforded with adequate opportunity to file statutory
appeals. Considering the fact that the assessments were
pending under challenge in these writ petitions, I am of the
opinion that the petitioners shall be given opportunity to file
appeals, if such appeals are not already filed. Hence the
petitioners are given liberty to file appeals against Ext.P12 &
P13 orders in WP(C).No.22667/09 and Ext.P8 order in WP
(C).No.24991/09, within a period of one month from today. If
statutory appeals are filed within the period as stipulated
above, the Appellate Authority shall treat such appeals as
one filed within time and shall dispose of the same on merits,
untrammeled by any material regarding approval of
assessment and also untrammeled by any of the observations
contained in this judgment. The petitioners are also at
W.P.(C).Nos.22667 & 24991/09 13
liberty to seek appropriate interim reliefs from the Appellate
Authority pending disposal of the appeals. However interim
orders granted by this court will continue for a period of two
months from today.
The writ petitions are disposed of with the above
observations.
C.K.ABDUL REHIM, JUDGE.
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