JUDGMENT
T.L. Viswanatha Iyer, J.
1. This petition by Hindustan Petroleum Corporation is to quash the order exhibit P5 of the Deputy Commissioner of Agricultural Income-tax and Sales Tax by which he disposed of an application filed by the petitioner for stay of recovery of the penalty imposed under Section 45A of the Kerala General Sales Tax Act, 1963 (the Act). The order imposing penalty is exhibit P1 and the consequent demand is exhibit P1(a). The passing of the order exhibit P1 was preceded by a notice exhibit P2 in which certain allegations were made against the petitioner. The gravamen of the allegations was that despatches of petroleum products by the petitioner to the two purchasers in Mahe, namely, Mahe Beach Trading Co. and Surya Service Station, Palloor, were actually diverted to stations in Kerala without being delivered at destination.
2. In support of this notice, it was mentioned, inter alia, that the form 1-A vehicle check register maintained at the check-post Azhiyoor Chungam for the period March 1, 1991 to November 30, 1991, did not contain entries relating to these transports. Secondly it was stated that no seal of the sales tax check-post had been affixed on the acknowledgement copy of the invoices kept by the petitioner to confirm whether the goods in question had passed through the check-post. Thirdly it was mentioned that some of the seals appearing in the acknowledged copies of invoices were not real seals of the check-post, but were in fact forgeries as reported by the Assistant Director (Documents), Forensic Science Laboratory, Thiruvananthapuram. Reference was also made to certain interceptions at Thalasserry and other places of tanker lorries despatched to Mahe which according to the authorities concerned were being clandestinely diverted.
3. Petitioner was called upon to make their objections if any, to the proposal contained in the notice. Petitioner thereupon made a detailed statement of objections, a copy of which is exhibit P3, in which they refuted each and every one of the charges levelled against them. Inter alia, it was mentioned that the petitioner was a wholly owned Government of India undertaking, that the despatches were all made properly under the supervision and control of the petitioner, that they were not responsible for any omission on the part of the check-post authorities to affix their seal on the invoices, or for the absence of entries in the vehicles check register at the check-post or for the alleged false seals appearing in some of the invoices. They also disputed the validity of the interceptions of the lorries with the further statement that some of them did not pertain to their despatches. I am not entering into greater detail of the averments made in the objections as the matter is now pending with the Deputy Commissioner in an application filed under Section 45A(3) of the Act and that authority will have to deal with the matter in all its aspects. It will not be proper for this Court at this stage to make any observations regarding the merits of the controversy.
4. Overruling the objections contained in exhibit P3, the first respondent levied a penalty of rupees thirty lakhs under Section 45A(1)(b) for not maintaining true and correct accounts. This order was challenged before the second respondent, Deputy Commissioner, by filing an application under Section 45A(3) of the Act, a true copy of the said application being exhibit P4. The application sets forth in detail the petitioner’s case relating to the imposition of penalty. Petitioner also moved an application for stay which was disposed of by the proceedings, exhibit P5, of the Deputy Commissioner with a direction that the petitioner should pay 50 per cent of the penalty imposed, and furnish adequate security for the balance, on or before February 20, 1993.
5. Exhibit P5 is challenged in this original petition. Exhibit P5 purports to contain a prima facie examination of the contentions raised by the petitioner in the objections, exhibit P3 and the application under Section 45A(3), namely, exhibit P4. But counsel for the petitioner challenges it on the ground that various relevant aspects which arise for consideration have not been kept in mind in passing the order, exhibit P5 and therefore the said order does not satisfy the requirements of a valid order as laid down by a Division Bench of this Court in Alok Spices v. Deputy Commissioner [1988] 71 STC 347 ; (1988) 2 KLT 182. In that case, this Court referred to, and upheld, the earlier decisions in Purushothaman v. Agricultural Income-tax Officer [1984] 149 ITR 120 (Ker) ; 1983 KLT 607 and Rajan Nair v. Income-tax Officer [1987] 165 ITR 650 (Ker) ; (1987) 1 KLT 475 besides following the decision in Yusuf Jan Sahib v. Additional Income-tax Officer [1961] 42 ITR 637 (Ker) ; 1960 KLJ 373. After referring to these decisions, this Court observed that the authority dealing with an application for stay of this nature must bear in mind the principles laid down in the aforesaid decisions while passing the order. Any failure to keep those guidelines in mind while exercising the discretion will amount to non-exercise of the discretion in the eye of law liable to be interfered with under Article 226 of the Constitution of India. This Court said that to decide as to whether the appellant has made out a prima facie case, as against a frivolous one, the appellate or the revisional authority should look into the questions that are involved in the appeal or revision. This should not be done in a mechanical manner, but objectively and with reference to the facts and circumstances of the case.
6. In the two decisions of Purushothaman [1984] 149 ITR 120 (Ker) ; 1983 KLT 607 and Rajan Nair [1987] 165 ITR 650 (Ker) ; (1987) 1 KLT 475 which this Court upheld, the principles governing the matter of grant of stay have been elaborately dealt with. In Rajan Nair [1987] 165 ITR 650 (Ker) ; (1987) 1 KLT 475 which was approved by the Division Bench in Alok Spices [1988] 71 STC 347 (Ker) ; (1988) 2 KLT 182, I had occasion to consider the principles that should be kept in mind while dealing with applications for stay arising under the Income-tax Act, 1961. After referring to the facts, I observed that the authority concerned should apply his mind to the relevant facts and circumstances like the assessment history of the assessee, his conduct and co-operation in relation to the department, points raised in the appeal, chances of recovery in case the appeal is dismissed, the hardship to the assessee by insistence on immediate payment and the like. I stated further that the authority should act in a reasonable manner to subserve the purpose of the power of granting stay. In the earlier decision in Purushothaman [1984] 149 ITR 120 (Ker) ; 1983 KLT 607, Paripoornan, J., had observed that the exercise of the power to stay collection of the demand should be so exercised that it will not render the final order that is likely to be passed in the appeal ineffective or illusory. The authority should exercise the power bona fide and reasonably with a view to subserve the purpose for which it is conferred. In that view of the matter, the learned Judge quashed the order which is quoted in paragraph 3 of the judgment.
7. The question is whether exhibit P5 is liable to be interfered with by this Court, in the exercise of its jurisdiction under Article 226 of the Constitution. In this connection, I must mention here that this Court will not normally exercise its discretion to interfere with an interlocutory order unless the order is one passed perversely, or is one passed without adverting to relevant facts and circumstances of the case, or one which is based on irrelevant circumstances. Exhibit P5 is liable to be tested on these factors.
8. It will be seen from a perusal of exhibits P3 and P4 that serious objections have been raised by the petitioner against the proposal to levy penalty as also against the imposition of penalty. These are matters which require thorough investigation. Very serious allegations have been made against the petitioner virtually of colluding with the dealers to divert the petroleum products to outlets in Kerala, without discharging them in Mahe. Petitioners have refuted these charges with detailed averments. These and other matters which are referred to in the statement of objections and in the application under Section 45A require serious consideration. They cannot be simply brushed aside on a prima facie examination. When such serious questions are involved, it will only be proper that the assessee is given the benefit of stay instead of being visited with payment of a substantial amount pending the revision petition. It must also be remembered that what is in issue is imposition of penalty, and not tax, It is well-established by decisions of this Court that penalty need not be imposed to the maximum limit permitted by law. These are all matters which come into the reckoning for serious consideration at the final hearing of the application under Section 45A(3). The assessee is a wholly owned undertaking of the Government of India and that is also a factor which should have been taken into account in dealing with the application for stay.
9. There is no case for the respondents that the assessee was not co-operating or that the recovery of the amount imposed under exhibit P3 will be difficult if the recovery is stayed pending the application exhibit P4. These are also factors which should have been taken note of by the second respondent while disposing of the application, exhibit P4. However, all these have not been borne in mind while passing the order, exhibit P5.
10. I am therefore of the view that exhibit P5 has been passed without adverting to relevant facts and circumstances of the case. I am therefore inclined to interfere with the order exhibit P5. However, an expeditious disposal of exhibit P4 is called for.
11. Ordinarily the quashing of exhibit P5 will entail a direction to the second respondent to reconsider the application for stay. However, I feel that the interests of justice in this case will be subserved with a direction to dispose of the application exhibit P4 itself with all expedition.
Accordingly I allow the original petition and quash exhibit P5. I also direct the second respondent, Deputy Commissioner, to deal with and dispose of the application evidenced by exhibit P4 with all expedition, and at any rate within a period of two months from the date of receipt of a copy of this judgment. Pending disposal of the said application, exhibit P4, recovery of the amount demanded as per exhibit P1 will be kept in abeyance.