IN THE HIGH COURT OF KERALA AT ERNAKULAM
ST.Rev..No. 136 of 2005()
1. M/S. YESES INTERNATIONAL BHARATH
... Petitioner
Vs
1. STATE OF KERALA.
... Respondent
For Petitioner :SRI.N.MURALEEDHARAN NAIR
For Respondent : No Appearance
The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice A.K.BASHEER
Dated :23/09/2008
O R D E R
H.L. DATTU, C.J. & A.K. BASHEER, J.
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S.T.Rev. Nos.136 and 150 of 2005
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Dated this, the 23rd day of September, 2008
ORDER
H.L. DATTU, C.J.
Both these revision petitions pertain to the assessment year
1996-97.
2. S.T.Rev. No.136/2005 is filed questioning the correctness
or otherwise of the order passed by the Sales Tax Appellate Tribunal in
T.A. No.694 of 2001 dated 16.7.2004 under the provisions of the Central
Sales Tax Act and S.T.Rev. No.150 of 2005 is filed questioning the orders
passed by the Appellate Tribunal in T.A.No.693 of 2001 dated 16.7.2004
under the provisions of the Kerala General Sales Tax Act, 1963.
3. Petitioner is a registered dealer under the provisions of the
Kerala General Sales Tax Act, 1963 (the KGST Act, for short) and Central
Sales Tax Act, 1965 (the CST Act, for short). The petitioner is a dealer in
superior kerosene oil having branch offices at Ernakulam and Pondicherry.
Petitioner is borne on the files of the Assistant Commissioner
(Assessment), Special Circle-III, Ernakulam. Petitioner used to import
superior kerosene oil from abroad under the import licence granted by
Government of India. The import is done through Madras and Kochi
Ports. During the assessment year 1996-97, petitioner imported
S.T.RevNos.136 & 150 of 2005 – 2 –
5616.454 KLs of Kerosene through Kochi port and out of which
1595.001 KLs were sold locally and 4728 KLs were transported to
Pondicherry by way of branch transfer is the claim of the petitioner.
4. The Intelligence Officer of the Intelligence Wing of the
Department had inspected the business premises of the petitioner on
5.7.1996 and 8.10.1996 and had noticed certain discrepancies in the books
of account maintained by the dealer and pointing out those omissions and
commissions had prepared shop inspection reports, SIR
No.190472/5.7.1996 and SIR No.33051/8.10.1996 and the same had been
served on the assessee.
5. Petitioner had filed its annual returns both under KGST
Act and CST Act for the assessment year 1996-97. In the returns filed for
the purpose of KGST assessments, the assessee had declared the total and
taxable turnover of Rs.474,85.047 and Rs.129,16,407 respectively. In the
returns filed for the purpose of CST assessment, the assessee had claimed
inter-State stock transfer of 4728.000 KLs of superior kerosene oil for
Rs.345,68,640/-. The returns filed both under KGST Act and the CST Act
came to be rejected by the assessing authority, in view of the orders passed
by the Intelligence Officer under Section 45A of the KGST Act, pursuant
S.T.RevNos.136 & 150 of 2005 – 3 –
to shop inspection reports dated 5.7.1996 and 8.10.1996 respectively.
6. The assessing authority after rejecting the books of
accounts and the annual returns filed by the assessee and literally
incorporating the findings and conclusions reached by the Intelligence
Officer while passing the order under Section 45A of KGST Act for the
purpose of imposing penalty for the offence said to have been committed
under that provision, had issued proposition notice, proposing to reject the
returns and complete the assessments by resorting to best judgment
assessment. Though the notice came to be served on the assessee, for the
reasons best known to it, did not choose to file any objections to the
proposal made in the pre-assessment notice.
7. The assessing authority has completed the best judgment
assessment both under KGST and CST Acts by merely incorporating the
findings and conclusions reached by the Intelligence Officer while passing
the order levying penalty under Section 45A of the KGST Act. The order
of best judgment assessment passed by the assessing authority is extracted
in order to appreciate the stand of the assessee’s learned counsel
Sri.V.K.Shamsudheen. The same is as under:-
“I have independently verified the records and
found that the defects noticed are still exists.
S.T.RevNos.136 & 150 of 2005 – 4 –
Departmental delivery notes recovered by the
intelligence wing not produced for my verification.
The total turnover as per monthly returns conceded as
Rs.47659047/- whereas as per accounts it is conceded
as Rs.474,85,047. The difference comes to
Rs.1,74,000/- This is not explained.
In view of the above observations, it is proposed
to reject the return and accounts and finalise the
assessment for 1996-97 to the best of judgment.”.
8. This is in so far as KGST assessment is concerned.
9. The CST assessment completed by the assessing authority
is in no way better than KGST Act. It is still worse. In the best judgment
assessment order passed, the assessing authority once again merely
incorporates the reasoning of the intelligence officer for levying penalty
under Section 45A of KGST Act and then proceeds to observe:
“The above said proposals were duly
communicated to the assessee as per this officer
pre-assesssment notice dated 20.10.2000 and invited
objections if any. The assessee has received the notice
on 9.11.2000, but not utilised the opportunity afforded
till date. The assessee has neither responded nor filed
objections. Therefore, it is presumed that the assessee
has no objection against the proposal. In the
S.T.RevNos.136 & 150 of 2005 – 5 –
circumstances the proposal are confirmed and the
assessment order under CST for 1996-97 stands
completed as already proposed.”
10. By the aforesaid best judgment assessment orders, the
assessing authority had made huge additions to the conceded taxable
turnover and also has denied the claim of branch transfers made by the
assessee and has treated the entire turnover as inter-State sales.
11. In the first appeals filed, the first appellate authority has
not made any improvement in the order passed by the assessing authority.
A perusal of the orders passed would only indicate that he has merely
confirmed the improper order passed by the assessing authority.
12. In the second appeals filed by the assessee before the
Appellate Tribunal in T.A. No.693/2001 and T.A.No.694/2001, the
Tribunal by its common order dated 16.7.2004 has adopted the ‘cut and
paste’ concept and has sustained the orders passed by the authorities under
the Act. The conclusion and the findings of the Tribunal is as follows:
“In view of the above said observations, the
assessing authority rejected the return and accounts and
assessed the differential turnover of Rs.1,74,000/- as per
defect noticed in para 5 under K.G.S.T. and turnover of
Rs.13,90,41,240/- under C.S.T.. In appeal, the
S.T.RevNos.136 & 150 of 2005 – 6 –
assessments were confirmed. It is a fact that the
assessee has not replied to pre-assessment notice even
though the assessee has received the notice on
9.11.2000. The appellant has not maintained books of
accounts for the entire transactions of Cochin Office as
evidenced from the records seized at the time of
inspection and the statement given by the proprietor
when departmental officers visited the office at Madras.
At the time of inspection of branch office at Kochi, the
inspecting officers recovered used and unused invoices
relating to M/s. Fluka Organics, Madras. The above
firm has no business place in Kerala. The appellant has
received the Delivery Notes from the assessing authority
during the year 1996-97, but the appellant has not
furnished the same for verification before the authorities
below or before this Tribunal. The assessing authority
has alleged that the appellants have effected interstate
sales of Kerosene direct from Kerala and as per
accounts the appellant had no interstate sales. The
entire quantity other than sold locally were shown as
stock transfer to Pondicherry. Verification of registers
maintained at Border Check Post at Pondicherry
revealed that no vehicle with kerosene passed through
Check posts to Pondicherry as claimed by the appellant.
Further enquiry made by the Departmental Officers to
the branch office at Pondicherry also revealed that they
S.T.RevNos.136 & 150 of 2005 – 7 –
have no storage facility to keep huge stock of Kerosene.
Further deposition of the driver of the lorry that they
have transported consignment from Kochi Office sold at
Coimbatore and nearby places. This fact is evidenced
from the copy of the rent receipts paid by the appellant
for the transport of Kerosene from Kochi to Coimbatore.
The above findings of the assessing authority is not
rebutted by the appellant. The appellant has not
produced the transporting copy of the delivery note
which is under the custody of the appellant and the stock
transfer to Pondicherry could be established by the
transporting copy of the Departmental Delivery Note.
The records seized at the time of inspection evidences
that the appellant has effected unaccounted
transactions under the guise of stock transfer.
Considering the quantum of suppression detected by the
Intelligence Wing which comes to Rs.3,45,68,640/- we
are of the view that the addition made by the assessing
authority and sustained by the first appellate authority
and levy of tax on the above amount under C.S.T. is fair
and reasonable and therefore we confirm the decision of
the authorities below in this case. Since the difference
in the total turnover as per monthly return and total
turnover conceded as per accounts amounts to
Rs.1,74,000/- has not been properly explained by the
appellant, the levy of tax on Rs.1,74,000/- under KGST
S.T.RevNos.136 & 150 of 2005 – 8 –
Act is also confirmed”.
13. The assessee, being aggrieved by the orders passed by
the Sales Tax Appellate Tribunal has presented these revision petitions
under Section 41 of the KGST Act and in that has framed the following
questions of law for our consideration and decision. They are:-
1. Whether on the facts and in the circumstances
of the case, the Appellate Tribunal was correct in law in
confirming the denial of branch transfer discarding the
fact that the goods reached Pondicherry and the same
were assessed at Pondicherry as evidenced by Annexure
D order? 2. Whether on the facts and in the
circumstances of the case the Appellate Tribunal has
erred in law in confirming the addition made by the
Assessing Authority when the said authority has no case
that the petitioner has made any unaccounted purchase
and no pattern of suppression is also established?
3. Whether on the facts and in the circumstances
of the case the addition sustained by the Appellate
Tribunal is correct and has any nexus to the alleged
irregularities?
14. The learned counsel Sri.Shamsudheen for the assessee
would contend, that, the assessing authority merely relying on the findings
of the Intelligence Officer while passing the order under Section 45A of
S.T.RevNos.136 & 150 of 2005 – 9 –
the KGST Act could not have rejected the annual returns filed by the
assessee. By this, what the learned counsel intends to convey is, an
estimation by best judgment may take into account an element of guess
work, but it is still a ‘judgment’ and hence must have some basis.
14. Sri.Mohammed Rafiq, learned Government Advocate
would tell us, that, since the assessee did not have file any ‘Objections’ to
the proposal made in the pre-assessment notice, the assessing authority had
no other option but to confirm the proposal made and therefore, at this
belated stage, the assessee can neither blame nor take any exception to the
best judgment assessment orders passed. The learned counsel supports his
submission by referring to a case law of this court – Abdul Rasheed vs.
State of Kerala, reported in ILR 1997(1) Page 77.
15. It is well settled that the assessing officer is a quasi
judicial authority. He exercises his quasi judicial functions while
completing the assessment and qualifying the tax liability of an assessee
under the Act.
16. Tax incidence is the ultimate product of assessment. The
word “assessment” is a term of varying import. The word is sometimes
used to mean the computation of the amount of tax and at other times to
S.T.RevNos.136 & 150 of 2005 – 10 –
mean the whole procedure laid down for imposing the liability on tax
payer. The term ‘assessment’ used in the Act comprises the provisions
relating to the subject matter of taxation, rate of tax, basis at which the
quantum of tax is to be arrived at, the exemptions to be given and the
authorities for enforcing tax liability. The procedure for assessment should
comply with the rules of natural justice and if not it would be unreasonable
restriction violating both Articles 14 and 19 of the Constitution of India.
Even in the case of best judgment assessment, the assessee should be
offered an opportunity to explain every material gathered and intended to
be used against him by the authority.
17. Taxing statutes generally authorise imposition of penalty
for delay in filing returns, concealment of tax liability, default in payment
of tax, contravention of mandatory provisions etc. The proceedings for
imposition of penalty are quasi criminal in nature. This power of imposing
penalty is only discretionary and the penalty shall not be ordinarily
imposed unless the person/dealer has acted deliberately in defiance of law
or guilty of conduct contumacious or dishonest or acted in conscious
disregard of his obligation. Even if the statute prescribes a minimum
penalty the authority will not be justified in imposing it, if the breach was
S.T.RevNos.136 & 150 of 2005 – 11 –
technical or venial or was the result of bonafide belief. Section 45A of the
Act provides for imposition of penalties on contumacious or fraudulent
assessees. The various grounds for penalties are fully enumerated there.
The object of the provision is to provide a stimulant to a dealer to observe
the mandate of the provisions of the Act.
18. Tax and penalty like tax and interest are distinct and
different concepts under tax laws. What is good for levying penalty may
not be good for the purpose of passing an order of assessment, re-
assessment or the best judgment assessment. We hasten to add, that, the
assessing authority can certainly make use of the information collected by
the intelligence officer of the department as a piece of evidence while
completing regular or best judgment assessment, but at any rate, that
cannot be the sole basis on which the entire assessment could be made.
The assessing authority has to make independent verification of the
particulars furnished by the dealer in the annual returns filed. In the course
of such enquiry, if for any reason, the assessee does not cooperate with the
assessing authority, he can definitely draw adverse inference against the
assessee. On conclusion of the enquiry, he has to record a definite finding
one way or the other.
S.T.RevNos.136 & 150 of 2005 – 12 –
19. In the instant case, what has been done by the assessing
authority is that after rejecting the annual returns filed by the assessee, has
issued the pre-assessment notice, incorporating verbatim the findings and
the conclusion reached by the intelligence officer of the department while
passing the order imposing the penalty under Section 45A of the Act.
Since there was no response from the assessee to the proposal made, he has
confirmed the proposal made in the pre-assessment notice, while
completing the assessment proceedings for the assessment year in question
both under KGST and CST Acts. The assessment order so passed is only
yet another affirmation or confirmation or endorsement of the penalty
order passed by the intelligence officer, except an addition made towards
the probable suppression during the assessment year in question. This is
not what is expected of the assessing authority, even while completing the
assessment proceedings by resorting to best judgment assessment. The
order of assessment should definitely indicate the application of mind by
the assessing authority even while completing the best judgment
assessment and he is not expected to emboss his “seal of approval” to the
orders made by the intelligence officer of the department, since both these
proceedings are distinct and different. In our considered view, the
S.T.RevNos.136 & 150 of 2005 – 13 –
assessing authority has not independently applied his mind, but has merely
adopted whatever that was done by the intelligence officer of the
department for the purpose of imposing penalty under Section 45A of the
Act. As we have already observed that the assessing officer is a quasi
judicial authority and while exercising his quasi judicial function, he has to
apply his mind independently and while doing so, can also take into
consideration the findings of the intelligence officer of the department and
at any rate, that cannot be the sole basis. In this view of the matter, we
cannot sustain the order passed by the assessing authority. Therefore, we
have no other alternative but to set aside the order passed and remand the
matter to the assessing authority with a direction to pass a fresh order in
accordance with law.
20. In view of the above discussion, we cannot sustain the
impugned orders passed by the authorities under the Act and that of the
Appellate Tribunal. Accordingly, while allowing these Revision Petitions,
we set aside the impugned orders. The matter is remanded to the assessing
authority, with a direction to pass fresh assessment orders for the
assessment year 1996-97 both under KGST and CST Acts, in accordance
with law and in the light of the observations made by us in the course of
S.T.RevNos.136 & 150 of 2005 – 14 –
our order. In the facts and circumstances of the case, parties are directed
to bear their own costs.
Ordered accordingly.
Sd/-
H.L.DATTU,
CHIEF JUSTICE.
Sd/-
A.K. BASHEER,
JUDGE.
DK.
(True copy)