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P. Aboobacker vs The Commissioner on 25 March, 2009

Kerala High Court
P. Aboobacker vs The Commissioner on 25 March, 2009
       

  

  

 
 
  IN THE HIGH COURT OF KERALA AT ERNAKULAM

ST.Appl..No. 11 of 2008()


1. P. ABOOBACKER,
                      ...  Petitioner

                        Vs



1. THE COMMISSIONER,
                       ...       Respondent

                For Petitioner  :SRI.SHAJI P.CHALY

                For Respondent  : No Appearance

The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice K.SURENDRA MOHAN

 Dated :25/03/2009

 O R D E R
                   C .N. RAMACHANDRAN NAIR &
                      K. SURENDRA MOHAN, JJ.
                  --------------------------------------------
                        S.T. A. No. 11 OF 2008 &
                      W.P.C. No. 26807 OF 2008
                  --------------------------------------------
                 Dated this the 25th day of March, 2009

                               JUDGMENT

Ramachandran Nair,J.

The connected Sales Tax Appeal and Writ Petition arise from the

common orders of the Commissioner of Commercial Taxes dismissing

the second revision filed by the appellant/petitioner against penalty

order and revising a remand order issued by the Deputy Commissioner

in first revision against the very same penalty order. We have heard

Sri. S.P. Chaly appearing for the appellant/petitioner and Government

Pleader for the respondents.

2. The main grievance of the assessee is that the Commissioner

had no jurisdiction to interfere with a remand order issued by the

Deputy Commissioner in exercise of revisional power under Section

45A(3) of the KGST Act. According to him the Commissioner is

entitled to interfere with only “orders prejudicial to the interests of the

revenue” as referred to in Section 37 of the Act and an order of remand

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in first revision by the Deputy Commissioner is not an order prejudicial

to the interests of the revenue. Counsel also relied on the decision of

this Court in BISMILLAH TRADING CO. V. INTELLIGENCE

OFFICER, AIT & ST, (2000) 2 KLT 73 and the decision of the

Supreme Court in M/S. MALABAR INDUSTRIAL CO. LTD. V.

C.I.T., KERALA STATE, JT 2000 (2) SC 15. Government Pleader on

the other hand relied on the Full Bench decision of this Court in ST

Rev. 133 of 2006 whereunder this Court has explained the scope of

“orders prejudicial to the interests of the revenue”. The facts that led to

the penalty on the assessee in this case are the following.

3. A truck transporting a load of rubber from Kerala to Tamil

Nadu without sales tax records was seized alleging attempt to

smuggling of goods under Section 30C of the Act. The driver of the

truck gave a statement that the rubber so transported belonged to the

assessee herein and that he had occasion to transport five loads of tread

rubber for the very same assessee in the very same truck outside

Kerala, and that one such truck load was seized by the Karnataka Sales

Tax Authorities and they imposed fine of above Rs. 19,000/-. Based on

the information furnished by the driver, the Deputy Commissioner

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authorised a search in the premises of the assessee which led to

recovery of business slips, note books, bill books, etc. On analysing

the entries in these records, the Intelligence Officer of sales tax noticed

that the driver’s statement pertaining to purchase and transport of

rubber by the assessee outside Kerala was corroborated and

established. Based on the records obtained on search, penalty was

proposed on the assessee. The assessee’s case is that even though the

assessee was heard both in the smuggling case booked at the time of

seizure of the truck and in the penalty proceedings, he was not given an

opportunity to cross-examine the driver. Counsel highlighted before us

the violation of natural justice inasmuch as the assessee was not given

an opportunity to cross-examine the driver. He has also relied on the

decision of this Court in JOSE V. ADDL. SALES TAX OFFICER,

(1993) 1 KLT 401 and contended that denial of opportunity to cross-

examine affects the validity of the proceedings. Government Pleader

on the other hand contended that the assessee has not been prejudiced

in this case because the penalty is levied not based on the driver’s

statement, but based on the records pertaining to unaccounted business

transactions seized from the assessee’s business premises.

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4. We are in complete agreement with the argument of

Government Pleader because the driver’s statement constituted an

information which triggered a search in the assessee’s business

premises leading to recovery of business slips, two bill books and note

book containing details of quantity of rubber purchased and sold and

the release thereof. Search was conducted in the presence of the

assessee and he has signed the shop inspection report. Since the search

and recovery of records from the business premises of the assessee are

not questioned it was for the assessee to explain the nature of business

transactions entered in the search records which admittedly the assessee

did not explain as anything unrelated to the business carried by him.

In the first place we do not find any violation of natural justice

affecting the assessee because so long as the department has not relied

on the driver’s statement for the purpose of levy of penalty, denial of

opportunity to cross-examine the driver does not affect the validity of

the proceedings. The only remaining question to be considered is

whether the Commissioner was justified in interfering with the orders

of the first revisional authority.

5. Section 37(1) authorises Commissioner to interfere with

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orders passed by the lower authorities which, in his opinion, are

prejudicial to the revenue. This is a case where the order interfered

with is the first revisional order issued by the Deputy Commissioner

under Section 45A(3) of the Act on revisions filed against penalty

orders. We have already found that penalty orders are based on

evidence collected from the business premises of the assessee and the

lack of opportunity to cross-examine the driver of the vehicle who gave

statement about the involvement of the assessee did not affect the

validity of the proceedings. In fact the Deputy Commissioner accepted

the argument of the assessee about violation of natural justice and

consequently set aside the penalty orders with direction to redo the

same. We are unable to accept the contention of counsel for the

assessee that the order issued by the Deputy Commissioner remanding

the case is not an order prejudicial to the revenue. In fact an open

remand by itself is prejudicial to the revenue because the assessing

officer is free to restore the original order. We are of the view that it is

open to the Commissioner to examine whether the first part of the order

setting aside the penalty order is prejudicial to the interests of the

revenue and if it is so, he is free to interfere with such order, if the

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grounds on which the order is set aside by the first revisional authority

are not tenable. In fact a penalty order serves the interests of the

revenue because so long as it is not interfered with penalty levied will

be recoverable as revenue due to the State. Once this order is set aside

the demand raised by the State goes and therefore such an order is

prejudicial to the interests of the revenue. It is immaterial whether the

subsequent order is a remand to reconsider the matter or not. So much

so an order remanding the matter after setting aside the penalty order is

an order prejudicial to the interests of the revenue and if such an order

is not based on tenable reasons, the higher authority namely the

Commissioner is entitled to interfere with such order. In this case we

have already found that the alleged violation of natural justice has not

caused prejudice to the assessee which is the view taken by the

Commissioner as well, in his order issued under Section 37 of the Act.

We therefore uphold the order issued by the Commissioner rejecting

the revision filed by the assessee and restoring the penalty order under

Section 37 after setting aside the order of the first revisional authority.

6. Counsel for the assessee contended that the Commissioner

has not considered the assessee’s request for reduction of penalty. We

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find some force in this contention because for both the years, maximum

penalty is imposed and there is nothing to indicate that assessee was

involved in any offences previously. Besides this it is seen that at least

in respect of one truck load of rubber transported outside Kerala, the

assessee had to pay penalty in the State of Kernataka. Taking all these

into account, we reduce the penalty to equal amount of tax for both the

years. In other words, the penalty will stand reduced by half.

However, reduction is granted by us on further condition that assessee

will make payment within one month from today.

Both STA and WP are disposed of as above.

(C.N.RAMACHANDRAN NAIR)
Judge.

(K. SURENDRA MOHAN)
Judge.

kk

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