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.
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S.T. A. No. 11 OF 2008 &
W.P.C. No. 26807 OF 2008
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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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