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Judgment
Antony Dominic J.
First petitioner is an association of processors, manufacturers, traders and exporters of cashew nuts and cashew kernels, which is registered under the Travancore Cochin Literary, Scientific and Charitable Societies Registration Act, 1955. The second petitioner is a member of the first petitioner and is also engaged in the business of trade and exporting of cashew nuts. The petitioners have filed this writ petition seeking to quash exhibits P2 and P3 circulars issued by the second respondent fixing the floor rates for various grades of cashew nuts and cashew kernels on the basis that raw cashew nuts and cashew kernels are evasion prone commodities. On this basis, the second respondent has directed that the officials shall ensure that cashew consignments are not valued at lower value than what is shown in the circulars.
According to the petitioners, on the issuance of exhibits F2 and P3, the Cashew Export Promotion Council of India, an organisation sponsored by the Government of India, objected to the floor value fixed by filing exhibit P4 representation. The petitioners themselves have also filed exhibit P5 representation objecting to the fixation of floor rates and it is complained that both these representations have not been considered by the second respondent. It is contended that the second respondent has no power, jurisdiction or authority under the Kerala Value Added Tax Act to issue circulars in the nature of exhibits P2 and P3 and that on the strength of these circulars, consignments are intercepted and detained inspite of having valid and proper documents required under the KVAT Act. It is in these circumstances the writ petition is filed with the aforesaid prayers.
A statement has been filed on behalf of the second respondent and according to the second respondent, there is rampant undervaluation in the cashew business and therefore exhibit P2 circular was issued which was followed by the assessees and the officials till recently. It is stated that subsequently, it was noticed that the prices of various varieties of cashew nuts and cashew kernels have increased significantly and therefore an expert committee was constituted to study the issue and to suggest whether a revision on the floor rate was necessary. It is stated that the committee analysed the market intelligence and the rates of various grades of cashew kernels and based on the recommendations made by the committee, the rates fixed in exhibit P2 circular were revised and that it was accordingly that exhibit P3 circular was issued.
In para 4 of the statement, it is stated thus :
As per section 47(16A) of the Kerala Value Added Tax Act, 2003, the Commissioner of Commercial Taxes is empowered to order collection of advance tax on evasion prone commodities. A floor value is fixed on these evasion prone commodities after conducting market study and is subjected to periodical revision and its constitutional validity has already been upheld by the honourable High Court of Kerala in ([2007] 7 VST 323 (Ker); [2007] 15 KTR 161 Fantacy Sales Corporation v. Sales Tax Inspector). The tax so paid is adjustable against output tax and if not it can be refunded. The rate of local cashew nuts have been reduced to Rs. 65 vide circular No. 28 of 2011, subsequently when it was brought to the notice that market rates were low. The price is so fixed to have uniform pattern throughout the State and to avoid arbitrary fixation of rates by held staff. So there is nothing unconstitutional about it and the price fixed are only floor rates and subjected to periodical revision.
The statement concludes by relying on section 3(2) of the KVAT Act as enabling the second respondent to issue the circulars impugned.
According to the petitioners, exhibits P2 and P3 circulars fixing the floor value for various grades of cashew nuts and cashew kernels are ultra vires the provisions of the Kerala Value Added Tax Act and it is also contended that even if it is held that the circulars are intra vires the Act, the circulars are unconstitutional for violation of article 14 of the Constitution of India.
I shall first examine the legality of the circulars. According to the second respondent, the circular has been issued as empowered u/s 3(2) and section 47(16A) of the Act and these sections, being relevant, are extracted below for reference :
(2) The Commissioner shall have superintendence over all officers and persons employed in the execution of this Act and the Commissioner may,-
(a) call for returns from such officers and persons;
(b) make and issue general rules and prescribe forms for regulating the practice and proceedings of such officers and persons;
(c) issue such orders, instructions and directions to such officers and persons as it may deem fit, for the proper administration of this Act.
(16A) Notwithstanding anything contained in this Act or the Rules made thereunder, the Commissioner may, where he deems it necessary to prevent any evasion of tax, direct that the tax in respect of the sale of any evasion prone commodities, as may specified by him, shall be paid before the date prescribed for its payment under this Act.
Section 3(2)(c), as is evident from the words used by the Legislature, confers supervisory powers on the Commissioner and authorises him to issue orders, instructions and directions, which shall be binding on his subordinates. However, this section does not specifically provide for collection of tax either in advance of sale or otherwise.
The constitutional validity of section 47(16A) of the Act was upheld by this court in Fantacy Sales Corporation v. Sales Tax Inspector [2007] 7 VST 323 (Ker); [2007] 2 KLT 174. This judgment was confirmed by a Division Bench of this court in S. P. L. Limited v. Commercial Tax Inspector [2009] 26 VST 220 (Ker); [2009] 4 KLT S.N. 25. Thus the validity of the section is no longer open to dispute and the petitioners are also not raising such a plea.
The contention raised by the petitioners was that the circulars are ultra vires sections 3(2) and 47(16A) of the Act. In fact, in respect of live chicken and timber, similar circulars were issued by the second respondent and these circulars were challenged before this court as ultra vires the Act. In Beeran Koya C v. Commissioner, Commercial Taxes, Tvm [2009] 4 KHC 4311, repelling the contentions, a learned judge of this court held thus :
The above power coupled with the power u/s 3(2)(c), enables the Commissioner to issue appropriate orders, instructions and directions to the officers and persons as he deems fit, for the proper administration of the Act. This being the position, the fixation of the ''sale price'' by the Commissioner, to have a uniform application, in the course of the proceedings pursued by the officers under him, while calculating the estimated sale price for collecting the advance tax at the check-post/entry point, is very much within the four walls of the law and cannot be assailed under any circumstances, especially when the dealers are provided with an alternative course to have actual assessment at the hands of the ''assessing authority'' and to secure a certificate to cross the border as provided in circular 53 of 2006, validity of which circular has been upheld by this court in Fantacy Sales Corporation v. Sales Tax inspector [2007] 7 VST 323 (Ker); [2007] 2 KLT 174. This is more so, when fixation of the sale price by the Commissioner is after a market study, as stated in paragraph No. 5 of the counter-affidavit and further that the dealers can very well claim the refund, if they sell the commodities for a lesser price and file necessary return. Even otherwise, the dealers need not wait till the sale of the commodities materialises, as the advance tax paid can very well be adjusted/set off against the output tax to be paid along with the filing of the return in respect of the transaction in the very same month. The alleged loss, hardships and apprehension projected to the contrary are quite wrong and unfounded.
This judgment was challenged in W. A. No. 2412 of 2009 and by judgment dated 27th of January, 2010 (KMP Timbers & Saw Mills v. Commercial Tax Inspector [2012] 50 VST 195 (Ker)), the appeal was dismissed by a Division Bench of this court holding thus (page 197 in 50 VST) :
On going through the judgment under appeal, most of the legal questions raised by the appellant about the Commissioner''s jurisdiction stand decided by the learned single judge1 and we do not find any ground to deviate from the said finding. Further, when the validity of the statutory provision is upheld by this court, this necessarily means that advance tax could be collected in respect of goods notified as evasion prone goods by the Commissioner u/s 47(16A) of the Act. If advance tax is to be collected, necessarily value has to be estimated because advance tax is payable before the sale of the commodity. If the Commissioner has left it open to the Departmental Officers to collect advance tax, in respect of a commodity at entry point, the same would have led to dispute and adjudication in regard to value of commodity for the purpose of collection of advance tax. Therefore for the purpose of uniformity and to avoid unnecessary controversy, the Commissioner has fixed the value of various varieties of imported timber for the purpose of collection of advance tax..."
Therefore, vires of section 47(16A) and the powers of the second respondent to issue circulars in the nature of exhibits P2 and P3 have also been upheld by this court by virtue of the aforesaid judgments.
However, it needs to be clarified that the power u/s 47(16A) to fix floor value is to be invoked to prevent evasion of tax and the Commissioner can only direct that in respect of such evasion prone commodities, tax be paid before the time prescribed for its payment. Therefore, section 47(16A) is an overriding provision, which was added by the Kerala Finance Act, 2006 with effect from April 1, 2005 empowering Commissioner to direct payment of advance tax in respect of evasion prone commodities. Further, the floor value can also be relied on as a guideline to deal with cases of under-valuation and to initiate proceedings against erring dealers on that basis. On the other hand, if there is any substance in the complaint of the petitioners that on the strength of the circulars, consignments of cashew are being detained for purposes other than collection of advance tax or proceedings in cases of under-valuation, such action of the respondents will certainly be ultra vires and illegal.
The petitioners have a further case that circular No. 50 of 2006 was issued by the second respondent in exercise of his powers u/s 47(16A), for collection of advance tax on various commodities and that in respect of those commodities, floor price was not fixed. Therefore, according to them, fixing of floor price only for cashew nuts and cashew kernels is discriminatory. I am unable to accept this contention. First of all, this court has already upheld the power of the second respondent to fix floor value for evasion prone commodities. Therefore, the fact that in respect of a particular commodity or group of commodities, floor value has not been fixed, is no ground to hold that the floor value fixed in respect of another commodity is unconstitutional. That apart, each commodity stand apart as a separate class and unless it is established that all the commodities form one class, the petitioners cannot sustain this argument. Further, there are other commodities, such as live chicken, timber, etc., which are also identified as evasion prone items, in respect of which also floor value has been fixed.
It was then contended that no other State has fixed the floor value for cashew nuts or cashew kernels and therefore the fixation of floor value in Kerala State alone is discriminatory. It is trite that the validity of the law in a State cannot be tested by comparison with the law prevailing in another State. Therefore, the fact that the floor value for cashew nuts and cashew kernels have not been fixed in other States is no reason to attract the provisions of article 14 of the Constitution of India.
It was then contended that floor value fixed is unrealistic and that even a Government of India sponsored organization such as the Cashew Export Promotion Council of India had complained about the floor value fixed by filing exhibit P4 to the second respondent. From the contents of exhibit P3 and the statement filed before this court, it is seen that the revision of floor value was on the basis of a study conducted by the committee of experts and this court lacks any expertise to sit in judgment over the conclusions of these experts. It is true that the petitioners have produced as exhibits P6 and P7 invoices issued by the Kerala Cashew Development Corporation Ltd., a Kerala Government undertaking. Referring to the price indicated in exhibits P6 and P7, counsel contended that the floor value fixed in exhibit P3 is exorbitant. First of all, there is no material to conclude that the quality of the cashew mentioned in exhibits P6 and P7 is comparable with any one of the grades of the cashew mentioned in exhibit P3 and therefore in my view, exhibits P6 and P7 cannot be pressed into service. Further there is no material before this court to hold that the floor value fixed is illegal for any reason. In such circumstance, if there are any circumstance calling for a review of the floor value fixed, it is up to the petitioners to pursue the matter before the second respondent and the second respondent shall take appropriate action in the matter. In the circumstances, the writ petition is disposed of holding that :
(1) The case of the petitioners that exhibits P2 and P3 circulars are ultra vires the KVAT Act.
(2) I clarify that the circulars can be relied on only for the purpose of levy of advance tax as contemplated u/s 47(16A) of the KVAT Act and in cases where undervaluation is detected, adopting floor value fixed as a guideline, proceedings under the KVAT Act can be initiated.